CEB TOWERGROUP COMMERCIALBANKING AND PAYMENTS PRACTICE

ANTI-MONEY LAUNDERING
Technology Analysis Abstract*

Andy Schmidt
Research Director, Commercial Banking and Payments

Vendor Assessment Team

*For full copies please contact Peter Johnson at CEB TowerGroup

COMMERCIAL BANKING PRACTICE

Executive Director Aaron Kissel Practice Manager Joanne Pollitt Research Director Andy Schmidt

VENDOR ASSESSMENT TEAM

Managing Director Jaime Roca Project Manager Magda Rolfes Research Analyst Phung Phan

COPIES AND COPYRIGHT As always, members are welcome to an unlimited number of copies of the materials contained within this handout. Furthermore, members may copy any graphic herein for their own internal purpose. The Corporate Executive Board Company requests only that members retain the copyright mark on all pages produced. Please contact your Member Support Center at +1-866-913-6450 for any help we may provide. The pages herein are the property of The Corporate Executive Board Company. Beyond the membership, no copyrighted materials of The Corporate Executive Board may be reproduced without prior approval.

LEGAL CAVEAT CEB TowerGroup has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and CEB TowerGroup cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, CEB TowerGroup is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by CEB TowerGroup or its sources, or b) reliance upon any recommendation made by CEB TowerGroup.

EXECUTIVE SUMMARY
TECHNOLOGY ANALYSIS SCOPE & METHODOLOGY In response to feedback from our membership, CEB TowerGroup developed this technology analysis product to identify key components of a technology investment decision and effectively compare vendor technology products. The basis of our process comes from the knowledge that investment decisions revolve around the benefit to the end-user and enterprise of a technology rather than the feature set alone. This technology analysis is tailored to reflect the needs of the end-user to diagnose the technology attributes particular to a firm, and to effectively identify vendor products that align with the firms needs. To that end, CEB TowerGroup conducted a series of interviews and surveys wi th financial services executives, industry experts, and vendors regarding branch sales and service technology. The results of this research formed the basis of our anatomy and informed the proprietary five point rating system on which we scored individual products. CURRENT MARKET & FUTURE INVESTMENT Money laundering directly impacts global financial stability. The IMF estimates that the total funds laundered each year globally are equivalent to 5% of global GDP or $3.5 trillion, which is roughly the size of the German economy. Because money laundering often involves cross-border financial flows, it can artificially distort international capital flows. This discourages foreign investments and disproportionately impacts developing countries which rely more heavily on foreign capital to finance their growth. Money laundering is the top area of focus for compliance executives. In 2012, a series of regulatory actions against major global banks centering around their anti-money laundering (AML) control lapses dominated the headlines. The eye-watering fines, which range upward of over a billion dollars, imposed on these institutions served as a warning for the entire global industry. In response, financial executives have placed renewed focus on AML compliance. In a survey conducted by the European Commission, executives from both large and small institutions rank AML as the number one compliance function in terms of resource allocation. Leading financial institutions are developing an enterprise strategy for AML compliance. AML compliance lapses often occur when controls are set and managed by individual business units or subsidiaries without centralized oversight. This can create a disparate mix of sometimes contradictory approaches. Leading banks are pursuing an enterprise approach to AML compliance, in which a single strategy is applied and enforced across all business lines and units. To do this, these banks are investing in scalable and flexible transaction monitoring systems which possess proven capabilities to integrate with a wide variety of source systems.

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EXECUTIVE SUMMARY
VENDOR LANDSCAPE AND RANKINGS Anti-money laundering (AML) systems monitor transactions at financial institutions to detect the patterns indicative of money laundering behavior utilizing a combination of rules and analytics-based strategies. The selection process for featured technologies centered around those vendors with mature products, globally recognized innovation, and multiple large-scale installations at major financial services institutions. In particular this report focuses on end-to-end AML solutions with transaction monitoring, reporting, alerting, and case management capabilities. This technology analysis profiles and quantitatively ranks end-to-end AML technology solutions from ACI Worldwide, BAE Systems Detica, EastNets, FIS, Fiserv, Jack Henry, Oracle, NICE Actimize, TCS, Tonbeller, Verafin, and Wolters Kluwer Financial Services. Additionally this report also profiles 2 sanctions screening solutions from Accuity and Fircosoft and 1 specialty AML system from Experian. These 3 solutions were not scored against the end-to-end systems because of the more limited scope of their offerings. By combining our qualitative and quantitative data from interviews with industry experts, financial institutions and vendors, CEB TowerGroup identified 23 attributes that define a best-in-class AML system. These attributes are grouped into four categories that highlight a firms user and enterprise needs. Vendor rankings are based on our proprietary five point rating scores on each of the 23 best-in-class attributes. The top vendors were designated as best-in-class performers based on their composite scores in each of the technology categories below.

BEST-IN-CLASS TECHNOLOGY CATEGORIES

Banking executives investing in AML Compliance should use the Diagnostic Anatomy on page 17 to select the vendor that best aligns with their firms needs and business objectives. Vendors are listed in alphabetical order. DETECTION TOOLS includes those attributes that enable financial institutions to identify and prevent all high risk transactions and behaviors across the enterprise. Leaders includes 3 vendor products USER EXPERIENCE includes those attributes that enhance user productivity by improving the breadth and quality of data. Leaders include Wolters Kluwer Financial Servicess Wiz Sentri, and 2 other vendor products ENTERPRISE OPERATIONS includes those attributes that support standardized AML compliance across all business lines and delivery channels. Leaders include Wolters Kluwer Financial Servicess Wiz Sentri, and 3 other vendor products ENTERPRISE SUPPORT includes those attributes that influence the vendors tactical fit and strategic alignment with the enterprise. Leaders include 4 vendor products
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TECHNOLOGY ANALYSIS OVERVIEW

Mission Statement: CEB TowerGroup technology analysis process provides a customer-driven, transparent, and unbiased review designed to drive informed business decisions.
Current Market: Provides a view of industry and customer changes, and best practices for technology investment and implementation. Future Investment: Forecasts IT spending and identifies emerging technologies and innovations. Vendor Landscape: Provides an overview of key vendors, product features, and market position. Product Rankings: Highlights best-in-class attributes and shows a comparative perspective of leading products.

Technology Analysis Presentation Roadmap

Current Market
Market Drivers: Assess changes in the industry and customer behavior

Future Investment
Emerging Technology Landscape: Pinpoint emerging technologies and innovations

Vendor Landscape
List of Players: Identify key technology firms and their products

Product Ranking
Best-in-Class Products: See the top products based on our anatomy categories

Case Study: Learn why a global banks inadequate AML controls led to massive fines

Diagnostic Anatomy: Choose your investment priorities with our proprietary framework Feature Audit: Compare the relative feature offerings by vendors Vendor Profiles: Understand the key differentiators between products

Ranking Methodology: Review the key components of an investment decision

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Current Market

Future Investment

Vendor Landscape

Product Rankings

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A THREAT TO ECONOMIC AND FINANCIAL STABILITY

Money laundering activities undermine the integrity and stability of financial systems and institutions by distorting capital flows and discouraging international investment.
The annual volume of money laundered is vast, potentially equivalent to 5% of global GDP, or roughly the size of the German economy. In 2008, GFI estimated that $1.26 trillion of illicit assets flowed out of developing countries, depriving their economy of crucial growth capital.

Comparing Money Laundering Estimates with National GDPs

Estimates in Trillions USD, 2011

Illicit Financial Outflows from Developing Countries in 2009

Estimates in Billions USD, 2010

USA

$15.1 $7.3 $5.9 $3.6 $3.5 $2.8 $2.5

$194 Americas $210 Europe $559 Asia Pacific

China
Japan Germany High Estimate France Brazil UK Italy Russia India Low Estimate

$224 Middle East/ Africa

$2.4
$2.1 $1.9 $1.8 $1.7

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In 2009, Global Financial Integrity (GFI) estimated that $1.26 trillion dollars of illicit funds flowed out of developing countries, $500 billion of which ended up in Western accounts. In addition to funding criminal and terrorist activities, these outflows hurt the poor in developing countries. They strip their government and economy of resources for infrastructure and human capital investments and undermine global development efforts.
Source: Illicit Financial Flows from Developing Countries Over the Decade Ending 2009, Global Financial Integrity

Source: International Monetary Fund Estimates

IDENTIFYING REGIONAL SOURCES OF MONEY LAUNDERING RISK

Although money laundering is a major problem in every country, compliance risks will be higher in developing countries with weak governments.
Developing countries in Asia, Africa, and Latin America have the highest risk exposure for money laundering and terrorist financing. Traditional tax shelters like Luxembourg and Switzerland top the list among industrialized countries. In CEB TowerGroups analysis of 30 compliance reports published by the Financial Action Task Force (FATF), the management of politically exposed persons (PEPs) and DNFBP1 were identified as a common area of policy challenges for most countries.

High Money Laundering Risk Countries

Top 10 Highest Risk Countries Top 5 Industrialized Countries

Rank
1 2 3 4 5

Country
Iran Kenya Cambodia Haiti Tajikistan

Score
8.57 8.49 8.46 8.16 8.12

Risk
High High High High High

Rank
6 7 8 9 10

Country
Mali Uganda Paraguay Belize Zambia

Score
7.88 7.63 7.57 7.44 7.41

Risk
High High High High High

Rank 49 64 68 71 74

Country Luxembourg Japan Germany Switzerland Austria

Score 6.17 5.88 5.80 5.78 5.74

Risk Med Med Med Med Med

Source: 2012 AML Index, Basel Institute for Governance

Global Areas of AML Non-Compliance

Number of Surveyed Countries Compliance with FATF Recommendation Compliant Countries Non-Compliant Countries 21

Politically exposed persons DNFBPs R.5, 6, 8-11 Correspondent banking DNFBP: regulation, supervision and monitoring DNFBPs R.13-15 & 21 Wire transfer rules

12
13 14 17 18 20

18
17 16 13 12 10

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Cross-border declaration & disclosure

Source: Financial Action Task Force for Money Laundering, CEB TowerGroup Research 1Note: Designated Non-Financial Business and Professions

A SERIOUS BUT MANAGEABLE BURDEN

The importance of AML compliance reflects the significance of money laundering risk in banks operational models.
In a survey of banking executives conducted by the European Commission, money laundering responsibilities was ranked first among compliance functions in priority for resource allocation. The study also found that AML compliance does not typically consume a large proportion of operating budgets. The one-time costs for financial institutions to comply with the EUs Third AML Directive consumed less than 3% of annual compliance budgets, and ongoing costs are less than 0.3%.

Rank of Resource Allocation Among Compliance Functions at European Banks

Compliance Function Money laundering responsibilities Implementing and influencing regulatory changes Internal monitoring of business Providing advice Product and business developments Training External reporting Internal reporting Special projects or reviews Remedial action Large Banks 1 2 3 3 5 6 7 8 8 10 Small Banks 1 2 3 4 8 10 7 5 9 6

Average Compliance Costs for Banks Associated with the EUs Third AML Directive
2.90% As a Percentage of Regulatory Compliance Costs As a Percentage of Total Operating Expenses

0.59% 0.29%
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0.08%

One-Time Costs

Ongoing Costs

Source: Compliance with the Anti-Money Laundering Directive by Cross-Border Banking Groups at Group Level, European Commission, 2010

A MATURE TECHNOLOGY SPACE

Because of its centrality in compliance enforcement, dedicated AML software has been adopted by most financial institutions.
In CEB TowerGroups survey of global financial technology executives, 80% of respondent institutions have at least one AML solution deployed. Half of those that do not yet have a dedicated AML system plan to by 2016. Three-quarters of respondents state that their investment in AML technology has yielded high value.

Current AML Technology State at Global Banks

Percentage of Respondents, 2012

Value Perception of AML Technology

Percentage of Respondents, 2012

11% Does Not Have

8% Adopting

46% Very High Value

25% Moderate Value

49% Have It, Not Changing

N=37

32% Have It, Replacing

N=24

29% Somewhat High Value

Source: 2012 Financial Services Institutions Technology Adoption Survey, CEB TowerGroup

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DEVELOPING AN ENTERPRISE VIEW OF AML MANAGEMENT

While the majority of financial institutions have formal AML systems, many still experience serious issues in executing an effective strategy.
Gaps in AML controls are typically symptoms of a siloed IT infrastructure, in which a banks reliance on disjointed monitoring systems across various business units results in an incomplete view of risk. When analyzing customer and transactional data for the subtle patterns and linkages that betray money laundering activities, investigators need access to the full range of information stored across the enterprise. KYC/CDD

AML Enterprise Architecture

Customer Onboarding/Continuous Risk Assessment Know Your Customer/Customer Due Diligence Verify the identity of the customer Cross-check name, tax number, and other personal info with credit reports and third-party databases Challenge: Lacking quality external data, banks will often rely on limited information, such as a single credit report or incomplete internal white/blacklists Sanctions Screening Screen customer names against known sanctions lists such as the EU, UN, and OFAC lists Identify politically exposed persons (PEP) Challenge: Poor customer data held on disjointed systems, often results in high false positive rates Alerts and Case Management Rules and analytics models determine identify high risk customers/transactions based on a variety of factors Alert high risk customers/transactions, investigate cases; analyze, document, and report information

New Customer

CRM System(s)

Sanctions Screening

Analytics, Rules and Scoring Engine Alerts and Case Manager

Ongoing Transaction Monitoring

Core Systems
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Payment Channels

Account Access Channels

Monitor all monetary and non-monetary transactions for behavioral patterns typical of ML activity Challenge: the integration of channels and systems remains a key obstacle to providing a consistent analysis of all transaction across the enterprise 11

MULTIPLE REGIONS CAN BE GOVERNED BY A COMMON APPROACH

For global financial institutions, national or regional-level regulations can be as much a barrier as deficient technology in the development of an enterprise approach to AML.
In many countries, regulatory requirements may prevent transaction information from leaving the country in which the transaction takes place. This obstacle to data visibility can result in a lack of centralized control that may allow independent business units to pursue policies contrary to corporate standards. A Hub model of enterprise AML management enables a centralized approach to policy governance to be disseminated to regional or country-level hubs.

Hub Model to Enterprise AML Management

These hubs ensure that global corporate policy is met within the regulatory context of each specific region.
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Enterprise level strategies are established and global compliance is monitored from a single location.

Regional hubs ensure that business units corporate policies are enforced, while maintaining internal firewalls.

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Current Market

Future Investment

Vendor Landscape

Product Rankings

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EMERGING TECHNOLOGIES IN ANTI-MONEY LAUNDERING

Emerging Technology Matrix
High
AnalyticsBased Detection

DEFINITIONS
Enterprise Governance Solutions AntiStripping Tech Next Generation Link Analysis Complex Events Processing

Workflow Impact

ROI Potential

Real Time Processing AML/Fraud Platform Convergence Integrated FATCA Compliance

ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology Technology State: Measures the technologys level of development Workflow Impact: Measures the level of change the technology will have on current operations and processes

Minimal

Medium

Low

High

Market-Ready Next-Generation Analytics

Technology State
Emerging Governance Strategies

In Pilot

Analytics-Based Detection: detection strategies that are based on statistical analysis of transaction information with flexible parameters such as Bayesian and Neural networks
Next Generation Link Analysis: link analysis with dynamic network view and filtering capabilities Complex Events Processing: analysis technique that automates generation of insight from Big Data

Enterprise Governance Solutions: technology that enables AML compliance to be monitored and enforced for all business lines from a single location
Anti-Stripping Technology: technology that detects when wire transfer data has been stripped or manipulated AML/Fraud Platform Convergence: an enterprise platform capable of detecting both fraud and money activities

Real-Time Processing: capability to process transaction and detect AML-linked activity in real-time

Integrated FATCA Compliance: tools that enable banks to report on financial accounts and foreign entities owned by U.S. taxpayers
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THINKING LIKE A HUMAN: BAYESIAN BELIEF NETWORKS

Bayesian Belief Network (BBN) models replicate the approach that the human brain utilizes to make decisions in contexts of limited information and high uncertainty.
BBN models, like people, utilize a heuristic approach to decision making, by drawing on contextual information to infer a most probable outcome. By tailoring the detection logic toward individual cases, BBNbased strategies yield superior detection and false positive rates compared to primarily rulesbased strategies which apply a one-size-fits-all approach to money laundering detection.

Illustrative Model of a Bayesian Belief Network for Structuring

Customer Profile Peer Group Deposit Frequency EDD Risk Assessment Account Type

Bayesian Decision Thought Process 1. A series of transactions is determined to match a known scenario corresponding to structuring. 2. Is the customer who is performing these transactions known to be of high risk? 3. Are these transactions characteristic of this individual, this account type, this peer group? 4. Incorporate available data into the model to determine risk score, which determines whether an alert is produced.

Deposit Amount
Structuring?

Deposit Location

Nature as a Model Although rules-based strategies are good at detecting the behavioral patterns that are characteristic of various money laundering scenarios, the generalized nature of their binary logic often yields high false-positives, creating an excessive number of alerts that can overwhelm already strained compliance budgets. In order for a rules-based strategy to possess both high detection and low false positive rates, hundreds, if not thousands of rules customized to every conceivable account type and customer profile would need to be written and maintained. In contrast to the static determinism of primarily rules-based strategies, emerging approaches toward money laundering detection try to replicate the dynamic thought processes of an expert analyst. Studies have shown that in situations where information is too limited for a person to make a logical choice, humans follow a heuristic or experienced-based approach to decision making. In this method the human brain draws on a variety of sparse, interrelated contextual data leveraged from past experiences to establish strong inferences about a decision. Bayesian Belief Networks (BBN) are statistical models that replicate this heuristic human reasoning. In AML management, BBN models determine whether a set of transactions should be flagged high risk, not only by matching it to a known scenario, but also by considering contextual information such as customer demographics, risk profile, and account type. This enables the BBN model to mark a set of transactions as money laundering not because it is suspicious per se, but is suspicious within the context of the particular customer.
Source: CEB TowerGroup Research

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ANALYTICS FOR COMBATING WIRE STRIPPING

The stripping and manipulation of identifying information on wire transfers and other financial messages, is designed to circumvent conventional sanctions screening controls.
Wire stripping is at the heart of two recent high-profile cases involving global banks that have been accused of covering up transactions they facilitated for internationally-sanctioned entities. A promising new strategy created to identify and block stripped wires focuses on a fingerprinting approach, which identifies transactions by matching its attributes to previously blocked transactions.

Fingerprint Stripping Detection Schematic

Banking Applications
(ACH, SWIFT, etc.)

Wire Fingerprinting Process 1. Transaction information is sent to the engine which calculates its fingerprint to determine if it matches any known cases. 2. If there is no match the solution releases the transaction, if there is a match the solution sends an alert for further investigation. 3. Investigators analyze whether an alert is positive or not and sets the transactions final disposition, which blocks or releases a payment.

3. Block Transaction? (Y/N)

Hits and Investigation

1. Transaction Data

2. Matching: No Fingerprint Database and Matching Engine

2. Matching: Yes

Identifying When a Wire has been Altered Stripping is the intentional removal of information, such as customer names, bank names, and country origin, from wire transfers and other financial messages. By concealing the source of wires, stripping allows rogue institutions, or the rogue elements within an institution, to circumvent controls provided by watch list filtering solutions and facilitate transactions for sanctioned entities. Stripping became a major source of focus for financial compliance executives in 2012 after it was revealed to be the central charge in US regulators sanctions violation case against 2 European -headquartered banks. In order to settle their case, these banks paid combined fines of almost $1 billion. Because the act of stripping removes all traces of a wires illicit origins and repairs it with manipulated data, it is nea rly impossible for conventional sanctions screening technologies to identify and block stripped transactions. Fortunately a variety of new strategies have recently been developed by sanctions screening providers to effectively catch and stop stripped wires. One of the most promising strategies centers around the concept of transaction fingerprints. When a regular transaction is blocked by an anti-stripping enabled screening solution, the unalterable parts of the transactions information (e.g. currency, amount, ordering customer, beneficiary bank) will be stored in a database and captured as a unique fingerprint. Therefore, even when a stripped transaction enters the sanctions filtering solution, its fingerprint can be calculated and if it matches any of those in the database, the transaction will be blocked, even though its identifying information might seem legitimate.
Source: FircoSoft, CEB TowerGroup Research

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ENFORCING AN ENTERPRISE COMPLIANCE STRATEGY

Enterprise View: summary visualizations provide compliance executives with a snapshot of global AML activity

Activity Overview: high-level view of which rules or detection models are creating the most alerts

Advance Research: dynamic drilldown capability for more in-depth research of high risk countries, subsidiaries or business lines

Control Status: automated analysis of detection scenarios flag potentially ineffective rules and models

Monitoring and Enforcing Enterprise Compliance The key to the effective enforcement of an enterprise compliance strategy begins with quality data. This however, is easier said than done. The challenge for a transaction-based enterprise monitoring solution is that it must be flexible and scalable enough to support the numerous and disjointed source systems within a single institution. Modern AML systems deploy a wide range of integration techniques such as ETL, web services, and standard messaging that allow them to integrate with a variety of source systems ranging from mainframes to web-based solutions. Furthermore, many of these modern systems will also support advanced data standardization techniques that convert transactional data from all channels and systems into a single format that is compatible with its analytics.
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The integration of all transactional data through a single analytical engine provides the technological basis for enterprise compliance monitoring and enforcement. AML systems will distinguish themselves in this area by the quality and flexibility of their data analysis and visualizations. The strongest solutions in this space will include extensive dashboard and information drill-down capabilities that can provide not only alert and case activity across business lines, but will also be able to automatically flag problematic detection scenarios and rules, and enable a structured approach for refining models.
Source: CEB TowerGroup Research

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Current Market

Future Investment

Vendor Landscape

Product Rankings

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MAPPING THE AML VENDOR LANDSCAPE

Vendor AML Systems By Date of First Active Deployment1

Compliance Link2

Detica NetReveal

Financial Crime Risk Management

Prime Compliance Suite

TCS BaNCS

Yellow Hammer

Firco Continuity/Trust2

Proactive Risk Manager

Actimize AML Suite

Wiz Sentri

en.SafeWatch

1995
ASSIST//ck

2000
Oracle FCCM SironAML FRAML

2005

2010

1 Date

of first active deployment is the year in which the solution featured in this report began supporting AML management processes at a financial institution. Technology providers may have deployed other AML systems before this date, but was not accounted for in this timeline. watch list filtering solutions only. As such, these solutions were not compared and scored alongside end-to-end AML monitoring systems.

2 Denotes

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ANTI-MONEY LAUNDERING DIAGNOSTIC ANATOMY

1 AML Typologies The system identifies and captures the typology of money laundering cases to increase its ability to detect and prevent similar events. 2 Link Analysis The system discerns connections between entities and provides visual tools to monitor and analyze the nature of those relationships. 3 Cross-Channel Support The system supports the detection of money laundering activity across all payment types. 4 Behavioral Modeling The system supports detection on new accounts by modeling likely transaction behavior as part of a comprehensive AML strategy. 5 Risk Scoring The system incorporates real-time statistical models and defined business rules to automatically score all transactions by potential risk. 6 Anomaly Detection The system can identify key transactional behaviors and patterns in order to recognize uncharacteristic transactions. 7 Geographic Capability The system can discern money laundering activity in multiple currencies and determine geographic regions and language differences. 8 Alerts Management The system provides timely alerts that accurately flag money laundering activity both during and after transactions. 9

Detection Tools
HOW TO USE ANATOMY
The anatomy is designed to assist financial services executives better assess and prioritize components of their technology investment. As you take this anatomy, please consider your firms business strategy and current technology maturity.
23

Case Management

The system offers comprehensive tools to manage money laundering cases and communication related to litigation and enforcement. 10 Routing and Prioritization

Vendor Stability

1. Rate the impact of each attribute to your business and your firms effectiveness on a 1-5 scale using the grading scale below and tally the results using the scorecard. 2. Map the results on the scorecard on to identify areas that are most important, but where your firm is least effective.
Attribute Grading Current Effectiveness 5 = Superior Capability Potential Impact We or our vendor offer this regularly, 5 = Very High Impact Our firm considers this attribute mission critical systematically, and at the highest standard. when performed at the highest standard. We or our vendor offer this regularly and systematically. 4 = High Impact Our firm considers this attribute highly important when performed at the highest standard.

The vendor has an established industry presence and can provide long term support for institutions. 22

User Experience

The system automatically routes questionable transactions to the appropriate workflow queue depending on risk, size, location, or party. 11 User Interface

Technology Innovation

Enterprise Support

The vendor possesses a proactive strategy to incorporate innovative technology and strategies into its product development roadmap. 21 Product Maturity The vendor possesses a mature product with a growing market share and client base.

4 = Strong Capability

3 = Adequate Capability We or our vendor offer this regularly but in an ad hoc manner. 2 = Marginal Capability We or our vendor offer this irregularly and in an ad hoc manner. We or our vendor do not do this at all.

1 = Weak or not at all

3 = Moderate Impact Our firm considers this attribute moderately important when performed at the highest standard. 2 = Low Impact Our firm considers this attribute somewhat important when performed at the highest standard. 1 = No Impact Our firm does not consider this attribute important when performed at the highest standard.

The system possesses an intuitive, configurable user interface with dashboards that utilize built-in workflow logic to guide users.
12 Report Management The system provides standard static reports and a custom reporting tool that allow users to generate ad hoc reports.

Enterprise Operations
20 Product Deployment 19 Pricing Flexibility 18 Compliance Strategy 17 Systems Integration 16 False Positive Mitigation 15 Workflow Management 14 Modularization 13 Security and Permissions The vendor supports multiple deployment options, and provides full support to the enterprise during deployment.

The vendor offers multiple pricing options with flexibility surrounding additional on-going support packages.

The vendor possesses a proactive strategy for meeting new regulations and industry guidelines, and supports the enterprise during audits.

The system integrates with front and back end systems across delivery channels with little or no customization from vendor.

The system manages and reports false positives providing feedback loops that enable adjustments to risk scoring, customer contact, alerts, and cases.

The system supports a configurable workflow that integrates to internal money laundering systems and additional data sources.

The system has multiple modules that may be configured and deactivated to optimize workflow for an individual user.

The system provides authentication and access controls that satisfy workflow hierarchies, reporting, and security and 20 compliance requirements.

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DIAGNOSTIC ANATOMY SCORECARD

Score Your Technology Needs With the Anatomy Scorecard:
Financial services executives should complete the scorecard using the AML anatomy diagnostic tool. Attribute Categories 1. 2. 3. 4. 5. 6. 7. Alignment Attributes AML Typologies Link Analysis Cross-Channel Support Behavioral Modeling Risk Scoring Anomaly Detection Geographic Capability Potential Impact Importance of Improvement

Detection Tools

User Experience

8. Alerts Management 9. Case Management 10. Routing and Prioritization 11. User Interface 12. Report Management 13. Security and Permissions 14. Modularization 15. Workflow Management 16. False-Positive Mitigation 17. Systems Integration 18. Compliance Strategy 19. Pricing Flexibility 20. Product Deployment 21. Product Maturity 22. Technology Innovation 23. Vendor Stability

Business Process Improvement

Enterprise Support
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DIAGNOSTIC ANATOMY SCORECARD

Compliance executives should map their attribute scores from rating their impact and effectiveness on the previous page on this matrix to identify the most important areas to their vendor selection. Potential Impact
Areas of Focus

5 =Very High

4 =High

3 = Moderate

2 =Low

1 =No Impact 1 =Weak 2 = Marginal 3 = Adequate 4 =Strong 5 = Superior

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Current Effectiveness

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FEATURE AUDIT DEFINITIONS

Feature Reporting Features Currency Transaction Report (CTR) Composite Reporting On-demand Reporting Presentation Tools Suspicious Activity Report (SAR) Reporting Formats Supported Excel HTML PDF Word Workflow Tools Alerts Risk Scoring Approval Workflows Audit Trails Customer Risk Scoring Document Versioning FATCA Compliance Process Automation Role-based Permissions Segmentation By Risk Profile Suspicious Activity Monitoring The solution provide tools to automatically score every transaction for money laundering risk. The solution provides standard workflows for alerts and cases to be reviewed by management. The solution provides audit trails that records the actions performed by compliance analysts for every alert and case. The solution can automatically score new customers for money laundering based on a variety of configurable criteria. The solution can keep track of multiple versions of case documents and attachments for audit purposes. The solution provides tools to enable banks to report on financial accounts and foreign entities owned by U.S. taxpayers. The solution provides workflow tools that enable the automation of alert and case workflows. The solution utilizes role-based permissions and access. The solution allows financial institutions to configure custom risk segmentations based on a variety of criteria. The solution provides real-time or batched suspicious activity monitoring for all transactions. Reports can be generated in an Excel (xls) format. Reports can be generated in an HTML format. Reports can be generated in a PDF format. Reports can be generated in a Microsoft Word (doc) format. The solution supports the manual and/or automated creation of Currency Transaction Reports (CTR) from system data. The solution supports the compilation of multiple regulatory reports into one composite report. The solution provides tools for users to create custom ad hoc reports from system data. The solution provides reports with graphical and data visualization capabilities. The solution supports the manual and/or automated creation of Suspicious Activity Reports (SAR) from system data. Definition

Tunable Parameters Watch List Filtering

The solution provides tools to refine the parameters of money laundering detection rules and models. The solution provides customer and transaction sanctions filtering capabilities against major watch lists.

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FEATURE AUDIT
Vendor Product Reporting Features Composite Reporting Currency Transaction Report On-demand Reporting Presentation Tools Suspicious Activity Report

WKFS

Vendor A

Vendor B Product B

Vendor C Product C

Vendor D Product D

Vendor E Product E

Vendor F Product F

Vendor G Product G

Vendor H Product H

Vendor I Product I

Vendor J Product J

Vendor K Product K

Wiz Sentri Product A

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Reporting Formats Supported

Excel HTML PDF Word Workflow Tools Approval Workflows Audit Trails Customer Risk Scoring Customer Risk Segmentation Document History/Versioning FATCA Compliance Process Automation

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Risk Scoring
Role-based Permissions Suspicious Activity Monitoring Tunable Parameters Watch List Filtering

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Premium or Add-on Feature

24

WIZ SENTRI
WOLTERS KLUWER FINANCIAL SERVICES
KEY STATISTICS Company Type: Subsidiary Parent: Wolters Kluwer HQ: Minneapolis, MN Founded: 2006 Employees: 2,300 Revenue: Not Disclosed Clients by Asset Size Company Overview A subsidiary of the global information services and publishing company of the same name, Wolters Kluwer Financial Services (WKFS) focuses on delivering compliance, risk management, and audit solutions for the financial services industry. The company is organized into three primary divisions: technology, consulting, and data services. WKFS technology division provides software solutions to more than 15,000 clients globally, while the consulting practice delivers expert risk and compliance advice through tailored engagements. In 2012, WKFS acquired Belgian-based FinArch, extending the companys capabilities into integrated finance, risk, and performance management. Product Overview Developed in 2003, Wiz Sentri is an enterprise BSA/AML compliance platform. The solution is split into two primary components: an information and reporting module for compliance executives, and a workflow module for frontline fraud and AML managers and analysts. The executive module provides compliance heads with a view of risk, financial activities, and the performance of rules groups and detection models across the enterprise. The workflow modules provide analysts with capabilities to support customer due diligence, transaction monitoring, and alerts and case management. Deployed on both a licensed and SaaS model, the solution currently serves North American financial institutions but fully supports localization and is now being marketed in Europe and Asia. Product Demonstration Highlights Behavioral Modeling: In addition to standard tools that help identify risk on new accounts using peer group analysis and comparing onboarding information with transactional behavior, Wiz Sentri can adjust the sensitivity of detection models on high risk accounts, such as ones with limited history, which lowers their alert thresholds. Case Manager: Wiz Sentris case-specific workflow enables users to establish activity sequences appropriate for a particular case type or business unit operational processes. From a single page the investigator can view and manage all case-related information, including case type-specific information, attachments, notes, and relationships to other cases. Management Dashboard: Wiz Sentris dashboard interface allows for a 360 degree view of threats by type, volume, and velocity and enables a strategic view of financial crimes through a reports library and bespoke report building engine. The system also provides the ability to develop customized reports to support an institutions unique needs. CEB TowerGroup View The enforcement of a standardized AML policy across all business lines and subsidiaries is a major challenge for larger national and global financial institutions. WKFS, more than any other vendor, has developed a robust strategy for how to effectively address this issue through the Wiz Sentris solutions Financial Crime Governance Risk Module. The module, one of the first of its kind that we have reviewed, represents a great leap in the development of a true enterprise view of risk management. From an interface where all data is aggregated, a corporate compliance team can monitor the state of compliance across all regions where the institution operates, detect any degradation in rules and models in order to improve them, and develop and implement new strategies from a single location. In addition to its highly user-friendly alerts management and case management interface, Wiz Sentris ability to centralize and distill information earned it 2 Best-in-Class ratings for User Experience and Enterprise Operations. 25

Banks and Credit Unions

Non-Bank Financial Institutions

<$1 B

$1-10B

$10-50 B

>$50 B

Current Clients None in this Segment

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Current Market

Future Investment

Vendor Landscape

Product Rankings

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26

CREATING OUR BEST-IN-CLASS PRODUCT RANKINGS

Phase 1 Utilizing qualitative and quantitative data, CEB TowerGroup identified 23 attributes that define a Best-in-Class AntiMoney Laundering System, which are grouped into four categories. Phase 2 Recognizing that all attributes are not equally important, CEB TowerGroup divides them into tiers to reflect their level of importance as mission critical, strong priority or differentiators. Phase 3 Certain products are recognized as Best-inClass after scoring each product based on its performance at an attribute level.

CATEGORIES

Detection Tools
Those attributes that enable financial institutions to identify and prevent all high risk transactions and behaviors across the enterprise

User Experience
Those attributes that enhance user productivity by improving the breadth and quality of data

Enterprise Operations
Those attributes that support standardized AML compliance across all business lines and delivery channels

Enterprise Support
Those attributes that influence the enterprises tactical fit and strategic alignment with the vendor

Mission Critical

AML Typologies Anomaly Detection Cross-Channel Support Behavioral Modeling Geographic Support Link Analysis Risk Scoring

Alerts Management Case Management

False Positives Mitigation Systems Integration

Compliance Strategy Product Maturity

ATTRIBUTES

Strong Priority

Reports Management User Interface

Security and Permissions Workflow Management Modularization

Technology Innovation Vendor Stability

Differentiator

Routing and Prioritization

Deployment Flexibility Pricing Flexibility

Best-in-Class Detection Tools

Best-in-Class User Experience

Best-in-Class Enterprise Operations

Best-in-Class Enterprise Support 27

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CEB TOWERGROUP COMMERCIAL BANKING AND PAYMENTS PRACTICE

RANKING MATRIX
Listed Alphabetically by Vendor

Overall, high performing vendors exhibited excellence in multiple categories. Product Leaders are the top scoring products in a given category and are chosen based on the differentiation in scoring in a particular category.
Detection Tools includes those attributes that enable financial institutions to identify and prevent all high risk transactions and behaviors across the enterprise. User Experience includes those attributes that enhance user productivity by improving the breadth and quality of data. Enterprise Operations includes those attributes that support standardized AML compliance across all business lines and delivery channels. Enterprise Support includes those attributes that influence the enterprises tactical fit and strategic alignment.
CEB TOWERGROUP COMMERCIAL BANKING AND PAYMENTS PRACTICE 2012 The Corporate Executive Board Company. All Rights Reserved.

Detection Tools WKFS Vendor A Vendor B Vendor C Vendor D Vendor E Vendor F Vendor G Vendor H Vendor I Vendor J Vendor K Wiz Sentri Product A Product B Product C Product D Product E Product F Product G Product H Product I Product J Product K

User Experience

Enterprise Operations

Enterprise Support

= Best-in-Class in Anatomy Category

4.53 4.35 4.91 3.82 4.35 4.47 3.18 4.82 4.65 4.59 4.38 4.56

4.73 3.95 4.64 4.24 4.09 4.45 4.55 4.59 5.00 4.36 4.45 4.86

4.86 4.09 4.82 3.95 4.18 4.50 3.27 4.86 4.82 5.00 4.55 5.00

4.25 4.50 4.58 3.83 4.50 4.58 4.08 4.75 Not Scored 4.17 4.58 4.50

Ranking Methodology Vendor rankings are based on our proprietary 5-point rating system for each of the 23 attributes in our AML anatomy.

28

SELECTING BEST-IN-CLASS VENDORS

Best-in-Class Product Rankings
Normalized Scores, 0.0 1.0 Scale
1.00 Vendor B Vendor G Best-inClass Products Vendor H Vendor K Vendor I Vendor G WKFS Vendor K Vendor H Vendor G Vendor B Vendor E Vendor J

0.75

WKFS Vendor I Vendor K WKFS Vendor B Vendor J Vendor A Vendor E Vendor G Vendor F Vendor E Vendor J Vendor E WKFS Vendor I Vendor F Vendor C Vendor B Vendor H Vendor J Vendor K Vendor D Vendor A

0.50

Vendor D

Vendor I Vendor D Vendor C 0.25 Best-inClass Categories 0.5 1 1.5 Vendor A 2 2.5 3 3.5 4 4.5

Vendor C

DETECTION TOOLS

USER EXPERIENCE

ENTERPRISE OPERATIONS

ENTERPRISE SUPPORT

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29

BEST-IN-CLASS ACHIEVEMENTS FOR WKFS WIZ SENTRI

The Wolters Kluwer Financial Services Wiz Sentri received Best-in-Class ratings in 2 of 4 categories of CEB TowerGroups AML Diagnostic Anatomy.
User Experience includes those attributes that enhance user productivity by improving the breadth and quality of data. Enterprise Operations includes those attributes that support standardized AML compliance across all business lines and delivery channels. ENTERPRISE OPERATIONS

Category

Scoring Analysis
Wiz Sentri provides end-to-end monitoring of all data and behavioral activity and identifies when suspicious activities are occurring. This facilitates the dispensation of alerts through a single, easy-to-use investigation and reporting tool set.

USER EXPERIENCE

Wiz Sentris case-specific workflow enables users to establish activity sequences appropriate for a particular case type or business unit operational processes. Transactions are evaluated by the solutions analytics engine which can create an incident. Such incidents in turn create alerts. Analysis, incidents, and alerts can be classified by type and assigned within a bank-configurable workflow accordingly.

Wiz Sentri is designed to evaluate aggregated activity as well as patterns of activity in order to minimize false positives. Each implementation includes tuning to ensure that threshold values (to generate incidents) are set correctly; tuning services are also available post implementation.
From an AML perspective, Wiz Sentri flexibly integrates with other systems through a variety of methods including ETL and web services. This means a wide array of systems, from mainframe to web-based, can be monitored using a single set of services, providing additional value for organizations that have large investments in legacy environments.

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30

ANTI-MONEY LAUNDERING DIAGNOSTIC ANATOMY

1 AML Typologies The system identifies and captures the typology of money laundering cases to increase its ability to detect and prevent similar events. 2 Link Analysis The system discerns connections between entities and provides visual tools to monitor and analyze the nature of those relationships. 3 Cross-Channel Support The system supports the detection of money laundering activity across all payment types. 4 Behavioral Modeling The system supports detection on new accounts by modeling likely transaction behavior as part of a comprehensive AML strategy. 5 Risk Scoring The system incorporates real-time statistical models and defined business rules to automatically score all transactions by potential risk. 6 Anomaly Detection The system can identify key transactional behaviors and patterns in order to recognize uncharacteristic transactions. 7 Geographic Capability The system can discern money laundering activity in multiple currencies and determine geographic regions and language differences. 8 Alerts Management The system provides timely alerts that accurately flag money laundering activity both during and after transactions. 9

Detection Tools Scoring Methodology To arrive at a vendor ranking, CEB TowerGroup developed a proprietary scoring metric outlined by the attributes within this anatomy that highlights the major elements of an enterprise investment decision. This metric assumes that every element is not equally important, and therefore assigns a higher level of importance to those attributes critical to an AML system. The remaining attributes are then divided further into two tiers to reflect their level of importance, highlighted below.

Case Management

The system offers comprehensive tools to manage money laundering cases and communication related to litigation and enforcement. 10 Routing and Prioritization

23

Vendor Stability

The vendor has an established industry presence and can provide long term support for institutions. 22

User Experience

Tier 1 Attributes Mission Critical AML Typologies Cross-Channel Support Anomaly Detection Alerts Management Case Management False Positive Mitigation Systems Integration Compliance Strategy Product Maturity Enterprise Support

Tier 2 Attributes Strong Priority Link Analysis Behavioral Modeling Risk Scoring User Interface Report Management Security and Permission Workflow Management Technology Innovation Vendor Stability

Tier 3 Attributes Product Differentiators

The system automatically routes questionable transactions to the appropriate workflow queue depending on risk, size, location, or party. 11 User Interface

Technology Innovation

The vendor possesses a proactive strategy to incorporate innovative technology and strategies into its product development roadmap. 21 Product Maturity The vendor possesses a mature product with a growing market share and client base.

Routing and Prioritization Modularization Pricing Flexibility Product Deployment

The system possesses an intuitive, configurable user interface with dashboards that utilize built-in workflow logic to guide users.
12 Report Management The system provides standard static reports and a custom reporting tool that allow users to generate ad hoc reports.

Enterprise Operations
20 Product Deployment 19 Pricing Flexibility 18 Compliance Strategy 17 Systems Integration 16 False Positive Mitigation 15 Workflow Management 14 Modularization 13 Security and Permissions The vendor supports multiple deployment options, and provides full support to the enterprise during deployment.

The vendor offers multiple pricing options with flexibility surrounding additional on-going support packages.

The vendor possesses a proactive strategy for meeting new regulations and industry guidelines, and supports the enterprise during audits.

The system integrates with front and back end systems across delivery channels with little or no customization from vendor.

The system manages and reports false positives providing feedback loops that enable adjustments to risk scoring, customer contact, alerts, and cases.

The system supports a configurable workflow that integrates to internal money laundering systems and additional data sources.

The system has multiple modules that may be configured and deactivated to optimize workflow for an individual user.

The system provides authentication and access controls that satisfy workflow hierarchies, reporting, and security and 31 compliance requirements.

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31

UNDERSTANDING OUR SCORING METHODOLOGY

CEB TowerGroup developed a unique and proprietary scoring methodology that highlights the key priorities for an executives investment decision.
Every vendor product featured in this report is scored on against each of the 23 attributes outlined in the AML Diagnostic Anatomy on a standardized1-5 scale. We calculate the weighted average of a products attribute scores in each of the 4 categories of the anatomy to arrive at an overall category score.

Sample Technology Analysis Internal Anatomy Scoring Guide

Illustrative Category Anatomy Attribute Title Attribute Definition Detection Tools AML Typologies The system identifies and captures the typology of money laundering cases to increase its ability to detect and prevent similar events. Enterprise Operations False Positive Mitigation The system manages and reports false positives providing feedback loops that enable adjustments to risk scoring, customer contact, and mgt. of alerts and cases.

SCORE

5 4
Scoring Metric

The system provides a wide range of complex ML typologies out-of-the-box and possesses tools to capture and translate new scenarios/patterns into new typology rule sets.

The system automatically reports false positives with feedback loops to automatically update the detection parameters.

The system automatically reports false positives, but The system provides a wide range of complex ML adjustments to detection parameters must be done typologies out of the box, with graphical tools for analysts manually. to easily develop new typologies. The system provides a wide range of complex ML typologies out of the box, but requires complex coding to add or modify rule sets. The system provides a limited range of complex ML typologies out of the box, and requires complex coding to add or modify rule sets. The system does not provide standard ML typologies outof-the-box, but is done only through intensive customization The system provides the ability to create manual reports that can identify where parameters need to be manually updated. The system can integrate with third-party reporting software to identify flaws within the detection parameters that lead to high positives. The system cannot track or monitor flaws within the detection parameters that lead to high positives.

3 2

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1
Attribute Score:

5.0

3.0
32