Configurable Risk based Regulatory Rules Engine

The ever-evolving regulatory landscape which firms operate in means client risk management is becoming more complex and time-consuming, ultimately impinging on the overall customer experience. To simplify the complexity of KYC onboarding and monitoring an agile risk-based rules engine is the answer. In this blog, we discuss why a highly configurable rules engine is critical to the customer experience, operational efficiency and the future-proofing of your compliance processes.

Posted on August 14, 2020
Written by Vanessa Richards

risk based regulatory rules engine

Compliance and onboarding teams are under pressure to manage and verify increasing volumes of global client data and identity documents, whilst meeting changing regulatory requirements throughout the customer journey. 

To better manage their processes, many regulated firms rely on software solutions that use risk based regulatory rules engine technology.

But what is a risk-based rules engine and why would your business benefit from one? How does it work and what should you look for when integrating such technology into your business? Read below to learn more. 

What is a Regulatory Rules Engine?

A risk-based rules engine is an ‘application’ that uses pre-defined logic to determine a client’s risk status and can manage the decision-making process.

With numerous sources of data available to search and find out about your potential customer, the risk-status process can prove to be time consuming and inefficient. For individuals, your business might include searches for address and/or credit history, verification of identity documents, PEPs, sanctions and reputational risk.  For companies, you may look at incorporation date, finances, directors, shareholders, PSC’s, reputational risk, sanctions etc. 

A rules engine holds this considerable volume of data in one repository to enable verification, cross matches and the flagging of areas of concern for referral.  

With the automation of the process, significant, and immediate, savings can be made as manual effort in collating and cross-checking data is reduced. A further benefit is the reduction in the number of referrals for manual investigation, which is highly costly and can impact the successful onboarding of legitimate customers. 

Key benefits of a risk based regulatory risk engine

Improves the client experience

Manual investigation is not only expensive and highly vulnerable to human error it has a considerably negative impact on customer experience. Companies that offer best-in-class customer experiences grow faster and inspire loyalty. 

An effective risk-based rules engine can achieve superior customer experience with significantly reduced client onboarding times; from months and days,  down to minutes as it can process millions of transactions daily.   

Without a regulatory rules engine, the business has to commit to manually reviewing each piece of information, look for potential problems and cross match with different data sources. A rules engine can do this in milliseconds – confirming that all necessary verifications are present and highlighting any areas of concern as it runs hundreds of rules in critical environments.

The rules engine has the ability to deliver reliable risk scores at the time of the transaction, stopping fraud in its tracks and letting your approved customers enjoy a smooth online journey while you benefit from higher accuracy and lower false positives.

Increases operational efficiency

A false positive is the antithesis of positive customer experience as false positives introduce unwanted and underserved friction for good users.  An important element when onboarding is to check what is relevant, not to check what is irrelevant, to avoid delivering too many false positives when it comes to AML and KYC

A risk-based regulatory rules engine allows regulated businesses to adjust their ‘rules’ in real-time, maintaining compliance with changing regulations, reducing irrelevant alerts and maximising efficiency.

Future-Proofing your compliance processes

Regulatory and Client Due Diligence requirements are constantly changing, so it’s important your business has a solution that can adjust to new market or regulatory environments quickly. 

A regulatory rules engine can be updated and reconfigured in real-time enabling financial institutions to future-proof their compliance processes against evolving or new regulatory obligations. This is especially useful for KYC client onboarding and regulatory deadlines and ensures that all clients are onboarded compliantly and remain so throughout the client lifecycle journey

How to choose the right rules engine?

With many software solutions available to regulated businesses it’s important to work with a provider who understands your specific compliance requirements; appetite for risk and the level of importance you place on customer experience. 

At NorthRow we pride ourselves on delivering a highly configurable risk-based rules engine that can adapt to the ever changing regulatory market and client demands.

How NorthRow’s market-leading regulatory rules engine works

Our single API is driven by a risk-based rules engine and has over 600 ‘key rules’, which your business, in partnership with the highly skilled team at NorthRow, can select from. 

We provide an out-of-the-box repository of rules, which can easily be configured to generate the risk profile most relevant to your business, ensuring that your focus on customer service isn’t compromised by regulatory compliance.  As an example; the NorthRow rules allow you to select the main sanctions regimes that apply to your business and ignore irrelevant ones to reduce the volume of false positives or to set the level of fuzzy matching that you wish to apply at different levels for different customers depending on the relative risk.  Automatic cross-matching verifies that name, address and identity document all match and that ‘that contact’ is identifiably an officer of the company you are onboarding.  Below is a simple diagram of how our rules engine works.

In this world of ever-changing regulation, the solution can be easily updated to respond to evolving regulatory and operational requirements, your organisation’s risk appetite, and the relative risks of different customers – depending on their location, transactional volumes or political exposure.

With this highly configurable, and relatively unique, solution you can achieve tailored results to provide a completely unique risk profile on every element of your risk exposure. Each case can rapidly be categorised as Red, Amber or Green. The aim is to minimise the number of Ambers, or referrals, as these are the most costly cases to resolve, by adjusting the risk profile to ensure that you only review the issues that really need review. By working collaboratively to build your bespoke solution, NorthRow delivers a complex solution with minimal time to deployment.

Although the broad principles of AML legislation are the same for every company, the onboarding journey and risks are unique depending on the industry and the client. NorthRow knows that one size does not fit all, and delivers a highly configurable Rules Engine to support your onboarding journey, highlighting only those risks appropriate to each stage in your customer’s journey.

In summary

By utilising a risk-based rules engine, compliance teams and MLROs can build their own bespoke solution that reduces the increased pressure on already stretched teams managing AML and KYC onboarding. With ever-evolving regulation such as MiFID II and Money Laundering Directives, your business can future proof against both regulatory and operational requirements to ensure efficiency and managed expenditure for both onboarding and ongoing monitoring.  

By understanding the data, regulatory compliance and documentation needs from the outset, NorthRow will support you in achieving the best customer experience when it comes onboarding, monitoring and client lifecycle management.