With limited resources and an extra effort, however, banks can manage risk in a better way – and as a result reduce business risks by, for example, avoiding business relationships with questionable parties.
According to current laws and regulations, banks must take different aspects into account in order to be considered compliant from an AML perspective (preventing money laundering and the financing of terrorism). The regulatory framework is extensive, as are the processes that must be in place to comply with the legislation. Complying with the anti-money laundering directive is one thing. But how can banks, with limited efforts, also minimize business risks? Pontus Holmberg, Head of Product and Innovation at the SaaS company Roaring, believes that through an extra effort, banks can become significantly more efficient and also avoid entering into business relationships with questionable parties.
Customer due diligence (KYC) – what banks must take into account
From a KYC perspective, it can be said in simplified terms that the regulatory framework focuses on banks having to relate to four points: ensure identity – that is, that the person is who they claim to be and represents the company, control of beneficial owner – ensure who the company’s beneficial owner is and that the person is so in practice, ensure that the company does not appear on sanctions lists, and investigate any PEP links (Politically Exposed Person).
“The risks if banks do not comply with the law are not only that they risk fines from the Swedish Financial Supervisory Authority and, bluntly put, being exploited for criminal purposes. They must also consider the consequences for their reputation and for the trust of the public and their customers,” says Pontus Holmberg, Head of Product and Innovation at Roaring.
Banks can go far by viewing AML work as part of the work of also minimizing general business risks. If banks and organizations covered by the anti-money laundering directive broaden their view of risk and add additional data points for analysis, it can have a double effect.
The little extra to minimize risks
One result is a more efficient onboarding process, where non-deviating customers are integrated automatically. The second is to work with data-driven risk indicators that can be used to automatically flag deviating patterns and show risk factors.
“Through the right implementation of AML processes, banks can avoid questionable business relationships, improve their processes, and significantly reduce the overall business risk. Banks can do better, and above all they can further streamline AML processes, which at the same time reduces the general business risk. It is of course already a challenge for banks to be compliant, especially if the work is handled manually. Simplified, one could say that banks with relatively small efforts can do very much more – and fully automated,” says Pontus Holmberg, Head of Product and Innovation at Roaring.
And it is all about looking at a few additional historical data points. All banks and insurance companies often already have the information, or can easily obtain the data required to carry out a more detailed and powerful risk analysis and risk assessment than what the law prescribes. It is about analyzing company information and legal information, and monitoring the company’s development over time. According to Pontus Holmberg, the trick is to combine data points that individually may not look very interesting, but together create a whole. He also advises paying attention to basic factors and their changes over time in order to identify potential warning signals.
“If frequent address changes occur or continuous changes in the board take place, you should be extra attentive. It does not necessarily have to be something negative – for example, large companies may have higher activity – but in general it is appropriate to ask follow-up questions in these cases. I do not think that any type of business is interested in entering into a business relationship with companies that often change registered address, have many entries and exits on the board during a short period, and where the representatives appear in legal judgments and perhaps have a dozen bankruptcies behind them. These companies and individuals may be good to avoid both taking on as customers, and also to avoid having in one’s customer portfolio altogether,” says Pontus Holmberg, Head of Product and Innovation at Roaring.
The automated work is also made more efficient. Banks can become more efficient by setting internal parameters for what type of data should be flagged, not only what is required by law.
“This could, for example, concern more than ten board changes in recent years for companies with a turnover of over SEK 20 million. By combining this data with the number of address changes, it can constitute the criteria for closer review. This makes the process more efficient,” says Pontus Holmberg, Head of Product and Innovation at Roaring.
The risks linked to not making an extra effort are several. They include business risk in the form of credit losses, where the bank extends credit to companies that will not repay. It is also a risk for the bank and the risk department to have customers who are not reliable and may exploit the bank for another purpose, for example by inflating their turnover through advanced arrangements of transactions between companies.
“Banks should marry together the way they view risk and how they talk about risk as a whole. Working more proactively of course means an investment for the bank initially, but it can pay off very quickly when banks prevent costs linked to these risks,” says Pontus Holmberg, Head of Product and Innovation at Roaring.
Read the article at Företagande.se.
Roaring, established in 2016, is a leader in automated customer and supplier checks with a focus on minimizing business risks. Through smooth access to business-critical information, Roaring ensures regulatory compliance and strengthens organizations’ risk assessments – and can at the same time contribute to a seamless onboarding of new customers. All for a world without time-consuming, frustrating, and unnecessarily complicated business-critical processes.
Roaring is ranked as the 14th fastest-growing technology company in Sweden according to Deloitte Sweden Technology Fast 50. During the most recent financial year, Roaring grew by nearly 50%, and the goal is even faster growth in the coming year. Roaring’s headquarters are located in Danderyd, Stockholm.
For more information, please contact:
Sandra Siljestedt
sandra@roaring.io
+46 707-42 42 98
