New York — Offering a more comprehensive approach to combating financial crimes, anti-money-laundering (AML) systems vendor Norkom Technologies is teaming with IBM Corp. to supply software to institutions across the financial services industry.

"The partnership covers more than AML and compliance," said Liam Griffin, Norkom's chief commercial officer. Dublin-based Norkom offers a range of financial crime solutions, noted Griffin, with about 50 percent of its business in AML compliance and half in fraud management and other operational risk areas. The new alliance spans software development, marketing and sales.

While Griffin acknowledged that IBM has not played a large role in compliance solutions, it has a strong presence in integrated risk management. The plan, he explained, "is to take the Norkom software platform as a core engine—instead of an application—to deliver solutions to the market." The companies will also jointly develop products "for new types of fraud and new types of risk that are coming to the fore in the marketplace," said Griffin.

He added, "Our value proposition enables clients to make a one-time investment across a spectrum which not only includes AML, but multichannel, multiproduct fraud through to combating terrorist financing."

For Norkom, whose customers include HSBC, Credit Agricole and American Express, the deal offers an opportunity for continued growth outside of North America and Europe. "Working with IBM will enable us to further expand our global footprint and enter new markets and geographies through IBM's vast network of global relationships," said Paul Kerley, CEO of Norkom, which has opened offices in Sydney, Melbourne and Singapore.

Kerley added that the agreement "will help financial organizations comply quickly and affordably with regulatory requirements and defend against operational and reputation risk and loss posed by external and internal financial attacks." According to Norkom, a "fluid regulatory environment" is driving up the operational costs to fight financial crime by 43% annually.

In a statement, June Felix, IBM's general manager of global banking and financial markets, noted that her company's clients "face monumental challenges for evolving risk management requirements and to defend against illegal activities. Incremental, siloed investments are expensive and ineffective in dealing with the growth and sophistication of multichannel threats." The Norkom partnership will help clients "defend against attack efficiently and effectively across the enterprise," she added.

Regional AML

National mandates designed to combat financial crime have been largely standardized by the FATF 40—best-practice recommendations issued in 1990 by the Paris-based Financial Action Task Force, an intergovernmental body that develops AML standards. However, implementation of those guidelines varies widely, with the developing world lagging behind North America, Europe and Australia.

"In Southeast Asia, for example, we're seeing the Monetary Authority of Singapore and the Hong Kong Monetary Authority starting to adopt robust programs," said Griffin. But in addition to the influence of FATF and other regimes, he said, "we're also seeing the Asian regulators, as they bring on these new requirements, being influenced" by the U.S. Federal Reserve.
Griffin cites the example of Norkom customer Standard Chartered Bank, which has a large clearing operation in the U.S. "Even though they don't have any retail operations in the U.S., they have a lot of money transferring into their networks outside the U.S.," including Asia, he said. "What the Fed is saying to Standard Chartered, as well as other correspondent banks in the U.S., is that if you want to deal in dollars, you have to start meeting a minimum standard in countries around the world."

Rumors of the AML market's impending demise have been greatly exaggerated, added Griffin. "We've been waiting for the market to die for the last few years based on the notion that everybody's got something for AML now," he said. "The reality is that we're seeing a growing demand outside the developed world."

According to Griffin, best practices have become a moving target as the thresholds are driven up. "If a regulator walks into a firm and sees it operating at a certain level of regulatory risk that they're happy with, then walks into a second firm where they find something that's satisfactory but not as good as the first, the bar is being raised by the example of the better institution," he said. "That's good for us. One of the things we've spent a lot of time on is that compliance should be brought together with fraud and terrorist financing," as well as areas such as information security so clients get more value for their money.

Combined Efforts

The changing landscape has not escaped the notice of the regulators. James Freis, director of the Treasury Department's Financial Crimes Enforcement Network (FinCEN), noted in a September 23 speech that financial institutions tend to associate his agency's mission "exclusively with fighting money laundering and terrorist financing. In reality, the breadth of financial crimes, and therefore our mission, is much broader."

Though they tend to be viewed as separate crimes, money laundering and fraud are often interconnected. Money laundering, Fries told the Florida Bankers Association in Tampa, "is often a malignant and pernicious product of fraud," where perpetrators seek to disguise the proceeds of a financial crime by laundering it through the financial system.

"FinCEN is in the middle of an ongoing outreach initiative with some of the nation's largest financial institutions in order to learn more about how their AML programs operate," Fries said. Among the things his agency has learned is that many of those programs "are run separately from the bank's fraud-detection departments. Some of the institutions we have spoken with have told us that they are challenged with selling the business case to fight money laundering within their institution," which is often viewed as a cost that can't be recovered.

"I want to emphasize," Fries said, "that financial institutions can benefit by leveraging their fraud resources with their AML efforts and starting to take advantage of the significant efficiencies that I see being available through this leverage."

Source: Securities Industry News

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