Why AML Needs to go Digital

Despite the rise of digital technology and increasing regulatory scrutiny, many banks are still struggling to bring their AML processes into the digital age.

Technology and the rise of digital payments have made it more difficult for banks to check the sources of money. Despite efforts by the regulators, instances of fraud rose throughout 2020 and 2021, and some of the biggest banks in the world found themselves under scrutiny from the regulators.

What these fraud cases show is that regulators will be continuing to issue fines, continuously updating their regulations, and that banks, despite a clear desire and intent, are struggling to keep up. One way in which they could do that is to do what the fraudsters are doing and lean on technology…

Financial institutions should lean more on technology

A look at some of the biggest fines can give us a useful insight as to where the failures are happening. The FCA’s decision to fine NatWest £264.8 million for failing to react to red flags raised by staff showed some of the risks of relying on human intervention. The bank was fined for its dealings with a customer which deposited millions in cash at various branches around the country. Alarms were raised by staff who detected suspicious behaviour and a strange musty smell on the bank notes. However, these warnings were not heeded nor passed on.

This is, therefore, one area in which a lack of technology exposed inconsistencies in the company’s approach. Had systems been in place, they might have automatically flagged up problems and prevented the transactions from taking place.

AML a top priority, along with technology improvements

Technology is becoming increasingly important thanks to the evolving nature of the regulatory landscape. The FCA has made AML a top priority and has implemented new regulations with more expected to come. Regulators in the US and Europe are doing the same, with each territory adopting its own stances. Businesses which operate across borders will have to become increasingly agile in making sure their systems are sophisticated enough to adapt to changes as and when they occur.

This is driving the adoption of advanced technologies to combat money laundering such as:

Big Data:

In an environment which is fast moving, having real-time data insights into transactions is crucial to allowing banks to monitor transactions as they happen. All this data makes it easier to conduct compliance reporting and being able to demonstrate to regulators what steps had been put in place to mitigate the risk posed by money laundering.

Artificial Intelligence:

AI is making its way through many areas of finance with one of the key areas being anti-money laundering. Machine Learning can be used to analyse data for creating an automated analytical model and is commonly operated for supervisory purposes. This can provide automated supervision to maintain a risk-based approach which can assess customers based on risk and identify suspicious transactions more quickly.

Natural Language Processing:

The ability for computers to comprehend, interpret and control human language has already been widely deployed for chat bots and customer service solutions. In fraud prevention, NLP can be used to process uncertain or rough data containing multiple values to achieve an outcome which cannot be defined exactly but has a critical function.

These, and other technologies, are making their presence felt in creating more reactive, reliable and intuitive defences which can provide more proactive risk identification and mitigation strategies. They can help demonstrate compliance, cope with evolving requirements and prevent critical errors which can compromise anti-money laundering processes.