Analysis of Interbank Messages for the Enforcement of Financial Regulations

In the context of the recent policies concerning anti-money laundering and counter terrorist financing defined by the Financial Action Task Force Recommendation 16, it is the responsibility of the financial institution to monitor the quality of the information present in wire transfers. To that end we present in this paper an approach to automate the monitoring and the validation of the information contained in interbank transfer messages. The approach is backed by a solution built around an event-driven architecture where the data is processed as a stream and transformed at each stage. This architecture is in line with the latest research in data warehouses with stream data processing. We show that our approach is suitable to the requirements and the standards in the banking industry. 1 Policies and Regulations in the Financial Industry The Financial Action Task Force (abbreviated FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorism financing and the financing of proliferation of weapons of mass destruction. The recommendations and policies emitted by the FATF in The Financial Action Task Force (2012) are recognized as the global anti-money laundering and counter-terrorist financing standard. These policies are then adapted by the markets around the world. The European Commision has already initiated the adoption of laws with regards to the Anti-Money Laundering Directive. 1 Having a European legislation put in place will lead to more and more jurisdictions adapting their local laws accordingly. It is expected that the proposals will become legislation in 2015. 1. At the time of writing, the proposal issued by the European Commission has reached the second stage and is adopted by the Parliament. Analysis of Interbank Messages for the Enforcement of Financial Policies 2 Enforcing the Recommendation 16 from the Financial Institutions The Recommendation 16 in The Financial Action Task Force (2012) requires that financial institutions include accurate originator and beneficiary information on wire transfers and related messages. The required information must also remain throughout the payment chain. It is however up to the financial institutions to monitor the wire transfers for the purpose of detecting missing information and take appropriate measures, including freezing of the transfer and prohibition of transactions with designated persons and entities. On the other side, the policy is defined in generic terms and expresses a global intention. Enforcing the policy in practice at the financial institution side requires analyzing customer data present in various forms – including structured fields and free-form text– and for which the quality is not standardized. At the current time, each financial institution has its own workflow for the monitoring and the detection of such cases. The aim of this project is to analyze the Recommendation 16 and provide a common formalization of the rules across financial institutions. The outcome of the project will be a tool helping the financial institutions in understanding and applying the regulation. 3 Business and Technical Requirements Following the previously cited requirements we have developed a platform serving as the application skeleton to our approach. From the business point of view, the requirements define a streamlined solution for financial institutions to track infringing transfers and missing information with regards to the FATF Recommendation 16. The approach should define a common set of rules which institutions can then combine in order to compose the validation rules tailored to their needs and experience. Furthermore, it should be able to cope with data in various formats and quality. The technical solution to the aforementioned challenge requires the following characteristics in order to be compliant with the standards in the banking industry: — Volume of data: all operations between financial institutions require exchanging of interbank messages. Depending on its size, a bank can emit and receive from several thousands to millions of messages concerning wire transfer operations per week. — High performance: banking operations must not be held back longer than necessary. The analysis of the messages should not impact the productivity of the financial institution. — Offline processing: for the purpose of security and compliance to standards in the banking industry, the solution should work in a batch setup, in parallel from the regular flow of messages between the bank and the network. These technical requirements are in line with the latest research in data warehouses including data streaming as in De Francisci Morales et al. (2014) and Ramesh (2015). These data streaming architectures offer the following benefit compared to the traditional data warehouse in our case: high throughput, low latency and scalability.