Final Project Case Study #1

Client’s challenge: Leading financial institution

• Creating and implementing a global Anti-Money Laundering (AML) risk score for liability clients

• Harmonizing AML risk scoring standards across business units and regions

• Analyzing and risk scoring tens of millions of liability accounts

A leading financial institution needs to develop a globally consistent Anti-Money Laundering (AML)
risk model to comply with a consent order from a banking regulator. Time is of the essence not only
because of a tight deadline imposed by the regulator but also because of the scale of the project: the
solution needs to enable risk scoring for tens of millions of deposit account holders worldwide.

The financial institution’s previous AML risk models have been built around business units and
regions. Each business unit uses its own qualitative methodology with some regional variations
woven in to apply a set of rules to the customer data. Coming up with a single global solution will be
a challenge. Simply gathering stakeholders in a room and having them hash out their differences
isn’t likely to result in a consensus. The financial institution needs expert help to come up with a
solution that would meet the requirements of the consent order within 13 short months. Failure to
comply might result in fines, penalties, and other sanctions.

What is the business problem you are trying to solve?

To reduce compliance risk by becoming AML compliant across all business units worldwide by
creating one Harmonious AML risk scoring standards for client liability accounts.

What's the first step you'll take?

Engage with the leaders of the various business unit to gain an understanding of what the different
rules are for compliance in their region, how their existing risk models are applied to their own customer
data to become compliant, how much it currently costs to monitor compliance issues and what are the
major concerns in the assessment of compliance risk.

What is your approach to developing a Hypothesis? (Include your Hypothesis)

The approach to developing a hypothesis is to consider the information from the various business
units and the overall business problem and state what the probable result might be one the business
problem is solved.
“One global AML risk model covers all the AML guidelines for all territories, which will result in a greater
assessment of all compliance risk at a lower cost in a shorter timeframe in order to meet all regulatory
standards”.

What data would you collect?

The AML Criteria for all Regions

Deposit customer information for all the territories

Company’s new business guidelines or policies

Information on how the company monitors compliance issues including the cost of monitoring

How would you analyze the data?

Using the AML Criteria for all regions and the various risk model, I would use comparative analysis or
factor analysis to explore the data to find trends and or variations in the AML Requirements and then
compare with the current AML risk models that the client uses. Identify the strongest model that covers
the key requirements for all territories and or make necessary adjustments to the model. Then I would
design a simulation to apply the model the customer data obtained for all territories to ensure that all
the requirements are met for the key compliance areas of the new model. I would also seek to have
external databases be somehow linked with the new AML risk model so that when those data bases
are updated with new guidelines, the risk model can also be updated.

How would you present the information to the client?

I would use a visualization tool such a Qlikview or Qliksense which will be able to organize the business
intelligence information from the analysis and visually communicate how well their current model is
working when compared to how well the new model will work and how beneficial it can be.

What insights did you develop?

The current model of AML risk modeling is causing delays in meeting their regulatory deadlines, which
drives up the compliance risk as a global body which consequences not just for fines and penalties
but also reputational risk. This in turn can negatively affect their share prices and drive up the cost of
monitoring compliance.
Having one AML risk model that applies to all customer across business units can reduce compliance
risk, save on monitoring costs of compliance and also have a more effective way of detecting instances
of Money laundering.

What recommendations would you make?

Imbed the new AML risk model with the business processes for customers in order to monitor AML
compliance at its various stages. For example, the new business stage, to capture instances of
‘placement and the wire transfers processes to capture instances of ‘layering’. This reduces the risk
of money laundering being integrated with other deposit customers.

By integrating the risk model with external ‘watchlist’ databases that identifies ‘flagged’ or politically
exposed persons, the deposit customer’s database can be crossed referenced and detection of these
persons can be done in real time or a shortened timeframe.

Have a centralized team to prepare AML reports, monitor AML compliance and to report on issues
that regulators may have. This information can be used to make the risk model more effective. A
centralized team will also be able to save on monitoring cost.