Balancing act: Enhancing operational effectiveness while managing financial crime risks

With economic headwinds set to persist into 2025, financial crime departments remain under pressure to reduce their cost-to-serve model.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Process optimisation can achieve this by freeing up resources for essential activities and reducing low-value-added tasks. 

While the concept of doing more with less is not new, mastering it is difficult. There are five key actions Financial Services organisations can take to ensure alterations to their onboarding and ongoing monitoring activities deliver effectiveness whilst remaining risk proportionate and in line with regulatory expectations.

1. Identify Value

Document what success looks like for the organisation and the customer. Consider if redesigning any processes will improve the service to the customer and align with regulatory expectations. Reengineering any process should not negatively impact the culture of the firm, its values, or its service model.

2. Challenge Path Dependence 

Regulation, industry best practices and technological advancements are ever-evolving. If change is the only constant, then companies should regularly question and reassess their operations, as more efficient and risk-effective alternatives may exist. However, before streamlining operations and adjusting policies, it is crucial to understand the reasoning behind the current requirements, alongside the aims and goals for initiating change. Proposed changes should be discussed with the owner/architect of the existing processes to ascertain if the change would have unforeseen consequences.

3. Design Optimally

To design an efficient process, Financial Services firms should start by documenting the desired outputs and then work backwards to identify the steps necessary to achieve those outputs. Focus on efficiency by prioritising quality over quantity before scaling. Utilising clear and defined Quality Assurance frameworks can help establish consistent monitoring and auditing of risks. Running pilots and testing can identify unforeseen risks before a new process goes live. Standardisation is key to making large operations efficient, but should not be implemented at the expense of holistic risk management. Financial crime risk is complex, so avoiding a tick-box approach is essential.

4. Eliminate Waste

Map out the existing process and then remove selected steps to determine whether the process continues to flow if it does, consider if the eliminated steps are necessary. Reviewing an operation holistically can help determine if systems or teams are performing overlapping tasks. Effective data sharing and centralising of functions can minimise duplication across departments, jurisdictions and business lines. Nevertheless, always consider potential downstream impact when eliminating steps. For example, adjusting a process such as transaction monitoring may have an unexpected impact on customer due diligence, or vice versa. Conducting an impact analysis with a broader stakeholder group will help mitigate the risk of unintended consequences.

5. Evaluate Technology

Not all technology is created equal, which is fortunate because no two organisations are the same. When selecting technology ensure that it is proportionate to the size and activity of your organisation. Sophisticated technology such as generative AI may offer enhanced detection and risk management, but if your business operates a lower-risk customer book with small volumes of domestic transactions, then the price may not justify the return. A vendor solution should meet the organisation’s problem statement of today and of its medium-term future. A firm’s customer and business requirements should be documented first and used as guiding principles for technology selection. 

Key Takeaway

Proposed changes to onboarding or ongoing monitoring activities should always be considered in the context of the wider organisation. The individual or team proposing the changes may not always be best placed to identify the risks or understand commercial sensitivities. It is important to ensure a broad range of impacted stakeholders are consulted at the outset to identify unforeseen risks and provide relevant insight. 

For further insights into operational excellence and effective financial crime risk management, contact FTI Consulting LLP.