Financial Compliance Risk Management Using Knowledge-Based Systems and Analytics
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Authors
Doost, Alireza Farhang
Date
2025-04-03
Type
thesis
Language
eng
Keyword
Risk Management , Financial Regulatory Compliance , Partially Observable Markov Decision Process , Machine Learning , Knowledge-based Systems , Feature Engineering
Alternative Title
Abstract
In financial institutions, risk assessment of client accounts is a sensitive task requiring a blend of manual review and automated rating. While scarcity of labelled data, compliance requirements, and complexity of cases are significant obstacles in complete automation, manual review leverages expert knowledge to address these challenges. This thesis presents two methodologies that distinctly study and improve manual client review process and automated client risk rating. Both methodologies are developed to address real-world cases using real-world data with practical applications in financial institutions.
In the first study, we develop a novel knowledge-based decision support framework using a Partially Observable Markov Decision Process (POMDP) to improve the manual client review process in terms of reduction in backlogs, optimal assignment of cases to reviewers, and model interpretability with respect to compliance expectations. The POMDP model enforces a forward-looking sequential decision approach that incorporates operational costs associated with manual review, and potential consequences of misdiagnosis (false positive and false negative) therefore taking into account the significant costs of non-compliance and regulatory penalties.
The second study introduces a feature engineering method to improve the accuracy, robustness, and interpretability of automated risk rating classification decisions of a Logistic Regression model used for Client Risk Rating (CRR). The model has been used in production at a major bank.
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Queen's University's Thesis/Dissertation Non-Exclusive License for Deposit to QSpace and Library and Archives Canada
ProQuest PhD and Master's Theses International Dissemination Agreement
Intellectual Property Guidelines at Queen's University
Copying and Preserving Your Thesis
This publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner.
Attribution-NonCommercial 4.0 International
ProQuest PhD and Master's Theses International Dissemination Agreement
Intellectual Property Guidelines at Queen's University
Copying and Preserving Your Thesis
This publication is made available by the authority of the copyright owner solely for the purpose of private study and research and may not be copied or reproduced except as permitted by the copyright laws without written authority from the copyright owner.
Attribution-NonCommercial 4.0 International