Money launderers can be caught in real time

South African banks, currently under pressure to implement new laws to help identify and track possible money launderers, will be considerably aided in their tasks if they implement real-time account reconciliation rather than continue with their traditional batch processing.

Money launderers work on time scales of a few hours from start to finish of an operation, knowing that batch processing within banks is not generally equal to the task of stopping them.

Real-time transaction processing can support effective anti-money-laundering technology but it also has the added benefit of producing competitive advantage in basic cash management. This can be a winning technology for banks in the corporate cash management market.

If banks build more responsive risk monitoring and mitigating systems that can help management anticipate crisis, and respond quicker to external conditions, the resulting lower volatility in its results should promote greater investor confidence and facilitate a virtuous circle as capital becomes more readily available.

While the current regulatory pressures are a once-off obligation to get historical records up-to-date, they have given banks an indication of the drain on resources that compliance causes.

Apart from new laws, there are the requirements of King II and Basel II monitoring corporate governance and risk management, and complying with global payment mechanisms such as continuous linked settlement (CLS).

South African banks should view the current focus on verifying client details in terms of the Financial Intelligence Centre Act and the Prevention of Organised Crime Act as an opportunity to implement flexible information technology (IT) systems in support of flexible and market-responsive banking systems.

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Remaining competitive and legally compliant requires a dexterity not often seen in financial institutions bound by traditional business processes that are split between different `business silos`. The old management style of reorganizing banking along specific product or operating lines is a hindrance in times when real-time access to a comprehensive view of information is crucial.

The winners will be those that have in place - and use - technology that gives them real-time insight into transactions and alerts them promptly when something suspicious passes through their books, or whose management can use the real-time information to make dynamic business decisions.

And they can do this without taking their eye off the ball - retaining and gaining customers through superior customer relationship management and innovative product development that is quickly marketed.

The core banking systems that are the heart of retail banks hold a vast wealth of information that is being insufficiently leveraged. A core banking system must provide data to feed and run the models and reporting mechanisms essential for agile banking.

But the process is rarely simple. In many cases the lack of co-ordination between business and IT becomes apparent when thought is given on how to create these new reporting mechanisms. Often IT operations concentrate on technical monitoring and disregard the parameters that drive the business.

Risk management disciplines provide the incentive to address this problem and bridge gaps between business and IT. Forward-thinking banks will devise ways to revisit the ideal of creating an IT organisation aligned to the objectives of the business while devising their regulatory responses.

The key is to create a responsive system based on good quality, accurate and timely data in the first place. Real-time transaction reporting is provided by only a few core banking systems, such as Hogan, and banks using this technology will be the first to reap the benefits as real-time processing proves its value.