For a long, Anti-Money Laundering (AML) has been one of the biggest concerns for financial and other organizations. It consists of a set of regulations, procedures, and activities that an institution undertakes to monitor and report money laundering. Especially post covid, the regulators and organizations are raising standards for combating money laundering with the trend of digitization to identify suspicious transactions and trace the crimes back to the source.
Why is AML important for businesses?
With digitization and new diverse technologies, criminals now pursue innovative ways of committing crimes. The prevalence of financial crimes has increased, and with that, the need for institutions to invest in adequate technologies and complying with regulations has also increased. When it comes to money laundering, the United Nations1, estimates the value of money laundering globally every year is between 2-5% of the total world GDP, which amounts from $800 billion to $2 trillion approximately. As more potential avenues for money laundering and the number of financial crimes are increasing, regulators like FATF, IMF and the country governments have also increased oversight and legislation.
These factors force the organizations such as Banks, capital markets, other financial institutions, retail, eCommerce and public sector companies to implement anti-money laundering programs that include manual investigations and technological frameworks to monitor transactions, customers and their networks, and detect suspicious activities. However, it becomes difficult for manual investigators to operate at a larger scale with the massive digitization of financial activities. Hence, adopting effective AML technologies that utilize data and analytics is absolutely essential to these organizations for intelligent alert prioritization, advanced analytics, anomaly detection, client risk ranking, trade transaction life cycle, and proper regulatory compliance.
Emerging technological and industry trends
As times are changing and companies becoming more adaptive to the new normal, the AML technologies and industry is reflecting some crucial trends, shaping how they are being used. We have curated three of the most significant trends in this landscape.
- Rising Information Sharing Across the Financial Crime Landscape
Anti-Money Laundering regulations and sharing of information are not a new trend. However, the manner in which financial institutions share information is very outdated as compared to well connected criminals. Hence, laws such as the latest 6th Money Laundering Directive of the EU, The UK Criminal Finances Act of 2017, and New AML Act, 2020 have focused on establishing public – private and other data-sharing partnerships. We are witnessing a rise in the number of such information sharing partnerships with the purpose of sharing details about client profiles, behaviours, suspicious activities, and financial crime typologies to create a wider database and improve efforts against money laundering and other financial crimes.
2 . AML Vendors Leveraging Advanced Analytics to Drive Investigator-Centric Approach
The AML Technologies are empowering the investigators with better tools powered by AI, Machine Learning, and advanced analytics. The result is that the institutions can stay one step away from the criminal with faster and more efficient outcomes for transaction monitoring, screening and identification of laundering transactions.
Deployment of AI and Machine Learning in the AML program improves and automates Consumer Due Diligence (CDD) and Know Your Customer (KYC) functions and analysis of huge set of consumer data. Moreover, advanced analytics of consumer behaviour and tools like network analytics are making It easier to predict and identify fraudulent activities as well as trace the origin of money laundering activity by analysing changes in behaviours and consumer data. It also generates Suspicious Activity Reports (SAR) from the aggregated data about consumer risk profiles. Moreover, tools like network analytics increase the effectiveness of existing techniques and logic in identifying identity frauds. Hence, these advanced technologies can make better not only the organization’s AML reporting but also its investigation procedures by giving rich insights and reducing false positives.
3. Rising Digital Assets Increasing Requirements for AML Platforms
Rise of crypto currencies, digital assets such as NFTs, and the world of decentralized finance pose a great risk of money laundering. It opens many new ways for money laundering activities in the system as they are highly un(der)regulated. A report by leading blockchain data platform Chainalysis2 stated that money laundered in cryptocurrencies amounted to $8.6 billion in 2021, having risen 30 per cent from the previous year. Technological solutions to combat this such as blockchains are already being developed. Nevertheless, it has increased the need for AML platforms and compliances to stop money laundering in digital assets. The regulatory organizations are codifying the FATF-published cryptocurrency AML guidance and recommendations in their laws.
Apart from these, the Anti-Money Laundering technologies and the industry is also facing some other significant trends such as rising demand for more consolidated platforms to perform all kinds of AML functions, Customer Life-cycle Risk Management, and increased collaboration between regulators and reg-tech organizations. In a nutshell, although these changes are not drastic, the state of AML technologies is changing very rapidly, giving better directions to the businesses to undertake more smart and efficient measures against such financial crimes and simultaneously presenting better opportunities for businesses to provide technological solutions for AML to the organizations.
Author
Vaishnavi Dave is a Content Writer at Quadrant Knowledge Solutions.
