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May 30, 2024
Join Elena Christopher, Chief Strategy Officer at HFS Research, Joe McNamara, Director of Solutions Marketing at AML RightSource and John Byrne, EVP, Chairman of Advisory Board at AML RightSource for an in-depth exploration of the joint market impact report, “Driving the Evolution of Financial Crime Compliance: The People and Tech Imperative.” In this pre-recorded podcast, they share insights on the evolution of financial crime compliance, the motivations behind the survey, and practical findings from the report. Discover how technology, combined with expert human insights, is transforming anti-money laundering efforts, especially in the realm of digital assets and evolving regulations. Also, learn how compliance professionals and law enforcement are working together to tackle financial crimes.
You can listen above or watch this HFS Videocast here:
Read the associated Market Impact Report titled “Driving the evolution of financial crime compliance: The people and tech imperative” here.
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This transcript was auto-generated from the original recording and lightly edited for readability. We've done our best to catch errors, but names, technical terms, and company references may be misspelled or imperfectly captured. For the definitive version, please refer to the original audio or video. Views expressed are the speakers' own.
Well, welcome everybody to another episode of AML Conversations. I’m your host for today, actually sitting in somewhat of a guest chair. My name is Joe McNamara. I’m the Director of Solutions Marketing here at AML RightSource. And joining us for a great conversation today is recurring host and, I guess, my guest today, John Byrne, Chairman of the AML RightSource Advisory Board, as well as a newcomer — so, Elena Christopher, Chief Strategy Officer as well as financial services research leader for HFS. Welcome to you both. Super excited about the conversation we’re gonna have today, which is really gonna be structured and revolving around a recent report and survey that both of our organizations partnered up to do. And so, prior to getting into that conversation, just wanted to open the floor and do a quick introduction. Elena, why don’t we start with you?
Hey, thanks, Joe. Great to be here. Looking forward to the conversation today. As Joe mentioned, I’m with a firm called HFS Research. We’re a boutique research firm that specializes in emerging tech in the domain of IT and business process services, and we’re really all about helping enterprises drive disruption and change. I run our financial services practice and I’ve been doing this for pushing 30 years at this point, either as an analyst or an advisor working closely with financial services firms, and risk and regulatory compliance, because it’s perpetual, it’s always changing, and there’s a lot of, I think, crime to fight and good to do out there. So it’s always been an ongoing research theme, but again, really looking forward to the conversation today.
Absolutely, and I know you really don’t need any introduction, but let’s go ahead and do it anyways, John.
Well, thanks, Joe, and I’m looking forward to talking with Elena as well. Joe mentioned I’m Chairman of the Advisory Board. This is probably my 4th decade of work in the AML/CTF space, and so I’ve been in a number of organizations over time. I’m a lawyer, ran ACAMS for about 7 years, was at the American Bankers Association, but more importantly, I’ve been involved in all the money laundering legislation both domestically and internationally since its inception. And I strongly believe in the mission of our community, and that’s partnership with our law enforcement folks both here and abroad, but also that what we do matters. So today’s discussion about the survey both confirms some of the issues that we’ve grappled with, but also some that we anticipate. And so we hope that you’ll both read and pick out some items in the survey that will help you with training, with strategy, with other things, but more importantly, that all that we’re dealing with is going to continue to become more complicated. So hopefully we’ll give you some strategic ability to deal with whether it’s digital assets or some of the things with resources and training. I think this study that HFS led is really going to help all of us as we try to improve our systems.
And you know what, John, if I can just piggyback on that — because all of those themes you mentioned are such hot themes, but we’re also gonna bring up the one, because we can’t go five minutes without saying generative AI. We’re gonna bring that into the mix as well, because that was definitely a significant theme of interest, of fear and worry, but also of opportunity. So we’ll throw that into the mix as well.
Yeah, so without giving away the punchline, Elena, let’s actually call it out first, right? So the report that came out in Q1 of this year is titled Driving the Evolution of Financial Crime Compliance: The People and Tech Imperative. Within that report, obviously, there’s a lot of interesting findings, but I figured let’s take a few moments just to give our audience a little bit of contextual background when it comes to the purpose behind why we partnered up to do this report, and certainly some of the expectations that we went into it with versus maybe what we found on the other side.
Yeah, absolutely. So the firm that I’m with, HFS, we do a lot of things, but we’re also market watchers. And so, in my coverage of what are ongoing trends within financial services institutions, I’m always keeping a close eye on technology companies that are bringing something new and potentially differentiated to the market, or services firms that are really helping crime compliance professionals improve their programs, meet their needs, and ultimately both fight crime and be in compliance. And so, I learned about AML RightSource. I was tracking you guys. You were making some interesting acquisitions. You made a technology acquisition of a firm called QuantaVerse, which myself and my team covered, and it got us into some conversations really about where the financial crime compliance market is really going. I know, from almost 3 decades of tracking applied use of emerging technologies in banks and financial institutions, that banks are some of the biggest adopters firm-wide, not just in FCC domains. Firm-wide, they are some of the biggest adopters of technologies. But when you follow that breadcrumb trail and look around at what that looks like in different lines of business or in different functions, you don’t see it being applied equally at all. And so, HFS and AML RightSource started up a conversation in this vein, which essentially was, what’s really the future of financial crime compliance? We know it’s a heck of a lot of fantastically skilled and smart individuals doing a ton of really critical work on a day-to-day basis, but in the same breath, it’s also a lot of manual work, a lot of manual labor. And so, at the heart of our conversation was, how do you help these programs scale? How do you help them do more with the same, or even more with even less, if you will, given the fact that, like John, you mentioned, digital assets — I’ll throw in banking as a service. How about marijuana businesses, given that there’s so much change happening that’s driving additional regulation? So, what started with an interesting conversation about what’s really happening here — we said, you know what, all right, we’re a research organization, let’s work together to craft a study. And so, what we ultimately did was we ended up surveying 500 FinCrime compliance leaders, and we also intentionally took a slightly broader lens of talking to broader risk and regulatory compliance leaders, chief compliance officers, broader than just the FCC domain, very intentionally, to talk about this topic. And we looked at it in terms of where are your programs today, what’s driving change, what’s driving challenge, where are you hoping to grow? We looked specifically at a thread on emerging technologies. How are you thinking about these? Which ones are you thinking about? What’s the state of adoption? How are you complementing or supplementing that important talent piece I mentioned? Is outsourcing coming into play? How are you leveraging external partners to help you drive additional capacity? So, we created a survey vehicle. Again, we implemented it with 500 of the risk and regulatory compliance and FCC leaders I mentioned. This was a global study — very important to mention that. So we hit North America, Western Europe primarily, and a variety of select countries within Asia-Pacific to give a very robust view. And really, our objective was to better understand where we are today and where we’re going. So that was a bit of the baseline. I don’t want to get ahead and start talking about findings, because it was such an interesting study, but that’s really what we were striving to do — to work in partnership to do something that, because I think there’s a variety of studies that have happened in the market, but we really wanted to look through that triple lens of where are you today and where are you going, what’s the role of how you’re grappling with talent and really helping to uplift your people by being very effective in your programs, and what’s the role of emerging tech?
So all very good questions. And I would actually disagree slightly, because I do want to get into some of the findings, right? But I want to go back to one of the points that you made about what I would consider kind of the foundational genetic makeup of this report. And that’s really about some of the things that we found just from an overall priorities perspective. And I know, John, you got a chance to certainly review the report. Tell us a couple of things that from your perspective played into that particular narrative around what you saw from a prioritized list, as well as anything to call out specifically to the risk and financial crimes compliance community.
Well, there were a couple of things that actually confirmed what we’re seeing with our clients and with the community — both the external and internal challenges that we asked about in the survey. And what was interesting about the answers was that they were pretty similar, and the distinctions between rankings were pretty minimal. So in a way, it just tells me that these AML professionals — and I apologize, I still call them AML professionals, not FinCrime, but FinCrime professionals — they have all these challenges. So it confirms that. So if you look at it, we talked about the rise in digital financial transactions, how criminals use technology, continued expansion of regulatory requirements both in the US, Europe, and other places, the expansion of non-financial services in this space — that’s always been a challenge for traditional banks, right? Rise in cybersecurity risk, everybody’s aware of that, of course. And then, as Elena mentioned, talent shortages. So all those things, the percentages were pretty similar. That’s the external. Internal, again, talent — keeping it, getting it, developing it. The one thing that struck me as somewhat counterintuitive was the lack of C-level support, which, I’m not disputing that as a response, but then we also said — the compliance folks also said — that they expected an increase in their resources. So if you’re not getting the support but you’re getting the increase, there’s a little bit of a disconnect there. I don’t disagree with either of those answers, by the way, but that’s just one thing that jumped out at me. But also the lack of clarity in terms of the approach internally. Part of that is the tech issue that Elena raised, right? So it’s how do we respond to filing suspicious activity reports, or SARs, outside of the US in terms of both technology and talent reviews and all of that. So bottom line is, I think that both the external and internal challenges told me that there’s a number of issues, but they’re pretty close in terms of rankings. And then, just the investment priorities — they’re going to be an increase in investments in technology, which everybody expects. But where that’s going to be is so dependent on education, awareness of the various products. Are you going to outsource? Are you going to build your own platforms? Again, a lot of this just reflected what I think we knew, but it confirms what a lot of us knew, and I think that’s an important part of the survey results.
Absolutely. And, Elena, I actually wanna let you chime in here, especially around what John brought up — this kind of disparity between the want to move ahead from a technological perspective, but maybe some of the hindrances or challenges that come with that as it relates to things as broadly as talent versus internal resources that you may or may not have, and then obviously partnering with the right outsourced model that would allow you to overcome some of those challenges. But given some of the work that you guys have done at HFS Research, really looking at some of the disruptive motions that are happening in the space, what else could you weigh in based on what we found at the end of this survey in that report?
Yeah. Well, just a couple of points there. So, Joe and John, you guys made light of the fact that one of the things we asked about was — we set up an interesting laundry list of the external challenges as well as internal challenges. And John, you commented on how, well, gosh, it wasn’t like there was one far-and-away overwhelming leader; there were a lot of things that rose to the top as priorities. Whenever I see data that looks like that, it tells me that, A, there’s a lot of contributing factors, and leaders are having trouble actually determining what their biggest challenge is. And so, one of the ways to get to the bottom of it — OK, so if there’s not something that’s decisively at the top — we sliced and diced this data in a couple of ways. One of the ways was we asked, what’s your number-one challenge versus what are your top 3 challenges? Or let me restate that: we asked what are your top 3 challenges, but you can look at it in terms of what’s your number-one challenge versus what rated overall. And one thing did clearly rise to the top when you looked at the number-one challenge, which was talent came up as a gigantic challenge — getting it, developing it, and keeping it. So, you take that as a fact, a reality. Talent is challenging. Then when we went over and looked at, OK, so what are you investing in? When you ask a question about investment, it’s another way of saying, what are you going to do to try and solve these challenges? So, to me, when we get kind of an indecisive answer on what your biggest challenge is — OK, if we then ask where the investments are, that’ll tell us a bit about what the flow of play will actually be. And just like John was mentioning, we saw that there’s gonna be a lot of investment in updating technology. Technology and modernization investments was how it was phrased, as well as external collaboration, which I think is a fantastic one. What was dead last, by the way, was talent. And we had a lot of follow-on conversations, because one of our standard things we like to do whenever we do a survey is to road test it, talking with professionals in the space. We started with you guys, but then we went out to different leaders within different financial institutions. And the answer we had in so many cases was, well, duh, Elena, talent’s a gigantic issue, but it’s one that we’re very familiar with. We think maybe if we can try and solve getting some better technology, modernizing our systems — and data was another theme that came up in various places — having better access to the data we need, maybe that helps to solve some of the talent problems we have, directly aimed, I imagine, at beating down a lot of the manual work that goes into so much of the, whether you call it AML rigor or broader FCC responsibilities. So, that was a little bit of my take on the data. I will state overall, maybe pointed at that investment response about systems modernization, that definitely rose to the top, but it’s also a broad answer, and there’s, whether it be your aging TMS systems, or you want to bring in some of these interesting, much more point-solution-oriented tools around, like, beneficial ownership, for example. There’s lots of different ways that modernization can come into it, but I think we should all view it — and again, I think our study and subsequent discussions and this very interesting roundtable that we did with FCC leaders led to this as well — that there’s certainly interest and appetite to do more with technology, despite some of the fears that we may see coming from industry and maybe the regulators themselves.
Joe, let me just add that, since I’ve been doing this such a long time, one of the earliest comments about technology — there were a lot of small institutions that did reporting manually, believe it or not. And so, as they started to gravitate toward technology in the early days — and now, obviously, it’s much more comprehensive — the comment was always, how do you ensure that the system is going to both fulfill regulatory obligations but also be efficient? And at the end of the day, the bottom line in our world is to get information to law enforcement as quickly and as efficiently as possible. That’s the goal, right? That’s what the Bank Secrecy Act is. It’s not checking the boxes and all the other things. And so, early on, law enforcement would say — and law enforcement actually needs a lot of training themselves, as they will admit, because they don’t have the background of financial services, both traditional and where the fintech world is, that they need. They will tell you that. The investigators in that world, they need that. But they would always say, at the end of the day, you need to have some human input into the data so that there are people there to explain it, understand it, know what to do with it, right? And that sounds obvious, but it’s not always considered obvious. So, take that with another comment: doing a lot of conferences, I remember on a panel with 3 BSA officers, I said, what talent are you looking for? And this is probably 10 years ago, not recently. And I remember one individual said, I can get lawyers and accountants to do compliance-related work, but if I could find somebody who understands financial transactions and has a business banking background — I need those people as well, right? So, sort of a long way of saying, I think in terms of talent, you need to make sure you’re targeting the talent. As a lawyer, I can’t be objective — it’s great to have lawyers to look at the regs and look at the laws, but to have somebody that understands the systems and understands how this all can work is also valuable. So, you need the technology, you need people that understand that technology, you need information security and cybersecurity protection, all that stuff, but you also need people and talent that understand how these systems actually work. So I think that becomes more important today, because you can put a system in place, you can use an outside provider and they come in and say, we’re going to handle all your SARs. All right, but who’s going to make the decision on how you set the thresholds, what the regulators want, and all that? So you need all of that. And, as Elena mentioned, if we’re not spending time on developing the talent to do those things, then the technology is not worthless, but it’s not as useful as it could be. So the bottom line is you need multiples of backgrounds, and you need training that looks at those backgrounds and elevates them so they can be FinCrime professionals in those different areas. So I think that’s really important, and I think the survey sort of confirms a lot of what I just said, but I think it’s important to recognize that you’re still gonna need people, right? So there shouldn’t be a fear that AI is going to — everybody’s gonna lose their jobs. That’s not gonna happen. You’re gonna have to find lanes to be in that perhaps you weren’t in before, but you have to do that anyway with any technology increases. So I think that confirms a lot of that. Disappointing that talent’s so low, but important that through HFS we’ve recognized that in this survey, and certainly the roundtable that Elena ran confirmed that as well — that we need to work on that. And I think that’s an area that we can all agree on.
And if I may, John — and I wanna be super definitive about this, because it’s what we at HFS have been saying out loud for 10-plus years — AI, automation, they’re not getting rid of any humans, OK? We’re here to stay. And honestly, the regulators, we need that judgment there. The regulators in this particular domain, they’re gonna require that before anything is submitted, finalized, etc., it’s been processed and approved by a human. All right? So, AI is not replacing us today. There’s caveats there. I see jobs that are just straight-up data entry with no judgment. That is a bad job to begin with. No human should be doing that job anyway, OK? So, we do also have to recognize that there are bad jobs. In this particular domain, in the FinCrime compliance space, it’s all about — and this is, I think, the right lens to look at — how can you elevate these fantastic professionals to help them do more and have less of the mundane, mind-numbing work that is sometimes part of this job? How can you get them to smart decisions faster? That’s what the opportunity is here. And that’s the part, John, to your point, that was part of, I think, the nice silver lining that comes out of both the survey and the roundtable conversation — that’s the excitement, and again, that potential I referenced in my introductory comments that decidedly was part of this. We’re not using a ton of it today, but we want to do more, and it’s not to replace, it’s to augment or to accentuate what’s great about humans.
No, absolutely. And I just want to call out, we made it almost 20 minutes before we had any mention of AI, right? Which I think just helps solidify what both John and Elena have mentioned. The one comment that I would have, to piggyback on the piggyback here, is that when I think about where technology is really playing the largest role, at first glance a lot of folks just go, oh, AI is going to handle some of the larger, more traditional challenges that we’ve seen in this space for the last few decades, right, or beyond that. And in reality, what it becomes is more of the back-end stuff, right? It’s being able to tech-enable your folks, to give them access to a higher, more performative toolset that allows them to be more efficient when it comes to the work that they’re doing. But obviously, all of this only happens with both pieces, right? And John, to your point, making sure that you’ve got the right folks in the seats that can actually oversee this, ensure that you’re putting the right parameters in place and that the checks and balances are still there. At the end of the day, human in the loop is a necessity. But the other piece of it too — and I know that you guys really covered it more in depth in the roundtable last month, Elena — is the necessity for kind of data cleanliness and just up-to-date and measurable analytics. Can you give us a little bit more about what that conversation, at least some of the high-level points of where it went, and really anything that we can take away to apply within the community?
Absolutely. So, by roundtable, we hosted a virtual event where HFS and AML RightSource essentially brought together, I think, about 10 financial crime compliance professionals from financial institutions in North America and Europe. Asia was slightly more of a scheduling challenge, but that was our group, if you will, and we essentially curated a discussion around the survey findings. And so, as John and I were talking about earlier, that topic of what are your challenges and where are your investments going to be — the team that we spoke with actually said, I can’t believe that data did not rate higher. It was an option, and as John and Joe were both talking about before, a lot of these were kind of clustered together and so there was no runaway leader. Data challenges was there. But this group, they were really talking about, OK, so there’s a few ways data can play here. Obviously, you need a lot of data when you’re — first of all, what’s alerting you to potential challenges in your transaction monitoring systems, and how you do your reporting to satisfy regulatory needs. It’s all about making sure you’ve got the right data at the right time. And so, folks were talking about how that continues to remain more painful than it should be, and that there’s also, depending on the size of institution you’re working with, lots of silo challenges that are compounded over time. You factor in mergers and acquisitions, different geographies, and there’s a lot of different data silos. And so, every single FinCrime professional that was part of our roundtable discussion said, this is a pain point for me today. And it was sort of like, if I had the one wish of what to fix, these guys all really wanted to do away with the organizational silos and have a magnificent, all-purpose data pool of sorts. I’m intentionally not saying data lake or some of the actual technical terminologies and solutions for this, because theirs wasn’t a technical wish. It was more of, I want the data I need in a usable fashion. Oh, and by the way, that’s a reality — but what some folks were also realizing is that, for all this talk about AI, AI is based on data, and if you train AI on data that’s incomplete or wrong in some way, then you’ve basically taught — think of it as teaching a robot to do something that’s incorrect. So, there is no effective AI without great data. So, so much of the conversation really came back to, you have to ensure that you’ve got data that’s available and fit for purpose when you need it, to be great at FinCrime compliance but also to even enable any potential use of artificial intelligence in the future. So, that definitely rose to the top as, I can’t believe this didn’t rate higher.
Well, and given — if we had more time to go through this report, I’m sure that we would find the multiple paths and, quite frankly, the multifaceted narratives that came out of the findings. Ultimately, I think that’s more of a call to action for our audience. Number one, if you wanna go and find this report, you can find it, I believe, on both the AML RightSource website as well as HFS Research.
Hey, hey, Joe, sorry to interrupt — I know we’re gonna close it down, but I do wanna add the one response that’s relevant to what Elena just said. So I just pulled it up here: Which of the following best represents your firm’s approach to using and scaling automation and AI technologies? 41% said they prefer that it be part of existing core systems and platforms. 20% said their third-party service providers use it, and so that’s going to be useful to them. And then 17% said they’ll buy or license point solutions as needed. So that was interesting to us, and that may all change going forward, because the other survey questions said — obviously, 70% said that they’re going to be doing more with AI going forward. But this is a snapshot in time that I think is important. So, sorry to interrupt, but we should mention that that’s in there. And obviously, read HFS’s report in detail to reflect what people currently are. Again, 500 folks were interviewed, so this is more than a small sampling. This is a pretty big sampling — a snapshot in time, but I think relevant for strategic purposes, as we mentioned up front.
Yeah, I would 100% agree, right? And it allows us to at least project where we anticipate the direction to go in the future. And quite frankly, hopefully what we found in part from some of the findings in this report is that you can actually judge how quickly that growth is going to happen, or continue to happen in some cases. But ultimately, like I mentioned, for those of you that are interested in finding the report, you can find it on either website — at the HFS Research website as well as AML RightSource. We’ll have direct links below in the info section of this episode. And then, just more of a shameless plug for AML RightSource content: we have an absolutely incredible resource center. We cover all kinds of insights and topics that range from strategic in nature to, quite frankly, very tactical — things that you can take away and utilize on a day-to-day basis. All of that you can find at AMLRightSource.com under our resource center, which includes podcasts, webinars, and interviews like the one that we did today. But ultimately, I just wanted to thank you both, for allowing me, one, to sit in on this conversation and kind of moderate the two sides, but at the same time, thank you for the time as well as the insights for this audience. So hopefully we can pick up this conversation maybe next year — we’ll have the next report out, and we’ll find some additional findings in there that really direct us on where we should be focusing and where the community is going. But again, thank you so much.
Thank you. Thank you.
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