Do compliance officers take new money laundering techniques less seriously? No, they take it as a serious concern not only for their business reputation but for the global financial AML Systems as well. So what do compliance officers have to do? They try to implement stricter AML measures to make sure not even the slightly suspicious transaction goes unnoticed. In return, even legitimate transactions, due to strict customized rules set by the compliance officers, are often detected as suspicious transactions, which becomes a new headache for the organization.
It then takes significant resources and time to differentiate between legal and illegal transactions. That is why, false positives can sometimes even lead to more cases of money laundering, which is why it’s crucial to reduce their number. In this article, we will highlight different areas that stress the reduction of false positives within financial organizations.
- False Positives Drain Resources and Increase Operational Costs
Does the Automatic AML system say the final words on whether the detected transaction is legitimate or another false positive? No, the Compliance team has to check it on its own, manually. Now think about an organization that, due to a strict AML compliance checklist, faces too many AML false positives. What? They will align many people to check it manually and spend hours to check the legitimacy of the red flags. It’s just like draining your institution’s resources.
The cost of managing high volumes of false positives isn’t just about money; it’s about the opportunity cost. Because the case might reverse in criminals favor. When the compliance team is busy in checking the higher rate of false positives, the real money laundering transaction may go unnoticed. And this will be a real headache. While your team is busy handling false alerts, genuine threats could slip through the cracks. Reducing false positives means that your team can focus on real risks, ensuring that you’re truly safeguarding the institution from financial crime.
- Enhances Focus on Genuine Threats
High rates of false positives create an environment of alert fatigue. And you know what happens in such a situation. Every transaction seems suspicious, and potential customers will likely switch to another organization to ensure they are not getting through an extra layer of scrutiny.
Therefore, By reducing false positive rates, businesses can primarily focus on other tasks such as sharpening the compliance team skills. For that, the team must have the clarity to identify and investigate genuine suspicious activities.
- Improves Customer Experience and Retention
Would you as a customer prefer to make business relations with an organization that treats all of its clients as criminals? You would never try to even open accounts in such organizations. When do customers come again and again to you if you do the same? Due to higher false positive rates, multiple times the customers’ legal transactions are flagged as suspicious, this practice can erode trust and damage your institution’s reputation.
Another factor that can make it possible to retain your customers is that high false positive rates can lead to unnecessary account freezes, transaction delays, or even account closures which frustrate customers and push them to take their business elsewhere. However, by reducing false positive rates, you provide them a place for a smoother customer experience, and customers love to come back again and again.
- Minimizes Regulatory Risks and Avoids Fines
An excessive number of false positives will signal that your AML system is not efficient, accurate, or not modernized enough to detect the real threats. And you what happens to those institutions with weak AML regulations? They have to face millions of rupees in fines along with reputational damage in the market. So, Firms must work on their AML system to reduce the false positive rates to avoid the costly penalties that come with regulatory breaches.
- Reduces Compliance Costs and Increases Efficiency
Financial organizations already have to pay millions of dollars to stay in compliance with AML regulations. And if they have to manage the abundant false positives as well, it only adds to the financial burden. As more alerts, more investigations, which require more resources and ultimately have to spend more money. That is why minimizing false positives not only streamlines organization compliance operations but also saves the cost of having to spend on AML false positives. Is Your Business Facing a Higher Rate of False Positive? If you are facing the same issue you need to integrate the advanced AML solutions into your compliance operation to make sure you get zero false positive results.
