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Emily Larson 2018-6-8

Leveraging Technology as Compliance’s Guiding Light

By Cherie Axelrod, Deputy Chief Compliance Officer

Following the 2008 financial crisis, regulators began a new approach in their role as regulatory agencies and the importance of financial institutions implementing a culture of compliance through all levels of its organizations. To better understand and mitigate risks, organizations set off a compliance hiring boom, and regulators began sharing frameworks and models that covered compliance maturity models for organizations to follow.

Initially, many financial institutions adopted a “brute force” approach to compliance risks, but in our increasingly tech-focused world, companies are always looking for ways to be more efficient across all our organization’s business units, and technology has proven a strong ally. Intelligently deployed technology has a critical role to play in compliance. It can help ensure we’re being smarter, faster, and more effective with each transaction. Plus, technology also helps us prevent our systems from being used for illicit purposes, helping us prevent fraud and identify money laundering, protect our customers, and reducing our risk overall.

With a footprint across 200 countries and territories, Western Union operates in a complex regulatory environment. We process 32 transactions per second, making Western Union dependent upon technology and data to make real-time decisions about risk and allowing Western Union to execute its compliance program. Not leveraging data for business or compliance purposes is analogous to a ship navigating at night in unknown environments. It ultimately exposes the ship and crew to unknown risks, and every captain would want to be able to navigate the channel and avoid the shoals.

At Western Union, we use a risk-based compliance program, which means that compliance decisions are made based on the organization’s risk exposure. To be successful, we need to identify and understand risk, so we use data as the headlights that lead us to make sound business decisions and ultimately create a successful compliance program that is commensurate to risks. In essence, data serves as the headlights in a dark night that helps us chart a path forward.

To help us identify those risks, Western Union has made significant investments in and enhancements to our compliance operations in the past six years, especially in technology. We know how useful technology and data can be to help us keep illicit funds out of our system, so our customers can trust our commitment to offering a service that complies with local laws and regulations. We’ve increased spending on compliance by more than 200 percent, and we added employees with law enforcement, data analytics, intelligence, regulatory, and broad-based industry experience. Plus, we’ve developed custom tools to assist in data mining, like our Travel Analysis Tool which can pull and analyze large volumes of data. As an example, our Advanced Analytics team can pull inbound and outbound transactions between France and Turkey and identity patterns and outliers for us to further investigate.

For Western Union, technology can also help to identify and combat money laundering, and it can help us detect and prevent fraud. Our team leverages big data, A.I., machine learning and robotics to study consumer behavior and patterns globally to detect transactional anomalies. We use big data to scan transactions against watch lists, and we use machine learning to help us analyze and continuously improve our own detection tools and systems.

This investment in technology has paid off. The incidence of consumer fraud reports associated with Western Union money transfers has been extremely low – less than one-tenth of 1 percent of all consumer-to-consumer money transfer transactions during the past 10 years. In addition, the dollar value of reported fraud in consumer-to-consumer transactions has dropped more than 60 percent over the last six years, compared with the total value of all such transactions.

Every company’s risk assessment is unique, and there’s certainly not a singular approach that will work best for every financial institutions. Companies must look within to find the tools and processes that will best serve as their true north star. However, there are fundamental frameworks and processes that are consistent, and technology, data and metrics can be strong allies in following those guidelines to mitigate risks and ensure compliance.

Speaker lineup from a panel discussion at the recent Compliance Week 2018 conference on creating a risk-based compliance program, of which Cherie was a participant