It’s been only five years since the global financial crisis of 2008. At the time it seemed like the domino effect of bank failures, the liquidity crisis and the ensuing global recession was enough to bring down even the strongest of financial infrastructures. But as governments around the world took the necessary steps to slow and eventually stop the crisis, banks, regulators and economists were given the opportunity to analyze exactly what went wrong.
So what did we all really learn from the crisis? First and foremost, it was made painfully obvious very early on that information, especially accurate information, was the key to making decisions that would prevent massive losses and provide an early warning to regulators. Second, although policies, procedures and regulations help to fortify the foundation of our financial services industry, they only really prescribe how to avoid a crisis; they don’t actually remedy or prevent a crisis from happening again. Lastly, it’s widely agreed that changes were needed in how financial institutions operated in order to avoid the next crisis.
This is where things start to get really interesting. Yes, new laws and regulations have emerged. Dodd-Frank is a great example of this. But, unlike before, where financial institutions would react only to the regulatory pressure, banks are now thinking more proactively and looking ahead at not just their regulatory requirements but are also considering reputational risk in a whole new way. Knowing that their reputations are at risk, financial institutions have begun to analyze information from many “non-traditional” data sources in order to reveal much of the knowledge that has been locked away in this data. Human communication, such as email, messaging and social media, is a great example of this.
Now let’s fast forward to the Anti-Money Laundering and Financial Crime Conference that was held a few weeks ago in Las Vegas. Banks, regulators and law enforcement officials discussed everything from terrorist financing to human trafficking, fraud and money laundering. I recall several discussions where participants reflected back to the financial crisis of 2008 and suggested that there must be a better way to address these regulatory and reputational challenges. It didn’t take long until the idea of AML 2.0 was being openly discussed. The idea is simple: use information to reveal relationships and risks that are not readily available within structured transactional information. As one very large bank said, “a change in transactional behavior is important but what’s more important is knowing that one of my clients is associated with a terrorist organization”.
From analyzing the narratives within years worth of suspicious activity reports (SARs), to monitoring social media and public sources of information for hidden relationships, risks and trends, to ensuring that employees are not assisting financial criminals either unintentionally or not – financial institutions have learned that they need to get ahead of all these risks while meeting their regulatory obligations and at the same time help safeguard our financial markets and infrastructure. So, a lot has changed in the past 5 years.
A great example of this change was recently covered in a story that the American Banker magazine published. Titled “Banks Use Analytics to Detect Suspect Employee Behavior,” the story talks about the challenges that the financial services industry faces when it comes to uncovering both relationships and risks that can materially damage a financial organization. The story goes on and talks about how banks are taking new approaches and using analytics such as Digital Reasoning in order to reveal these critical signals. You can read the full story at: http://bit.ly/17ghOYN
In closing, helping to safeguard the world we live in is a critical mission for Digital Reasoning. Our analytics have been used for over a decade to help protect our nation and are now being used to help protect our financial infrastructure. Whether a bank is using our technology to detect insider threats or a regulator is looking for networks of financial criminals, Digital Reasoning is committed to helping the financial services industry meet their regulatory responsibilities while getting ahead of their risks and protecting their reputations.
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