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Fraud and AML integration: Is the FRAML approach right for your financial institution?

Terri Luttrell, CAMS-Audit, CFCS
November 23, 2024
Read Time: 0 min

Evaluating the FRAML approach

For years, financial institutions have debated the merits of combining fraud and anti-money laundering (AML) functions into a single department in what's known as a FRAML approach. The idea is simple: bring fraud and AML into one program to boost effectiveness, save costs, and streamline financial crime detection. With fraud rates surging and FinCEN designating fraud as a National Priority, combining these functions under the same umbrella could be a game-changer.

This article covers these key topics: 

What is FRAML?

FRAML represents the convergence of fraud detection and AML teams, blending two historically separate functions within financial institutions. At its core, FRAML is about taking a more holistic approach to financial crime risk management. By combining fraud and AML under one strategy, institutions strive to streamline data collection, boost investigative efficiency, and improve internal collaboration.

As financial crime schemes become more complex and regulatory expectations rise, the FRAML approach is gaining traction. Institutions using FRAML often find themselves better positioned to identify suspicious activities linking fraud and money laundering, potentially reducing compliance costs while improving outcomes.

A recent ACAMS poll from the Las Vegas Assembly 2024 Conference found that 57% of participants reported a stronger fraud focus during their BSA regulatory exams, with 17% noting a significant increase in fraud attention compared to previous years. With such heightened scrutiny on fraud, keeping AML and fraud teams siloed may not be sustainable.

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Benefits of FRAML in risk management 

If your financial institution is considering a move to a FRAML approach, here are some benefits that may make the transition worth it:

  • Enhanced detection capabilities: Fraud and money laundering go hand in hand, with fraud generating the illicit funds that criminals eventually “clean” through laundering schemes. Combining fraud and AML functions allows institutions to detect crossover patterns and trends that could signal suspicious activity on both fronts, improving detection rates and helping prevent financial crime from slipping through the cracks.
  • Streamlined investigations: By eliminating redundancies, FRAML can streamline investigations, making them more cohesive and collaborative. With a unified fraud and AML approach, responses to suspicious activity can be quicker and more effective, ultimately leading to a more robust defense against financial crime.
  • Cost efficiency: Keeping separate teams and systems for fraud and AML detection can be resource-intensive. With FRAML, institutions can reduce duplicated technology and staffing needs, creating operational efficiencies that lower costs. Shared systems and cross-trained staff mean that resources are used more effectively, all while staying in line with regulatory requirements.
  • Regulatory alignment: Regulators, including FinCEN, increasingly emphasize fraud prevention as a critical component of financial crime risk management. By adopting a consolidated approach, financial institutions can meet these expectations more comprehensively, enhancing their ability to manage fraud and AML risks under a unified strategy.

Potential drawbacks of the FRAML approach

While FRAML offers clear advantages, there are some challenges to consider:

  • Resource allocation and training requirements: A FRAML approach requires staff to be skilled in both fraud and AML compliance, meaning investments in cross-functional training and possibly new technology. This can be a significant upfront cost, and ensuring that staff are prepared to tackle a more comprehensive array of financial crime risks takes time.
  • Loss of Specialized Focus: Merging fraud and AML functions can dilute the specialized focus each area traditionally brings to financial crime prevention. Fraud and AML investigations use distinct skill sets, so combining them risks sacrificing depth in one or both areas. Robust training programs will be crucial to maintaining expertise.
  • Technology integration complexity: Integrating existing fraud and AML systems isn’t always straightforward. Financial institutions with established, separate systems may face high upfront costs and logistical challenges when combining them, along with the time needed to implement a unified platform.
  • Compliance risks: Though FRAML aligns with evolving regulatory guidance, combining these functions can pose compliance risks if not carefully managed. Maintaining clear policies, strong oversight, and high regulatory alignment will be essential to avoiding any individual compliance gaps in fraud and AML.

Critical considerations for financial institutions

For any institution evaluating FRAML, the decision boils down to factors such as size, risk profile, and available resources. Smaller institutions with limited resources might find FRAML appealing, as it consolidates functions and reduces the need for duplicate resources. On the other hand, larger institutions with high-risk profiles might benefit from keeping fraud and AML separate, allowing a dedicated focus on each. An institution may decide to adopt a hybrid approach, keeping the separate functions but breaking down silos with enhanced training and communication.

For FRAML to succeed, institutions need a robust case management system that supports data-sharing and collaboration between fraud and AML functions. In addition, FinCEN’s recent emphasis on fraud as part of its National Priorities supports the FRAML approach. However, institutions must be cautious to ensure compliance requirements for fraud and AML aren’t compromised.

Weighing the benefits and challenges of FRAML

FRAML presents a compelling option for financial institutions seeking to optimize financial crime risk management through a unified fraud and AML approach. By merging these functions, institutions may improve operational efficiency, reduce costs, and better align with regulatory guidance in a landscape where fraud and money laundering are increasingly connected. As with any significant change, the choice to adopt FRAML should align with each institution’s unique needs, resources, and compliance risk management goals.

Ultimately, the decision to embrace FRAML will depend on whether your institution’s structure and priorities make integration the best option. Consider your institution’s scale, resources, and compliance needs to determine if a unified approach to fraud detection and AML solutions is right for your institution.

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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