Did you know that misconfigured compliance rules can cost financial institutions millions in fines and lost revenue every year? In fact, non-compliance costs firms an average of $14.82 million annually, which is nearly three times higher than the cost of compliance. Regulatory fines and penalties, business disruption, revenue loss, and reputational damage are just a few of the severe consequences.

At Flagright, we understand the critical importance of precision in compliance. That's why we're excited to introduce Shadow Rules, an addition to our rules engine. Shadow Rules are designed to run alongside your live rules, offering a risk-free environment to test and refine your configurations. With Shadow Rules, AML professionals can confidently say goodbye to the fear of misconfigurations and ensure their compliance strategies are always spot-on. Never misconfigure a rule again with Flagright's Shadow Rules.

"Shadow Rules have significantly reduced our false positives, allowing our compliance team to focus on real threats. It’s a game-changer for our AML strategy." — Monique Isebor, Compliance Officer, Sciopay

Some insights and analytics since launch

Since the introduction of Shadow Rules, our customers have experienced remarkable improvements in their compliance operations:

  • High Adoption Rate

Our customers have quickly embraced the Shadow Rules, with 65% of rules being tested as shadow rules before being implemented as live rules. On average, customers spend about a week monitoring these shadow rules to ensure their effectiveness and accuracy before transitioning them to live status.

  • Significant Reduction in False Positives

One of the most notable benefits of Shadow Rules has been an 80% reduction in false positive alerts due to rule misconfigurations. Misconfigurations can occur during the rule setup process, but shadow rules help minimize this risk. This approach allows errors to be detected and corrected before applying the rules to live transactions. Typically, clearing alerts created by misconfigured rules takes between 3-8 hours per rule.

  • Improved Rule Configuration

Customers have tested an average of three rule configuration versions before considering the rule finalized and turning it live. This iterative testing process enables customers to fine-tune the rule conditions, including thresholds, velocities, or targeted transactions and customer segments. As a result, rules are more efficient and generate fewer false positives.

The compliance challenge

Imagine a mid-sized bank that, despite its best efforts, faced significant fines due to misconfigured AML rules. The compliance team had set up new transaction monitoring rules, but without adequate testing, the rules generated numerous false positives. These false alerts overwhelmed the compliance staff, diverting attention from actual suspicious activities. Consequently, a critical transaction slipped through the cracks, leading to regulatory penalties and a damaged reputation. This scenario is all too common in the financial sector.

Accurate rule configurations are crucial for compliance because they ensure that only genuine risks are flagged, allowing compliance teams to focus on real threats. Misconfigured rules can lead to false positives, overwhelming staff, and increasing operational costs. Worse, they can result in missed suspicious activities, leading to severe regulatory fines, legal consequences, and reputational damage. Effective rule configuration is not just a technical necessity; it's essential for maintaining the integrity and trustworthiness of financial institutions.

"Flagright’s Shadow Rules represent a significant advancement in compliance technology. By allowing real-time testing of rule configurations without operational risks, they ensure a higher level of accuracy and efficiency.” — Leonid Komov

Why shadow rules are a best practice for compliance

  1. Risk mitigation: Shadow Rules provide a powerful way to mitigate the risks associated with misconfigured rules. By running in parallel with live rules, they allow you to see the potential impact of a rule without actually enforcing it. This means you can test and fine-tune your rules to ensure they are accurately identifying suspicious activities without generating false positives.
  2. Compliance Assurance: Running Shadow Rules alongside live rules helps ensure compliance without disrupting operations. This dual approach allows compliance teams to validate the effectiveness of new or adjusted rules in real-time, ensuring they meet regulatory standards before going live. It’s a safety net that helps maintain operational stability and compliance assurance.

Practical applications:

  1. New rule testing: When a financial institution wants to introduce a new AML rule, they can deploy it as a Shadow Rule first. This allows the compliance team to observe how it performs against real transaction data without triggering actual alerts.
  2. Rule optimization: Existing rules can be modified and tested in shadow mode to optimize their performance. For example, adjusting thresholds to reduce false positives can be evaluated using Shadow Rules before applying changes to the live environment.
  3. Regulatory changes: When new regulatory requirements are introduced, Shadow Rules can be used to ensure that updated rules comply with the latest standards. This proactive testing helps in seamlessly integrating new compliance measures without any operational hiccups.
"Implementing Shadow Rules has transformed our anti-fraud operations. We can now test rules confidently and with precision, knowing exactly how they will perform without risking any operational impact,” — Brandon Chye, Head of Regulatory Affairs, HitPay

Introducing Shadow Rules

Shadow Rules are a groundbreaking feature within Flagright's rules engine, designed to enhance your compliance strategy without the risk of misconfigurations. Essentially, Shadow Rules allow you to test new or existing rules in a simulated environment. They run parallel to your live rules but do not generate actual cases or alerts. Instead, they provide accurate hit statistics, enabling you to see the true impact of your rule configurations using your actual transactional data without any operational consequences.

How it works:

Think of Shadow Rules as a practice run for your compliance rules. Imagine you are preparing for a big presentation. Instead of presenting directly to your audience (live rules), you rehearse in front of a mirror or a friend (shadow rules). This rehearsal helps you spot mistakes and refine your delivery, ensuring you are well-prepared for the actual presentation. Similarly, Shadow Rules let you test and tweak your compliance rules in a safe environment, so when they go live, they are accurate and effective.

For a detailed walkthrough and visual explanation, check out our demo video below. This will give you a comprehensive understanding of how Shadow Rules can revolutionize your compliance strategy.

"Flagright’s Shadow Rules offer financial institutions the ability to refine their compliance frameworks with unprecedented precision, reducing regulatory, reputational, and financial risks.” — Leonardo Correa, Group Head of AML, Taptap Send, ex Nubank & PWC.

Conclusion

Shadow Rules revolutionize compliance strategies by running parallel with live rules for accurate testing and fine-tuning without operational risks. This feature mitigates risks, ensures compliance, and offers valuable insights for AML professionals, helping you avoid costly misconfigurations.

As the regulatory landscape evolves, innovative solutions like Shadow Rules will shape the future of AML compliance. Adopting such technologies will safeguard your financial institution and set new standards for precision and efficiency in transaction monitoring.

Ready to transform your compliance operations? Contact us today for a demo and see how Shadow Rules can massively improve your compliance strategy.