A paradigm shift is taking place in anti-money laundering (AML) programmes and technologies, which will reshape compliance practice as a whole.
This is according to Dr Sebastian Hetzler, co-CEO of IMTF, who was speaking ahead of a Compliance Institute of South Africa, Namibia and Botswana Forum sponsored by FICO and Bateleur this week.
Dr Hetzler says: “Applied in the right context, within clearly defined processes, and by skilled people, modern technology can create vast improvements. From my point of view, a future-oriented AML programme will be data-driven, contextual, proactive and collaborative.”
He says future compliance and AML practice will see AML departments gathering and connecting data from different internal and external sources and applying sophisticated AI data processing and visualisation methods and tools to help humans to make the right decisions in the anti-financial crime domain. They will also employ a customer or corporate entity focused approach rather than the transaction-orientation that dominates AML practice today.
“Only if a bank understands its customers, their relations and networks can it assess transactions in the right way,” he says.
He notes: “Sophisticated AI applied to large and connected data pools will help to identify suspicious behaviour significantly earlier than with today’s approaches. With that, two major impacts will arise: on the one hand, banks can report suspicious activities to financial investigation units (FIU) earlier and with more context, helping them to become more effective. On the other hand, this information can be used to update a bank’s risk assessment faster and to adapt research strategies. Ongoing KYC diligence will be a central element to this real- or near-time approach.”
Changing environment
Dr Hetzler says there are a number of drivers forcing banks to rethink their compliance programmes, including increasing regulatory requirements and regulatory pressure, enormous fines for banks convicted for regulatory breaches and ever more complex money laundering patterns being used to obscure the origins of illicit proceeds. In addition, consumers are forcing financial institutions to digitise all services and products, leaving them with a plethora of new challenges in areas such as security and authentication.
He notes there are also a number of new risks facing banks: “One of the biggest risks for banks emerges in the realm of crypto-currencies. The anonymity of the crypto world makes this the perfect 'place' for criminal activities, fraud and money laundering.
"The challenge is that many banks are exposed to risks from crypto-money laundering although they are not actively engaged in crypto-currency services. They are exposed through their customers who may use crypto-currencies to launder illicit proceeds and funnel the laundered money via a VASP to their normal euro or US-dollar bank account. Without knowing, banks become part of very complex money laundering schemes".
“A second risk area I see is neither emerging nor new, but it has never been more dangerous for banks: sanctions. Due to the geopolitical situation, financial institutes have to pay utmost attention to this risk category,” he says.
Technologies changing AML
Lizette Sander, Product Manager at Bateleur Software, says organisations have been slow to embrace certain advances in the AML domain in the past, but that this is changing. “The value new technologies can bring to financial institutions is becoming better understood and proven in practical affairs,” she says.
“Evolving AML operations to what many call AML 2.0 or 3.0 are technologies such as artificial intelligence (AI) and machine learning (ML), which allows organisations to identify suspicious behaviours earlier and more accurately. Robotic process automation is another important technological innovation, which can significantly reduce repetitive and time-consuming tasks and speed up processes. Entity resolution and network analytics help to connect data from internal and external sources and to better understand and deal with the network character of financial crime.
Finally, technologies like natural language processing (NLP) and natural language generation (NLG) will play important roles in classifying and linking documents, extracting entities from documents, increasing the precision of name matching in know your customer (KYC) and sanctions screening or pre-populating suspicious activity reports (SAR) to the regulators,” Sander says.
Some of those technologies, especially AI/ML, have been in use for many years in other anti-financial crime disciplines like fraud prevention. With AML turning to the same technologies, significant synergies appear by combining both on the same technological platform. So, anti-financial crime convergence is another technological trend that financial institutions should have in mind.
Dr Hetzler addressed this week’s Compliance Institute of South Africa, Namibia and Botswana Forum on the topic: “The years ahead – major trends in AML technology and how they will reshape compliance practice”.
Sander reports that the talk was well received by delegates, who revealed during a poll that 74% were excited about the impact technology changes would have on compliance and the role of the compliance officer. Seventy-eight percent also believed their organisations were not adopting anti-financial crime technology fast enough.
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