False Positive:
Compliance is one area where financial institutions cannot easily cut back on costs. All those operating in financial services are obliged to screen both their clients and individual transactions, to ensure they do not breach regulations. So financial institutions conduct a daily screening of customers and transactions against a long and steadily lengthening list, which is a complex process. The result – perhaps inevitably – is that these daily screenings produce a large number of ‘false positives’, or alarms that flag an issue that must be investigated but prove to be nothing.
A Growing Problem:
The problem of false positives is deepening as the number of obligations grows. For example in case of governmental sanctions, each investigation must address the complexities of who owns what, where they own it and whether it is subject to sanctions, with all banking products subject to a lengthy screening process.
Changing the Relations:
In this way bank customers will find that obtaining products becomes a more time-consuming process: they will have to present their passports more frequently and respond to more questions, to meet the requirements for “Know-Your-Customer” (KYC) identity verification. So the onboarding process is lengthier, costs increase and customers must respond to questions that some will regard as intrusive. The additional requirements also change the nature of bank and customer relationships; previously regarded as opportunities they have come to be seen more as risks.
Conclusion:
As a result of current situation financial institution compliance departments have escaped the general trend for cutbacks and seen staffing levels increase, while their employees have enjoyed improved pay and higher visibility. These departments have also seen greater investment in technology.There still remains much work to be done in compliance and a major percentage of screening work continues to be manual. Risk intelligence will help meet the challenge and bringing previously siloed customer databases together will allow banks to achieve a single overview of risk.
References:
https://www.cognizant.com/whitepapers/OFAC-Name-Matching-and-False-Positive-Reduction-Techniques-codex1016.pdf
http://www.thetaray.com/the-only-thing-worse-than-false-positives-is-no-positives/
https://www.finextra.com/blogposting/11005/anti-money-laundering-from-false-positives-to-real-positive-with-predictive-modelling-and-big-data