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Integrating Modern Tech into Your Control Framework

Within the banking and risk management industry, new tech should be viewed as an augmentation to improve team function and efficiency, not an interface where capability is limited by technological conservatism.

Within the banking and risk management industry, new tech should be viewed as an augmentation to improve team function and efficiency, not an interface where capability is limited by technological conservatism. Yet, when grappling with the ever-changing field of available technologies, financial institutions often worry about the costs surrounding these technologies. New technologies are viewed not simply in terms of their raw purchase costs, but also their time costs, specifically as it pertains to the training and upgrading of their IT, risk and compliance teams. Financial institutions tend to view these monoliths as forces in opposition, with the efficacy of new technologies directly hampered by the inabilities of an institutional culture resistant to change. Yet, our current reality presents a different picture, bringing these forces which may once have been countermanding into cooperative harmony.

As new computing technologies have advanced, barriers to accessibility have fallen, with ease of use placed at the forefront of concern for service providers.

ATMs: A Harbinger of Things to Come

A key example in this discussion is the history of Automated Teller Machines (ATMs) and their implementation across the banking industry. At their advent, ATMs were brought in on a wave of concerns surrounding the future for human bank tellers, particularly the question of their replaceability. Instead, as ATMs proliferated, there was a marked increase in the number of overall human bank tellers across the industry (Bessen, 2015).

Nearly without exception, the presence of ATMs, and their automated handling of low-level banking functions, opened up time for human tellers to complete more involved and complex tasks. A corresponding increase in client engagement followed, and as such, banks on the cutting edge of the trend were able to secure larger market shares and revenue streams (Bessen, 2015).

Though the circumstances of this case are particular to the role of bank tellers specifically, the broader lesson to be gleaned is shown in the alleviation of the burden of repetitive tasks for employees that automation brings, in effect improving their overall efficiency and capability given the shift in their workload. In real terms, this means more effective staff, made capable of handling complex cases on a day-to-day basis through increased experience and its resultant competency.

What this means for risk managers

Putting this into clearer terms as it pertains to the risk management industry, standards and practices today are lagging behind our current technology capabilities. This “capability gap,” so-to-speak, is effectively a drain on banking resources. Risk managers are left to handle time-consuming and costly tasks using poor quality data and inadequate tools. This menial work deprives institutions of valuable staff time that could be better utilised on higher-level functions.

With our current technology, there is a specific swath of banking risk management functionalities that can in fact be effectively automated, including performing risk assessments, data gathering, data cleaning, data assessments, and risk calculations. Such a change would entail reduced assessments costs, increased quality and consistency and staff shifting their focus from process execution towards the management of control resources. Best of all, smarter tech has enabled the transferring of upkeep responsibilities from clients back to vendors, via Software-as-a-Service (SaaS) product provision.

In real terms, this means the person-hours at a major European financial institution currently spent on assessing the control framework of a far-off bank in Pakistan, can instead be spent on risk mitigation within that counterparty relationship, new product offerings, and opportunity management.

From a business perspective, with financial and time costs reduced, more counterparties can be onboarded, and revenue and market share consequently increased.

Where Elucidate can help

At Elucidate, we’ve built the Elucidate FinCrime Index, or EFI for short, to alleviate that “capability gap” that’s all too prevalent across the risk management industry. The EFI is a SaaS platform that leverages machine learning capabilities towards objective and holistic data-driven assessments of financial crime risks. As an automated system, the EFI alleviates the burden of data analysis and risk assessment tasks and allows risk managers to reorient their staff hour expenditures towards proactive risk management and decision making.

The EFI is built on more than 1200 discrete tests, and over 500 unique data points. We’ve done the math, and to complete a comparable assessment without the EFI would take the average financial institution three months to complete what the EFI can do in just a few minutes. And that’s just for a self-assessment. Counterparty assessments to that level of quality can take far longer, even at peak efficiency. We run our tests in just a few minutes, every single month.

We look at every aspect of a counterparty’s risk profile, including inherent risk and control framework effectiveness, to evaluate not only the quality of those controls but their efficacy in practice.

And of course, the EFI is about augmenting your staff, not replacing them. With built-in clear reporting, remediation capabilities, and counterparty engagement handled directly through the platform, after adopting the EFI, employees are enabled to manage counterparty relationships, not simply appraise them.

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