Advise #3: Implement preventive controls to reduce the financial crime risk

Today banks spend many resources on Transaction Monitoring controls. These are conducted after the transactions are executed, and the effort focus on reporting suspicious behaviour to the authorities.

Most Sanctions and Fraud controls are conducted in advance of transactions, thereby preventing the transactions from being executed. In this post, I will discuss additional preventive controls that are valuable to implement as part of the total financial crime defence.

The easiest way to upfront prevent suspicious transactions, is to lower the customer limits for high-risk transactions, e.g. cash withdrawals and deposits through the bank’s ATMs and international transfers conducted through online banking to all or certain high-risk countries. This reduces risk and will additionally reduce workload as transactions that can’t be conducted, can’t result in TM alerts.

To avoid the negative impact on the relatively few customers that have a legitimate need for higher limits on such products, it is preferable to be able to increase the limit on individual customers after a pre-approval process. These customers will understand why such measures need to be taken to prevent misuse of the bank.

There are also preventive controls designed to prevent specific customers, that have acted outside the risk appetite of the bank, to continue their actions. These focus on customers with one or more SARs reported to the authorities.

The ultimate decision is to exit the customer, and this decision should in most cases only be taken after all other possibilities have been exhausted. Customer exits contain many dilemmas, and before taking an exit decision, the bank has several other possibilities.

The most common preventive action is to block/terminate the specific service used in the unacceptable behaviour. This can be blocking the access to conduct international payments either in total or to specific countries or it can – after an adequate number of warnings – be blocking the online banking access until the customer has provided the needed KYC information or explanation on a certain unusual transaction.

The least severe action that can be taken is simply to explain to the customer why a certain behaviour can increase the risk of financial crime in society and make an agreement, that it will be addressed by the customer. An example is to advise corporate customers receiving a lot of cash from their customers to encourage their customers to use electronic payments.

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