AML System Validations: The Power and Pain of "Front-to-Back" Analysis

When it comes to AML system validation, many financial institutions limit their analysis to confirming that the alerts generated by the AML monitoring system (the "back") correspond to transactions from the core system (the "front"). This type of analysis, sometimes called a "back-to-front" analysis, is an important part of an AML system validation effort.

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It's only part of the equation.

The more difficult part of the equation, in terms of validation, answers the question "How can we detect whether transactions from the core system (the "front") failed to generate for whatever reason an alert in the AML system (the "back")? The analysis to detect such an absence is sometimes called a "front-to-back" analysis, and it's what makes an AML validation powerful. That's because, without it, it could be determined down the road that the AML system has been missing a stream of transactions that you only thought your alert threshold parameters were set up to catch. Now we're talking about the possibility of a costly lookback project and reputation hit.

As valuable as a "front-to-back" analysis may be, the reason many validation efforts omit it is because it can be painful to do. To do it properly, a validation effort must take a sample period of transactional activity and essentially run it through a separate monitoring system set up with the thresholds established by your BSA group. Then the output of the AML system and the parallel system can be compared, with any discrepancies investigated to determine the root cause.

Now we're talking about the full equation.

When you next request a proposal for an AML system validation, make sure it includes a "front-to-back" analysis. An AML validation that includes a "front-to-back" analysis for you by clicking the link below, or contacting your MD|DC league or association representative, Andre Lucas ALucas@mddccua.org

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