When National Credit Union Administration (NCUA) examiners started asking a lot of questions about the Bank Secrecy Act (BSA) compliance program at Neighbors Federal Credit Union, officers at the Baton Rouge, La.-based financial institution decided it was time to look for some help in the form of AML compliance software.
Neighbors Federal Credit Union relied on a mostly manual process in its BSA compliance program, said Chrissy Viso, vice president of compliance and BSA officer. The examiners' intense focus on anti-money laundering (AML) compliance led the credit union to make some changes.
"We always felt we could be missing things with a manual process," Viso said. "We wanted to make sure we were covering all the bases, so software was something we needed."
After reviewing three vendors, Neighbors Federal Credit Union chose AML compliance software from St. John's, New Foundland-based Verafin Inc. The technology helps the high-volume credit union streamline its BSA compliance efforts.
"I'm digging into the accounts now so much more than I ever could have manually," Viso said. "It's giving me all the information in one spot… That saves me a lot of time. I'm not just looking at a whole history of transactions."
Many more small financial institutions are implementing technology to automate AML compliance, said Neil Katkov, senior vice president at Celent LLC, a Boston-based research and strategy firm focused on financial services. Regulatory pressure has led most banks and large securities firms to deploy AML software, while insurance firms are implementing the technology even though regulators have taken a more lenient approach in that industry, he said.
"It's a big, growing market," he said.
AML compliance software considerations
In the U.S., some of the major players in the AML software market include Norkom Technologies Inc., Actimize Inc., EastNets, Oracle, SAS Institute Inc., NetEconomy (acquired by Fiserv Inc.), and ACI Worldwide Inc., according to Katkov. Verafin Inc., Experian Information Solutions Inc., and Fidelity National Information Systems Inc. (FIS) target smaller financial institutions while Sword FircoSoft and Complinet Group Ltd. provide watchlist filtering only, he said.
Financial institutions sometimes claim there's no difference between AML products, but case management is a big differentiator, Katkov said: "It becomes a big issue for large institutions with lots of transactions to comb through."
Verafin has succeeded in targeting a specific market -- credit unions -- with strong analytics and functionality, he said.
Probably the biggest headache with AML software implementations is integration with data from core banking systems, Katkov said.
"At larger banks, data from disparate systems must be sourced, cleansed and mapped to the AML software's data model. AML solutions for smaller banks tend to have interfaces customized for each of the major CBS systems; so for vendors this is also a headache as they need to support all these CBS [systems]," he said.
Easing the AML compliance burden
United American Bank had been looking for an automated AML system for a couple years, since its regulators and internal auditors both recommended the bank deploy one because of its growth, said Joe Simoni, vice president and BSA officer at the San Mateo, Calif.-based institution, which opened in 2003.
"When we opened, clients were normally people the board and executive officers knew," he said. "Our customer base has increased substantially so we're getting other people."
United American Bank, which has about $450 million in assets, looked at several AML compliance software products before choosing Verafin for its user-friendly technology and vendor support. The bank planned to go live with the software this month.
The automated system will help simplify a BSA compliance program that was mostly manual. "It can be very time consuming, especially if you have other responsibilities," said Simoni, who is also the bank's compliance officer.
"I see this as basically hiring another person without having to pay benefits," he said.
Down the road, the bank plans to combine its AML and fraud detection efforts. The bank's outgoing foreign wire activity has increased, and Verafin's technology will help catch any potential wire fraud, Simoni said. "International wires are the areas you really need to be sensitive to," he added.
Andrew King, vice president of client services at Verafin, said the same artificial intelligence technology can be applied to any kind of suspicious activity, whether it's card fraud or money laundering.
"The concept is that you're taking in multiple pieces of information and assigning a probability of risk," he said.
Katkov said a number of financial institutions in the U.S. are buying anti-fraud versions of their AML vendor's technology in order to integrate anti-fraud and AML efforts. Anti-fraud systems need real-time capability and different system feeds, he noted.