How entity resolution addresses the growing challenge of risk data management

October 26, 2023

RegTech firm Sigma360 has recently outlined how entity resolution can solve for rapidly growing risk data challenges.

The global data landscape is expanding at an exponential rate, leading to an influx of risk data from various databases. One of the paramount challenges emerging from this situation is the effective consolidation of entity-specific risk data to simplify its management.

Risk assessments, in the absence of appropriate consolidation, become daunting. Analysts find themselves dedicating immense time to review potential red flags for onboarding due diligence or comprehensive investigations. Surprisingly, banks have indicated that nearly 85% of tasks related to financial crime compliance and anti-money laundering are either administrative or don’t involve analytical processes. This typically involves manually moving data from one system to another.

Handling vast amounts of risk data using outdated techniques presents compliance teams with three primary hurdles:

Fragmented Data Sources: When multiple records of a single entity emerge from different places, each having its unique format, it becomes a herculean task for banks and medium-sized companies to evaluate customer-related risks effectively. Despite augmenting their compliance and risk teams, organisations continue to grapple with data management challenges.
Escalated Manual Tasks: Combining numerous risk sources can introduce significant noise in search outcomes. Though time is saved in searching through varied sources, it often gets reallocated to sifting through exhaustive results.
Shortcomings in Internal Data: Issues arise when internal data isn’t accurate or comprehensive. For instance, when a customer provides multiple Social Security numbers, it creates a predicament. These anomalies, when accumulated, can create immense workload challenges for risk and compliance teams.

Entity resolution is all about amalgamating several records corresponding to an individual or enterprise to obtain a sharper perspective on risk. To make entity resolution effective, distinct entity records are harmonised and exhibited together as a unified cluster, rather than as isolated entries.

Depending on an organisation’s risk appetite, entity resolution collates records using various data points. This offers two primary benefits:

Analysts encounter fewer outcomes during searches, often only one for the searched entity, courtesy of the AI-powered resolution of vital identifiers.
Risk events related to an entity get unified, gathering identical information from varied sources, streamlining reviews.

Entity Resolution’s Advantages

Entity resolution can transform compliance work, making it more streamlined:

Minimise Duplicate Records: Redundant records can thrive in databases, leading to uncertainty regarding the accurate record.
Bypass Erroneous Analytics: Flawed entity data can compromise data analytics, leading to incorrect insights.
Handle Regulatory Compliance: Inaccurate entity resolution can breach compliance rules resulting in penalties.
Enhanced Fraud Prevention: Fraud detection gets hampered with incorrect entity data.
Tackle Mergers & Acquisition Issues: Mergers can become complex without proper entity resolution.

Utilising technology to automate data consolidation allows risk teams to concentrate on vital analysis and escalation procedures.

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