Taking AML to the Next Level
According to Chris Poelma, CEO and chairman of Golden, Colo.-based Comprehensive Software Systems, which makes broker-dealer software, the top 20 percent of the most advanced firms in the industry are just now leveraging their AML platforms for other ends. They view the AML obligations imposed by regulators as a cost center. "The out-of-the-box thinking is that 'I have been handed a lemon. How do I turn this into lemonade to benefit me?'" he says.
Poelma adds that AML technology "can be a very powerful data-mining tool, and you can wind up with a data repository with a lot of oomph to it." In terms of turning cost-center lemons into lemonade, he describes three methods. First, the AML platform can reduce risk for breaches of money laundering regulations. Second, used for employee and trade compliance, an AML platform can cut down on broker fraud and lower losses and insurance costs. Third, the marketing group can benefit by using Web crawlers and data-mining tools to review the data gathered and target candidates for new financial products.
Firms capture detailed information about their clients that could prove valuable if dumped into a marketing database, Poelma says. For example, firms could distill demographic information about age, marital and family status, and location. A firm might find that many of its clients are families with kids who are in high school. The firm could then target those clients with a marketing campaign touting 529 college plans.
While plausible, it will take some time for firms to get there, experts say. One recent development, however, could speed that process.
In May, the brokerage services group at Automatic Data Processing (ADP), a back-office provider to the capital markets industry, launched a compliance platform in conjunction with AML provider Mantas, based in Herndon, Va. The system integrates with ADP's securities-processing system and provides three compliance applications: an AML solution, a broker-employee program and a trading compliance offering, which are all delivered through an application service provider (ASP).
Charles Marchesani, senior vice president of product developments at ADP's brokerage-processing services division, says his firm decided to offer the service after considering client feedback. Marchesani says clients wanted regulatory and compliance solutions, so after canvassing the marketplace, ADP teamed with Mantas. He says it makes sense for the back-office provider to leverage its system into compliance, adding, "We provide a fairly full gamut of services for clients. We have all the client-transaction data." It simply required adding AML functionality to the account-opening process, he says, which was easier for ADP to implement than for the firm to deploy with each client individually.
As for offering some type of CRM or marketing functionality, it's not on the table at the moment, but Marchesani is not dismissing it. "We have all the data," but, he notes, "we're not getting a lot of 'Hey, I need more CRM tools [from clients].'"
Peter Adams, head of product management for brokerage and mutual funds at Mantas, says that "There's an advantage to having all the data pulled into a central data mart. Firms can conduct a full range of compliance analysis across the AML, trading compliance and broker-compliance areas." That avoids the need to deploy multiple systems for each area of compliance, he explains.
Alston & Bird's Winer warns that when it comes to using such information for marketing purposes, brokerages must ensure that they have the proper protections in place to allow them to use the data across the firm. That means ensuring privacy and making sure customers understand how the information will be collected, protected and used. The bottom line, Winer says, is that it's good business. "If firms don't start thinking about how they can use the information for marketing purposes, they're missing a huge opportunity."
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