What is an AML Lookback?
An AML lookback is predominantly meant to uncover past suspicious activity and flaws within the financial institution’s monitoring systems. It may stem directly from the institution itself following an internal audit or may be ordered by a regulatory agency after a control.The exercise can cover a wide range of transactions including, but not limited to, fund transfers, deposits and withdrawals, securities transactions, currency exchanges, and credit extensions. A financial institution may also assess the effectiveness of their Suspicious Activity Report (SAR) procedures or simply investigate a client’s past behaviour.
The size of the undertaking can often take anywhere from a few days to several months, depending on the size of the financial institution, the soundness of its operating procedures and the technical efficiency of the systems in place.
It’s often viewed as an intrusive, burdensome, and somewhat punitive exercise for the various departments involved including compliance, operations, and IT for its costly and enormous time-consuming nature. Regulators will generally ask financial institutions to employ an independent third-party that can carry out the lookback for them.
What are examples of a lookback?
Insurance companies – a lookback may focus on the occurrence of past fraudulent activities. The exercise may focus on analysing the early termination of past premium life insurance policies to determine if there was any suspicious behaviour. This would also mean doing a thorough KYC check on the company’s clients, asserting that no false documentation was given in the past. In this case, an analysis of the detection systems used would be highly important to check if, and why, it failed to detect those frauds.
What can a financial institution do during AML lookback?
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Engage the right independent third-party: select a company that has had prior experience on lookbacks and that can understand the nature of your institution in terms of products, customers, and services that you offer. Make sure that they’re credible with the regulators.
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System knowledge: make sure the third-party helping you has access to all systems (transaction monitoring, KYC etc.) from the beginning of the project and take time to thoroughly explain how they work.
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Communication: a good level of communication is an important aspect of lookbacks. Answer all questions in a timely and efficient manner and make sure you and the third-party are on the same page.
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Collaboration: work closely with the third-party as if they were part of your institution to ensure the most effective outcome for the project.
What can third-parties do during AML lookback?
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Knowledge: learn everything they can about the customer base, the services provided by the institution, the geographic areas they do business with, and the products they sell. Also make sure they fully understand the workings of their various systems (transaction monitoring, KYC, etc.)
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Familiarisation: the third-party should familiarise themselves with the internal monitoring system and the extraction of the scope of data for analysis.
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Data dictionary: the third-party should establish a data dictionary to integrate into the project so to better understand the company’s data structure.
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Communication: a good communication is also fundamental from the third-party. They should provide regular reports and weekly status meetings to inform the institution of their progress, ask questions, or discuss any issues that have risen.
What should be the results of a lookback?
A series of past suspicious transactions and behaviours may have emerged the analysis of historical data and the financial institution must be ready to file a high number of SARs.
Lastly, it is imperative that a remediation plan be put in place to patch up the deficiencies discovered during the course of the lookback. The financial institution must update or alter any procedure or process affected and must take measures to ensure that their systems are effective.
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Dear Johnny, Many thanks for your support. We are pleased to have provided you with insights on AML lookbacks.
Your blog is very knowledgeable. Thanks for sharing! I want to add something that lookbacks are time-consuming and costly.