There has been another addition to the financial crime lexicon: FRAML stands for Fraud and Anti-Money Laundering. This simple term encompasses a very important trend, particularly for financial services organizations – the bringing together of the separate worlds of the fraud and the financial crime compliance teams. As my colleague Matt Cox wrote in this article there is a convergence of fraud and compliance in fighting financial crime.
There are of course differences between the two disciplines. The primary motivation for the fraud department is to reduce loss, while for the compliance team it’s keeping on the right side of the regulators, but they have many common goals including:
- Reducing the impact of financial crime on legitimate customers
- Protecting the reputation of their organization
- Improving efficiency and driving down cost
- Operating in accordance with relevant legislation
The drive to combine forces is also driven by the real world of financial crime, because criminals operate across these two areas. When they commit fraud, they need to launder the proceeds of it, and both crimes are often committed within the same banking system.
There are three big advantages in taking a holistic approach to FRAML:
- A single customer view improves discovery. When both departments have access to the same information, they both have a fuller picture of the customer, which will help them to more accurately spot suspicious behavior, make better decisions and take appropriate action.
- Advanced analytics for fraud detection can be applied to AML. Until recently the solutions for managing fraud and money-laundering have been on different tracks. Today, driven by notorious cases and high fines, those involved in fighting money laundering want the functionality available to the fraud department. Demand has grown for real-time detection of money-laundering behavior, because the sooner suspicious behavior can be identified the sooner remedial action can be taken. Similarly, the compliance team can benefit from the AI and machine learning technologies that have been available to the fraud department for many years.
- Economies of scale can reduce costs. When both departments share solutions and resources, overall costs can be reduced. In addition, the people in the fraud department will use skills they could bring to the compliance department, and vice versa, giving organizations more flexibility in how they deploy personnel.
FICO is leading the enterprise management approach to financial crime by helping our clients tackle both fraud and compliance. To understand how we help organizations tackle a wide range of fraud and financial crime, visit our financial crime pages and read our experts discussing Advancing AML Compliance with Artificial Intelligence.