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When it comes to the challenges of mitigating FinCrime threats – money laundering, terror financing, entanglement with sanctioned persons – the strategy of outsourced FinCrime compliance is failing. This failure is plain to see in the results of Celent’s recent study of bank compliance programs, Technology Transformation in Financial Crime Compliance: Improving workforce efficiency to manage risk and add value.
While 77% of study participants sought to bolster their FinCrime mitigation efforts via outsourcing, a full 66% of organizations have only been able to improve their workload capacity by a mere 5 to 25%. That is simply unacceptable progress against an ever evolving and highly sophisticated universe of FinCrime threat actors.
“Ironically, throwing bodies at the problem is the least effective approach, with 75% of organizations getting 25% or lower uplift.” – Celent
Banks are feeling the pain from these ineffective compliance outsourcing efforts. They continue to face fines, penalties and reputational damage as their compliance programs struggle to maintain the status quo or even fall behind. This has a cascading effect on bank revenue: unable to rapidly differentiate between real and perceived threats, AML/CDD/KYC compliance teams hold back a bank’s ability to onboard customers fast enough to meet demand. In the end, customers are unwilling to wait around to be onboarded and bring their business to banks that have solved the compliance speed challenge.
Against this backdrop, we are seeing a surge in banks making the switch to AI-driven compliance strategies and, of course, leveraging WorkFusion’s AI Digital Workers in the process. Direct testimony from three bank compliance leaders who have transformed their FinCrime compliance programs with AI Digital Workers reveals four major reasons why the best compliance programs are switching from an outsourcing strategy to an AI strategy.
Reason #1: More effective risk management and mitigation
The quality level in the output of compliance analysts’ work has major implications for risk management and mitigation. When analysts feel compelled to rush through reviews of FinCrime alerts – whether they be AML, KYC, sanctions, or any other FinCrime alerts – the quality of their work suffers.
One OFAC officer at a midsize US bank had to rapidly adopt AI due to low levels of output quality in their sanctions alerts review. In fact, the bank had recently faced potential scrutiny from regulators because their offshore, outsourced compliance staff were doing shoddy work and allowing payments to transmit to sanctioned individuals in Russia. “It created red flags and heightened concern about regulatory actions against the bank,” the OFAC officer explained.
By moving to AI technology, the bank’s compliance programs are now more focused on true risk management and mitigation. “The AI handles all the redundant, manual work like identifying and dispositioning false positives while our human analysts now focus on those specific clients and transactions that introduce more risk.”
Reason #2: Cost efficiency
Stated frankly, outsourcing is proving far more costly than most compliance leaders had anticipated. According to the Celent study, while people originally had visions of outsourcing to far less expensive overseas locations, the market did not play out that way. Three-quarters of banks that outsource their compliance staffing are using domestic outsourcing. According to the Celent report, “77% seek to resolve staffing challenges through outsourcing. Most of these focus on domestic outsourcing, which comes at a higher cost relative to offshoring.”
Considering that a single AI Digital Worker can manage the workload of an entire team of outsourced L1 compliance analysts, most WorkFusion bank customers reach full ROI within the first six months of operations with their AI Digital Worker.
Offshoring is also proving more expensive than first anticipated. Two of the banks were attempting to outsource to the Philippines and found that competition was fiercer than expected. One told WorkFusion, “Our cost projections were thrown way out of whack because bigger banks are paying people there [the Philippines] more than double what we had planned for.”
Competition and higher pricing will only worsen as world events and new threat vectors lead to increases in sanctions volume and the FinCrime attack surfaces at all banks globally.
Reason #3: Better process and knowledge transfer
Many banks have standard processes which they follow in their FinCrime compliance operations. Yet, when attempting to transfer those processes to an offshore team with no history at the bank, compliance program leaders run into knowledge and process transfer roadblocks. “It turns out that our processes are not as strict and comprehensive as they once seemed,” said one AML Compliance Director.
The Director went on to say that her team quickly realized there was no practical way to have offshore workers complete processes that were not one hundred percent explainable. Exception handling, rapid escalations and ad hoc workarounds were too difficult to make programmatic.
“A lot of work goes into preparing to outsource compliance – with lots of repetition and ongoing training,” explained the Director. For the bank, the urgency to switch to AI came suddenly once her team viewed a demonstration of the technology in use. “They [AI Digital Workers] are already trained to catch what we need to be caught. Then, they learn to evolve with the new threats. We figured, ‘Let’s just implement AI once and be done.’”
Reason #4: Obtaining resources when needed
Since 2022, banks have faced a confluence of factors that lead to shortfalls in compliance programs’ ability to meet workload demand. When Russia invaded Ukraine, compliance teams were caught off-guard by the near-instantaneous explosion in the number of sanctioned persons. “Not only did we have a hiring freeze on at the time, but we also then needed to double our compliance staff if we were to keep pace with all the sanctions alerts,” stated one current WorkFusion customer – a sanctions watchlist manager at a large bank.
When significant global events occur, outsourcers face a surge in demand. Beyond making their prices skyrocket, they are also forced to recruit less-qualified people to perform the work on behalf of banks. So, the quality of work declines and bank customers fail to gain the confidence they need to face auditors and regulators when the time comes to report results.
By contrast, when leveraging an AI Digital Worker to handle sanctions alerts, volumes simply do not matter. An AI Digital Worker can scale up and down on demand. As a result, those banks that were early adopters of AI Digital Workers did not need to scramble for resources and pay outlandish prices for L1 sanctions compliance analysts at the outset of the Russia-Ukraine conflict. “We simply contacted our WorkFusion account manager and had them turn up the volume lever,” said the watchlist manager.
Today, FinCrime compliance program leaders that have made the switch to AI are happy to leave behind the unpredictable world of outsourced compliance and gain the in-house, fully controlled way to manage the fast-changing compliance and threat mitigation landscape. To learn how they are doing it with AI, click here to request a demo today.