Pandemic adding to banks’ alert backlog

By Thomas Bock, Global Co-Head Financial Crimes Risk & Compliance, K2 Intelligence FIN

With so many customers embracing mobile banking, institutions with inefficient transaction clearing processes will struggle to keep pace with business as usual (BAU) alerts for a long time, let alone more serious anti-money laundering/combating the financing of terrorism (AML/CFT) alerts.

Financial institutions have an enormous—and growing—volume of transactions to monitor in BAU activity. With the coronavirus pandemic keeping many customers at home, the surge in mobile banking is adding to an already large backlog of BAU transaction alerts.

To get a sense of how mobile banking contributes to banks’ monitoring workload, consider some statistics taken before the COVID-19 pandemic.

In 2018, more than 45% of U.S. adults—nearly 110 million individuals—conducted transactions via mobile banking, according to research compiled by Statista. The largest percentage of the population, the Millennial generation, is also the biggest group of mobile banking customers. In 2018, 69.3% of Millennials used mobile banking. Other research in 2019 suggests that number is now 97%, followed by 91% of Gen Xers and 79% of Baby Boomers.

Inside the backlog problem

Financial regulations generally allow institutions time to screen and clear AML and BAU alerts, unlike sanctions alerts, which banks must screen in real time. Depending on the institution’s monitoring parameters and risk scoring system, some alerts may be false positives. The time and resources spent on false positive alerts increases the workload per employee and slows down the clearing process. 

Compounding this problem for financial institutions are inadequate numbers of staff, varying levels of experience in risk monitoring and compliance, and inefficient processes. If, for example, a bank has 10 staff members that can each clear 10 alerts per workday, the bank can get through 100 transaction alerts daily. That conversion rate might well be lower during the pandemic, with some employees logging in remotely. 

New environments and distractions can take a toll on employees’ productivity. Moreover, it’s quite common for banks to generate thousands of BAU transaction alerts every day. The imbalance between staff and alerts inevitably means backlogs that institutions have little hope of clearing without additional resources.

Institutions might be tempted to relieve the workload by reducing the number of alerts their transaction monitoring systems generate. This is a bad idea, as it increases risk and does nothing to improve compliance. Mounting backlogs of alerts create highly undesirable outcomes: they can overwhelm already stressed bank employees, and can also hamstring compliance efforts, which invites regulatory intervention.

Backlog help is available

Fortunately, immediate help is available for institutions experiencing backlogs, and institutions can take action to alleviate a buildup of alerts. When facing transaction alert backlogs, institutions should use a well-thought-out methodology to tackle the challenge. Rushing into a solution is generally ill advised and can create other problems down the road. Having a plan in place will be critical to not just catching up but doing so in a compliant and sustainable way.

Leaders at financial entities should also look at ways to increase efficiency. Can the institution deploy staff differently, or alter existing processes? Are there teams that can be reassigned to help clear alerts? Temporary changes can help overcome current backlogs that could have long-term impacts. 

With the backlog of alerts, it can be tempting to cut corners or relax standards to reduce the number of alerts. However, this notion is misguided—compliance standards should not be curtailed, as the risks outweigh any benefits. The best course of action for any institution is to maintain compliance at all times, and ensure alerts are being held to the same standards as they would be in “normal” times. 

Additionally, organizations should review and reinforce network security as needed, which is particularly important in situations such as the COVID-19 pandemic or whenever employees work remotely. During this time, it is crucial to have a cohesive security strategy in place to protect a given workforce and continue enforcing and updating policies as needed. 

In addition to enhancing in-house capabilities, institutions should partner with experienced experts to support internal teams. Engaging outside experts to assist in one area can be a good way to explore a long-term relationship for additional needs. Experienced third-party resources that have a history of reviewing transactions and strong reputations with financial regulators can step in to provide relief. In addition, such organizations can apply innovative, efficient technologies that scale without relaxing monitoring parameters.

Maintaining compliance and quality assurance while improving efficiency and productivity is critical for financial institutions. With the right tools and partners, institutions can do both.