Across the globe, financial institutions (FIs) are faced with an evolving and threatening landscape. Complex challenges, especially in higher-risk operations – such as increased digitalization of services, a surge in regulatory pressure and growing amounts of data – are accentuating the pressure on FIs to implement effective AML compliance systems.


The traditional approach for both public and private sectors to focus resources and attention on the initial placement of cash into the financial system is no longer fit for purpose. Due to the multifaceted nature of FIs, they are more vulnerable to illicit activity and other financial crimes. In 2019 alone, it was estimated that US$10 billion in fines was levied for non-compliance with AML and sanctions obligations as a result of ineffective monitoring systems and risk-based frameworks.


But, implementing sustainable and effective AML systems is not straight-forward. Legacy technology has prevented FIs’ ability to better identify and alleviate the risks they face. To understand how FIs can make more accurate decisions by implementing intelligent and automated tools, we must first highlight some of the main challenges obstructing effective AML compliance.

Challenge 1: Digitalization of products and more complex payment streams


Keeping up with continual innovation and new products in financial services is a major concern for FIs. Historically, there has been a heavy reliance on lengthy, manual processes that result in exceptionally high rates of false positives alerts, making the process of detecting financial crime risk ineffective and inefficient.


Despite the changing landscape of technology and digitalization, thousands of operational and AML compliance decisions continue to be made manually by organizations every week. Wasting time on unnecessary investigations and using human analysts for every decision costs FIs billions of dollars each year and diverts attention away from higher risk events.


There’s no denying that increased digitalization of products and more complex payment streams such e-commerce, virtual currencies and prepaid cards, has made an already complex task even more challenging. This is why FIs must master the ultimate balancing act of implementing the right tools to deliver more effective investigations and real-time risk analysis.


Challenge 2: Increasingly sophisticated criminals and their networks


As FIs look to ramp up their use of more advanced technology, criminals have also stepped up their tactics to more sophisticated means. Every day we see new AML threats arise from rapid digitalization; financial criminals are benefitting from these innovations and are becoming smarter, more professional and better organized. Criminals operate across complex networks, exploiting vulnerabilities that are inherent in institutional operations such as banking, capital markets and trade finance. For example, virtual currencies are increasingly being used as a vehicle for money launderers, drawn to the anonymity it provides. This makes the movement of illicit proceeds and hiding origins of dirty money much easier.


Therefore, as with most types of crime, when one method of money laundering becomes more challenging to execute, financial criminals will continue to innovate and seek out new methods. FIs must continually update their AML compliance processes to ensure they are constantly one step ahead of criminals.

Find out how to overcome AML compliance challenges and enhance investigations in the latest Aite report.

Challenge 3: Global regulations increasing pressure on AML compliance expectations


The global AML compliance landscape has changed significantly over the past few years, with increasing layers of regulation being implemented across jurisdictions to strengthen the fight against money laundering, drug trafficking, terrorist financing and other financial crimes. As a result, the fines being levied where compliance breaches have been identified continue to become more stringent.


Many recent money laundering scandals, such as the case of the Russian Laundromat scheme, are related to correspondent banking, trade finance and capital markets. Consequently, the scrutiny of these sectors by regulators has intensified significantly, including the 5th Anti-Money Laundering Directive. As with the other initiatives introduced by regulators, this allows for greater transparency of information sharing, reinforce controls of financial institutions and tackle new threats from increased digitalization.


To effectively meet the new regulatory changes and obligations, FIs need focus on the imperative for enhanced AML compliance technology. By transitioning away from legacy, rule-based functionalities and focusing more on effective solutions, FIs will be able to adopt and tailor their intelligent tools to specific inherent risks.


Challenge 4: Expanding volumes of data


Another key challenge facing FIs is the volume and breadth of data. According to IDC, there will be more than 175 zettabytes (that’s 175 trillion gigabytes) of data by 2025. However, as the amount of available data continues to expand, some FIs are still struggling to harness its true value.


Transactional data is often held in numerous legacy systems, making it difficult to connect the information and limiting the effectiveness of transactional monitoring and risk analysis. Criminal organizations often launder their funds between multiple networks, making it even more problematic to spot risky behavior. But, by using intelligence-led tools such as contextual analysis, FIs will be able to better understand relationships and connections and more accurately identify unusual or potentially criminal activity.


Data represents one of the most important assets for FIs in the fight against financial crime. Therefore, it is vital for FIs to work towards creating a single view of all internal and external data sources. High-quality AML data is difficult to exploit and requires FIs to adopt new technologies that are able to connect and enrich multiple streams of disparate data.


How to overcome AML compliance challenges


Money laundering in any form is extremely complex, and every day FIs see new threats arise as a result of their global presence and vast diversity of products, markets, business lines, and delivery channels. Additional AML compliance challenges are faced due to the huge advancements in technology, providing criminals with sophistical tools to launder money as well as the growing pressure from regulators to meet new compliance obligations.


To overcome these challenges, FIs need to change their focus to harness the value of a more connected, complex and challenging environment. With innovative tools such as entity resolution, network analytics, and dynamic segmentation available, FIs should consider how existing monitoring processes can be adjusted to adopt these new intelligence-led approaches. By leveraging technology and overcoming data challenges, FIs will be better equipped to lead more real-time risk analysis, efficient investigations and effective AML detection. Ultimately, this will feed into the bigger picture of preventing the exploitation of the financial system to fund criminal activities.


Download our most recent report in collaboration with Aite Group to find out more about emerging technologies and raising the bar for more effective and efficient AML compliance programs and systems. Download here

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