Despite having various security measures in place, financial institutions worldwide still become unwitting and unwilling accomplices to financial fraud and crime every single day. In fact, according to figures from the World Economic Forum, an estimated $2.4 trillion worth of proceeds from illicit activities are laundered through legitimate financial markets and banking systems annually. To make matters worse, financial criminals are growing bolder and more sophisticated, leveraging technology to their advantage to identify loopholes and exploit weaknesses in the international financial system.
Fortunately, technology can also help these institutions stay a step ahead of malicious actors. Here are a few innovations that have been specifically developed for anti-money laundering purposes:
Customer Due Diligence
Customer Due Diligence information refers to a set of known facts about a customer that enables an organization to establish that customer’s identity, ensure that the customer’s source of funds is legitimate, and evaluate how much that customer exposes them to certain risks, such as sanctions, corruption, money laundering, and terrorist financing. Financial institutions can perform due diligence on their customers with comprehensive Know Your Customer and customer screening platforms.
What is “Know Your Customer”?
Know Your Customer or KYC is a set of guidelines—mandated by law in certain territories—that financial institutions must follow to prevent themselves from unknowingly facilitating illegal activities. It also refers to the process of collecting pertinent data about a customer before giving him or her access to the institution’s products and services.
Know Your Customer platforms make it easier for financial institutions to satisfy regulatory AML requirements through automation. During onboarding, a prospective customer’s information is run against a risk scoring model to determine if they meet the institution’s standards, as well as the necessary regulatory requirements. Some platforms are equipped with additional features such as enhanced due diligence investigation and end-to-end anti-money laundering compliance.
Customer screening platforms, on the other hand, make use of customer information, as well as third-party data sources such as sanctions lists, PEP watchlists, blogs, forums, and news articles to screen customers for potential violations of pertinent regulations. This enables financial institutions to reject customers not acceptable to the risk appetite, and make sure that they remain compliant with AML, sanctions, and other legal regulations. They can also analyze a customer’s information to determine if they are compliant with all current anti-money laundering and counter-terrorist financing laws. The use of such platforms significantly reduces human error and the time it takes to complete the onboarding of a prospective customer.
When combined, these platforms aid in the identification of money launderers and perpetrators of financial crimes, help organizations comply with KYC regulations, and cut down on fraud losses. Additionally, they streamline the onboarding process for good customers, creating a better overall experience and paving the way for productive business relations.
Transaction monitoring is yet another essential tool that should be part of any financial institution’s AML solutions suite. Systems developed for the purpose automate the process of monitoring all incoming and outgoing customer transactions on a daily or real-time basis, a job that would simply be impossible to do manually. The information obtained from this type of account surveillance is then analyzed with the customer’s profile, as well as any historical and current client information, to create a holistic view of the customer.
Why is transaction monitoring so important? From an anti-money laundering standpoint, it can help detect suspicious activities and stop financial crime in its tracks. Having robust transaction monitoring systems in place also demonstrates that an organization takes anti-money laundering and counter-terrorist financing regulations seriously. Finally, just like KYC and customer screening processes, transaction monitoring systems help prevent losses due to fraudulent transactions.
Technology can also help financial institutions streamline their investigations into suspected financial crimes and money laundering activities. For example, enterprise-grade case management software can consolidate all data obtained from other compliance processes that a financial institution has deployed, from Know Your Customer to anti-money laundering and fraud. From there, it is easier for analysts and investigators to see a clearer picture of the case, review relationships, and recognize patterns. In addition to reducing the time spent scrutinizing unnecessary variables, these utilities can also empower investigations teams to act more quickly and make swift decisions.
Submitting accurate and timely Suspicious Activity Reports (SARs) and Suspicious Transaction Reports (STRs) to regulatory bodies and law enforcement officials continues to be an important strategy for combating financial crimes. Given that there is no global standard method of filing regulatory reports for suspicious activity, though, the process can be complicated and extremely time-consuming for financial institutions to do manually.
Fortunately, technology can aid in this area as well. Employing an all-in-one reporting solution that can present pertinent information in the appropriate jurisdiction-specific regulatory reporting format allows organizations to achieve reporting compliance more easily. Automated systems that can catch errors in reporting early can also minimize legal risk and prevent financial institutions from being penalized by regulators.
When it comes to compliance & AML procedures, financial institutions would do well to leave nothing to chance. Investing wisely in effective enterprise AML technologies and learning how to harness their maximum potential can only prove extremely beneficial in the long run.