Large Regional U.S. Bank Improves Customer Profiling to Fight Financial Crimes

One of the biggest challenges for financial institutions in the modern era is to cost-effectively comply with anti-money laundering (AML), Know Your Customer (KYC) and similar regulations. Efficient compliance to these regulations for customer profiling is a daunting goal, given the speed of transactions, the complexity of data and systems, and the ingenuity of those seeking to break the law without getting caught.

A large regional U.S. bank was under regulatory scrutiny, both for insufficient management of KYC requirements and for failing to report some suspicious activities that it should have caught but didn’t. Both problems hearkened back to the bank’s inability to accurately gauge the risk of an individual customer across accounts.  The bank was taking an account-centric, rather than customer-centric, view of transaction risk. This perspective made its transaction monitoring system overly alarmist.

For example, suppose that all transactions over $10,000 triggered an alert. One customer who regularly engaged in that size of transactions might actually present a low risk to the bank if viewed across all her different accounts. But an account-centric approach might prevent the bank from seeing that. The regional bank did make a cursory effort to look at transactions at a customer level, as well as to determine customer risk based on watch-list screening. However, some customers held accounts under multiple names, whether due to data-entry errors, nicknames or intentional obfuscation. Lacking a consolidated view of each individual, the bank could not identify which transactions actually posed the most risk. Investigators were overwhelmed by the volume of alerts, most of which turned out not to be worth their time, while the real lawbreakers eluded them.