The real costs of false positives

Managing huge (and growing) volumes of alerts is creating an avalanche of challenges for banks.

Transaction monitoring systems that produce a huge volume of alerts can be a big challenge for banks and other financial institutions. And the challenge is more than a simple matter of costs.

Let’s highlight some of the most serious adverse consequences:

One of the most fundamental issues is analyst retention. Nobody wakes up in the morning excited to slog through another day of exceedingly mundane and repetitive tasks with limited tangible results, but that is often the daily experience for analysts in the anti-money laundering area. Hiring and retaining good people for such roles is therefore tough. And retention of good analysts is important as the work requires skill and experience to verify these complex structures.

Closely associated with this is the issue of quality of investigations. It can be difficult to ensure that the quality of investigations is still sufficient when dealing with so many false positives due to analyst fatigue. The FCA has warned for years about poor practices that “generate large numbers of resource intensive false positives” and result in firms “discounting actual target matches incorrectly as false positives due to insufficient investigation”.

Which leads to the issue of missing crime. Catching real criminals is the core goal of transaction monitoring. When analysts are spending too much time on false positives, and financial institutions have to make choices about which cases to investigate, there’s a real risk that criminal activity will go undetected. This can lead to difficult conversations with regulators.

Last but not least, there is customer friction. False positives that block legitimate transactions are an obvious pain point for customers. Clients are also being asked to provide increasing amounts of information when being investigated. No businesses want to annoy their good customers for what are often clearly legitimate transactions, so there will always be pressure from the business to mitigate this. When prolonged, this may weaken support for otherwise understandable risk measures.

To make matters worse, the volume of alerts is only increasing and always at a faster pace than the resources available to cope with them.

Where to draw the line. You’ll never be able to do everything. And with so many challenges, it’s obvious that everybody wants to reduce the volume of false positives – while decreasing the risk of missing true positives.

There are no magic bullets

But there are better ways of managing the challenges. One of them is to focus on the expected behaviour of your good customers to catch the bad and reduce clear false positives.

Or as the SWIFT Institute recommended recently:

“Financial institutions should seek to monitor for consistency of client behaviours and report suspicion that arises, rather than seeking to find suspicious activity as a primary activity.”