Transaction Monitoring system – build or buy?

Introduction

Businesses in the financial sector cannot ignore the importance of detecting and preventing financial crime. This involves a whole set of tools and strategies geared toward making sure that the organization (and its customers) are protected against fraud, for example. 

In today’s market of austere authorities, large penalties and piling regulations, the margin for error is getting smaller. Making the wrong decision with regards to compliance is becoming increasingly more costly, be it through fines or through overstaffed teams. 

Therefore, organizations are dependent on having a well-performing compliance system. But many companies face the challenge of deciding how to set up their risk and compliance programs. One of the main questions is: Build or buy? 

Of course, both options have advantages and disadvantages. However, due to the significantly lower risk and increased efficiency, we recommend to choose buy. The reasons for this are explained in this blog article. 

Knowledge related factors

Are you able to build the system? 

When organisations build their own AML system, they often enjoy a clear advantage – the independence of third parties. Sure – It sounds like it would simplify the process of getting a compliance system. But does it really? 

In order to create a successful system, you should first ask yourself: Am I able to build the system? Are you able to generate a rule in your software based on a fraud pattern? This is needed to identify suspicious transactions. Are you able to build a system for altert generation? To communicate escalations, you’ll need it. Consideration must be given to which team member should be notified and how. Do you use emails, messenger messages, documents, dashboards or other systems? And there is much more, such as can you integrate compliant escalation into your system? 

When you build your AML system yourself, there are many and sometimes not that obvious aspects that have to be considered. Therefore, the big question is whether you have the confidence and know-how to do it. 

Trust the providers’ experience from IT and compliance field 

In contrast, when you buy software, you can trust the developers’ know-how. With DX Compliance as an example, different experiences come together to ensure the performance of the product. This includes many years of experience in the IT field, which is essential for the development itself. But also an enormous range of experience from the AML Compliance area is represented. Therefore, the know-how can be trusted. 

Time related factors

Time consuming development 

Of course, time factors also go hand in hand with one’s own development of an AML system. Building an AML software from scratch requires a lot of time and effort from your team. It starts with assembling the right team, which may require hiring new employees. Once that is done, development planning and performance testing with any updates that result will follow upon completion. 

Overall, it is a long process that can take months to years. Therefore, you will have to wait that long before you can use the solution. It follows that it takes much longer for their investments to prove beneficial. 

Immediate access 

In contrast, you have the AML system immediately when you buy it, because all the development and testing is done by the provider. You get it out of the box. This means that you are directly protected against money laundering and fraud. 

Cost related factors

Costs of implementation 

In addition, another aspect must be taken into account when we consider that their team puts a lot of time into the development: These employees can’t, meanwhile, work on what brings in revenue, such as improving your own product features or customer experience. This results in so-called opportunity costs – the benefit/revenue you miss out on as a result. 

But of course, these are not the only costs you have for the development of your own AML system. This includes the salaries of the employees involved in the development, which are usually already high amounts. In addition, there are the costs for third-party resources that your team needs to ensure that the result has a good performance and fits to your needs. These include tools and data, for example. 

Costs of maintenance and updating 

However, once the software is completed, the costs incurred do not stop at this point. Because there are also high costs of maintenance and consistent updating in the future. These will exist for the entire period in which you use the solution. It is difficult to estimate the actual cost for this. This depends on various factors, which will be discussed in the future oriented chapter. 

All in all, the true cost of a self-build solution which is around 1 Mio $ + makes it extremely expensive to build an own solution from scratch. 

Exact prediction of costs for external software 

In contrast, the cost of purchasing an AML system can be accurately predicted. These will be calculated exactly according to your requirements. If you choose the solution CheckAML for Checks in seconds, you can even find out the costs directly – for the subscription as well as the pay as you go option. 

Result oriented factors

Basically, in the end it’s the result that counts.  You may think about the freedom of 100% control on the customisation of your software and the ability to tailor it exactly to your company’s needs which increase the quality.  

In this case, you should have a look at the recent news about the Densk Bank: 

The Central Bank of Ireland fined the Densk bank with more than 1.8 Mio Euros. The detailed report highlighted that the root cause of this failure was historic data filters that were applied within the Bank’s automated transaction monitoring system, first implemented in 2005 and rolled out to the Irish branch in 2006. The bank failed to ensure that its automated transaction monitoring system monitored the transactions of certain categories of customer for money laundering and terrorist financing risk at its Irish branch for a period of almost nine years.  

Lesson Learned! Keep it simple and don’ t put your organization at risk. Trust the providers and their solutions are designed specifically for fraud and AML in the financial industry.

Future oriented factors

Stay compliant through regular updates 

You should always choose a solution that ensures compliance and prevents fraud. Fraud changes quickly, and new scams pop up regularly. You need to keep up, keep up with all the regulatory changes, and apply them to your compliance technology. For this reason, regular updates must be made on an AML system. We have already mentioned this topic several times in this blog article. Now we will take a closer look at the relevance and everything behind it. 

For what reason are updated necessary? We give you a few examples: 

• You need a new feature 
• You need new rules 
• There are new regulations 

Every time one of these occurs, your team needs to update your system. That means planning, developing and testing over and over again. Therefore, you will always end up in a loop that takes a lot of cost, time and effort. 

Flexibility allows you to change 

Furthermore, what if your needs change beyond the aspects mentioned above? For example, because you grow as a company or undergo internal structural changes? You need to make sure the AML system can scale and adapt as your team needs. Again, this process would require a lot of effort. However, with a high degree of customization, you have the opportunity to easily get the adjustments from a provider. In general, almost every organization needs a certain degree of customization – providers are aware of this. Thus, there are the flexible options, which give you a lot of possibilities. 

Summary

If you buy a solution form a Tech provider like DX Compliance, you are getting a state of the art Transactions Monitoring platform that of course is updated and improved regularly. Building your own solution is not only (more) expensive it is also a risk for the organization as tech solutions needs updates, maintenance and continues improvements. 

• Below we have summarized the most important aspects of the Build or Buy comparison: 
• The professional providers have deeper know-how and represent an interface between the IT and compliance. 
• You can use an external solution immediately, while in-house development would take months to years. 
• Buying an AML solution is cheaper and the cost is predictable – unlike developing your own. 
• The bought software is regularly updated by the providers, so that the risk of wrong results and non-compliance with regulations is significantly reduced. 

AML Transactions Monitoring by DX Compliance

DX Compliance provides a Real-Time Transaction Monitoring Solution helping financial institutions to identify suspicious behaviour and to protect their organization.  

Our Transactions Monitoring Platform helps financial institutions to monitor their customer transactions and to report the suspicious transactions directly to the FIU.  

Curious to learn more? Feel free to get in touch with our experts.