–> This is a pre-event interview in the run-up to the Leaders in Finance AML NL Event on 5 October 2023.
Could you please introduce yourself?
I am Johannes Lont, 29 years old and working as Manager Financial Economic Crime at RiskQuest. RiskQuest is a boutique consultancy firm specialized in building quantitative models for the financial sector. We develop models in the field of Financial Risk Management, Financial Economic Crime and ESG.
What is your background?
I have a background in Economics and Econometrics. With Econometrics, you get a sound mathematical base essential to build quantitative methods. However, it is equally important to understand models in the broader context, which is where Economics comes into play. For the first few years in my career, I was involved in developing quantitative models to measure credit risk. These models are essential to ensure financial stability of a bank, but also of the financial system as a whole. In the aftermath of the financial crisis we saw an increase in regulation, and at RiskQuest we have contributed significantly to developing models that assess financial risk in a manner that is compliant with regulation.
What are the things you currently do?
Currently I am a manager of the Financial Economic Crime unit at RiskQuest. This unit of RiskQuest is responsible for the development and validation of AML models. I am proud to say that we have worked for all major banks in the Netherlands, and that we are able to contribute to a financial system where integrity is key. I am currently, for example, developing a model that automates periodic client reviews, allowing analysts to focus on more complex cases and thereby increasing the effectiveness of the client review system. This is a concrete example of a risk-based approach, in line with the latest Dutch Banking Association’s (NVB) guidelines. As a result, the work that analysts are doing becomes more interesting since we automate cases that are more straightforward, while they can focus on complex cases and can detect financial crime in those areas where manual assessment is essential.
What are in your view the most important changes you have seen the last view years related to AML?
It is nice to see that as financial sector, we are not only concerned about the stability of the financial system, but also its integrity. Both are essential to ensure that people trust the financial system and make use of it. In the past years, we have learnt a lot about detecting financial crime, and I really like that a more open discussion now takes place on key aspects like having a risk-based approach related to the formulation of the risk appetite. Also, it is nice to see how we are converging towards a more mature model landscape, with a healthy combination of business rules and more advanced models that complement each other.
What development do you see unfold / happening in the near future (let’s say the next few years)?
I think the balance between work performed by models and work performed by analysts will further mature. Analysts will investigate based on signals from models, but also perform periodic reviews for complex clients such as trusts that require attention even if models don’t raise alerts. On the other hand, models will become better and provide a healthy balance of covering known SIRA related risks, but also an unsupervised part to identify new patterns, allowing us to constantly refine and improve the model landscape given the dynamics of criminal behaviour.
Are there particular things that are currently not happening, that you would like to see happen?
It would be good to make more use of network analysis. With this approach that can also be nicely visualized for analysts, we can identify networks of high-risk or criminal clients in a much better way than by looking at individual clients or transactions. Currently, we, for example, often focus on whether a transaction is unusual for a specific client and repeat that process for each individual client. However, it may be more efficient to use network analysis to focus on the flow of a transaction, to detect for example layering: if money is flowing from client A to B via C, then the transaction itself is unusual although for the individual clients it may seem a perfectly sensible transaction.
Do you have tips for the different stakeholders in the AML ecosystem (e.g. lawmakers, privacy watchdog, FIU, Banks, regulator, police, department of justice, public prosecutor)?
Currently, gatekeepers are making their own assessment of what risks are relevant to them, for example using a SIRA analysis. And although I understand the value of this approach, it would be useful when public and private parties collectively determine how we can be most effective: which types of financial crime should we focus on together? In other words, should we not perform a risk-based assessment and set priorities on a national level, rather than on an institutional level? If we take into account not only what we want to detect, but also what is feasible to detect, I think we can be more effective together, because priorities are aligned. This should be combined with a data-driven approach, such that our initial priorities are based on sound analysis, and we keep monitoring our success to refine priorities where needed. In general, we should become more data-driven. Especially given that we cannot detect all money laundering, it is essential that we understand that the measures we take are really contributing to fighting financial crime. Data allows to better understand what criminals are doing, allows for analysts to ask the right questions and allows for well-trained models that support them. Also, with better data we can monitor if we are really detecting what we are aiming to detect, and keep refining our priorities based on this feedback.
What would you like to learn or who would you like to talk to at the Leaders in Finance AML NL Event?
When I visited the event last year, I was surprised by the fact that the audience was a very nice representation of the broad AML field, given that all relevant parties from both the public and private sector were represented. Therefore, I am very much looking forward to the panel discussions that provide useful insights for our daily work. In particular, I am looking forward to the panel discussion on AI given the fast developments in this field.
–> This is a pre-event interview in the run-up to the Leaders in Finance AML NL Event on 5 October 2023.