Banks Face Growing Account Closure Crisis: Rethinking AML Processes and Customer Relationships


TL;DR Breakdown:

  • Banks closing accounts more, AI might help, but rules and customers matter too.
  • Growing reports of suspicious activity, but many accounts shut without checking.
  • Banks need balance: rules, AI, and listening to customers for better solutions.

Banks across the United States are witnessing a significant surge in the closure of customer accounts subjected to AML processes. A recent American Banker article titled “Rushed anti-money-laundering calls backfire. Can AI help?” explores the reasons behind this unsettling trend. 

Outdated AML processes and rushed decisions

One of the primary reasons behind the increasing number of account closures is a heavy reliance on Anti-Money Laundering (AML) software to monitor transactions. This software is often overseen by decision-makers who lack familiarity with individual customers. Outdated rules used to determine suspicious transactions further exacerbate the problem. Banks, driven by a set of incentives to prioritize efficiency, often rush to conclusions without taking the time to thoroughly understand individual cases.

The alarming rise in Suspicious Activity Reports (SARs)

Thomson Reuters reports that the number of Suspicious Activity Reports (SARs) filed by banks as a result of AML processes has surged by 50% in just two years. While algorithms are efficient at flagging potentially suspicious transactions, a concerning trend has emerged – banks are increasingly opting to close accounts rather than investigate these flagged activities. 

Critics argue that banks have become trapped in a flawed model, emphasizing efficiency at the expense of their customers. In a risk-reward trade-off, it’s often considered too expensive to include customer input, and banks are willing to lose a “minuscule” number of customers to avoid regulatory complications. However, this logic ignores the potential long-term consequences of alienating customers. 

Customer relationship: A fragile asset

Mistakes in account closure not only lead to the loss of that specific account but also risk severing the customer relationship permanently. Even if a small subset of customers experiences account closures, there is an increased likelihood that these customers will report their grievances to regulators, potentially resulting in more significant challenges for banks.

Banks face dual regulatory requirements: reporting and cracking down on SARs while simultaneously monitoring customer outcomes. These two aspects are interrelated but often approached separately. Achieving a balance between them is crucial.

Syncing transaction data requires a complex interplay of software and systems. However, the inclusion of customer input can be a game-changer in this decision-making process. Customer voices represent a valuable asset for businesses. Each complaint or inquiry can provide rich insights that contribute to a deeper understanding of customer behavior and preferences.

AI: The bridge between certainty and uncertainty

Artificial Intelligence (AI) plays a pivotal role in this scenario. Cases with 100% certainty regarding SARs can be delegated to AI, while those with less certainty should incorporate human involvement. AI can streamline processes and improve accuracy, ensuring that decisions are made based on the most reliable information available.

Building processes that take customer input into account is not only vital for humanizing the banking system but also an opportunity to enhance business outcomes. The inclusion of AI can help banks strike the right balance between efficiency and customer satisfaction.

A recent examination by The New York Times revealed the profound human impacts of SAR and AML processes gone wrong. Over 500 cases of customers being dropped by their banks were examined, showcasing the devastating consequences. Small businesses struggle to make payroll, credit scores plummet, and individuals find it challenging to pay their bills on time.

A complex problem requires comprehensive solutions

Addressing the problem of sudden account closures is not a quick fix. It necessitates the involvement of dedicated cross-functional teams, tasked with testing, refining, and releasing new approaches that focus on understanding the nuances of when, where, what, and how account closures occur after undergoing AML processes.

Companies must embark on a data-driven journey, systematically examining their processes and identifying areas where errors occur. Only with a comprehensive grasp of these problem areas can meaningful solutions emerge. The nuances surrounding account closures offer an opportunity for innovation and improvement.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Nick James

Nick is a technologist with a special interest in Blockchain technology and cryptocurrencies. He has actively participated in the industry for several years. His main passion is sharing news within the crypto community.

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