Industry efficiency analysis: understanding the value of centralising AML solutions

GDFM Consulting was selected by an industry to support discussions between a panel of key market participants about financial crime compliance challenges and the opportunities for greater cooperation. The focus was on how firms might better and more efficiently meet their financial crime compliance requirements through improving reliance on third parties for elements of the CDD process.[1]

The industry participants’ major unknown was whether there were enough client overlaps between them to even make the industry discussions worthwhile. Intuitively many heads of compliance shared the thought that a large proportion of the clients did overlap. CDD on legal entities is time consuming and leads to many transactions being delayed. 

GD Financial Markets was able to perform an efficiency analysis of the legal entities that had gone through the KYC process for six industry participants for a sample period of three years. The size of the sample was such that we were able to make inference on the average efficiency and the standard deviation for the sample. 

The data set was deduplicated and normalised by our expert business analysts while avoiding the higher costs associated with the use of software. Our partnership with an eDiscovery software enables us to run a similar process for larger data samples, leveraging AI technology to speed up the matching processes and providing better insight on some of the metadata associated with each client or group of clients that were matched together (i.e. clients matched that are part of the same group or that were captured with slightly different names).

The analysis revealed that on average 20% of the client population of any given participant would match with at least one other participant. The standard deviation was 5% demonstrating a larger portion of overlap for some participants. We estimate that this average is slightly understated as two participants, who were not able to provide the data for the full sample period, both scored below average.

Interestingly, of the matching population, an average of 41% of matches were found in more than one participant’s dataset (i.e. the client was present in at least three participants’ data sets). This suggests a ‘strong match’ where – if reliance was to be supported in the industry – the participants would be able to have the assurance that a particular client has already been checked on more than one occasion.

This research highlights the significant degree of client overlap between participant firms. These firms are reflective of their industry and thus the findings here are applicable more broadly. This underlines the extent of duplication across firms in the industry, highlighting the scope for greater efficiencies and better allocation of resources.

Therefore, the analysis demonstrated a strong case for improved reliance in the industry. This could potentially free up 20% of the compliance staff to provide more ‘value added’ tasks rather than performing checks and analysis of large amounts of data. Likely benefits from this development would be ensuring a better, frictionless KYC experience to customers, while freeing up more time to effectively address red flags and complex cases, and enhancing each participant’s ability to effectively mitigate the risk of providing services to unwanted clients.

Finding a solution that allows for improved reliance would reduce duplication of these checks and bring benefits like these. There are a number of forms such a solution could take. These range from improved information sharing between firms to a more fundamental rethink like developing a shared utility to undertake CDD checks across the industry.

What all these solutions have in common is that they would leave the industry better placed to handle the financial crime compliance challenges of the future. 

You can also read our long-read article to find out more.