The Wolfsberg Group has published its second statement on effective monitoring for suspicious activity. It has looked at how financial institutions are moving beyond traditional transaction monitoring and has now set out three core pillars for responsible innovation:
- transition and validation – with the transition being necessary because overall financial crime risk management frameworks have evolved. So firms now need to set out their desired outcomes to their monitoring approach, in line with their risk appetite, and scale their transition from there;
- balancing model risk with financial crime risk: the Group notes that firms must be able to introduce new typologies at pace to be able to balance the risks of their models and the risks of financial crime, and suggests some criteria firms might use when evaluating their models; and
- explainability to show transparency in coverage and effectiveness. This will include being able to explain how the model arrives at its decisions, and how model users should understand its usage.