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Report: Rethinking AML for the digital age

Europe’s banks are undergoing one of the greatest periods of transformation in their 800-year history. Banking models that prioritised delivery through branch networks are disappearing, replaced by digital as mobile takes control of more of our own and our customers’ lives.

Money hung up by pegs on a washing line

Rethinking AML for the digital age

The potential of this new world is well understood – personalised services, faster response times, instant payments – to name a few, available in real-time, around the clock.

Despite this potential, the speed of digital adoption by customers and accelerated digitalisation across financial services in response to COVID-19, has helped create a rapidly widening opportunity for fraud, with criminals able to exploit gaps between digital solutions, banking systems and customers.

Among the rising cases of fraud, money laundering has grown rapidly as regulation and bank processes struggle to keep pace with the rise in criminal innovation – according to Better by Design – Rethinking AML for the digital age.

Fines for Anti-Money Laundering (AML) compliance breaches in the first six months of 2020 outstripped the total for the whole of 2019 – fines for the first half of 2020 were 40% higher than for the whole of the previous year.

While penalties are sometimes small relative to industry revenues, the damage they cause – to customer trust and business disruption – is considerable.

The opportunities to leverage operational efficiencies from automated compliance processes are also overlooked.

While AML is a widening compliance and regulatory requirement, there is a growing opportunity for banks to approach AML within the context of the digital transformation agenda.

Success is no longer simply about compliance with regulatory rules and policies. Instead, it is now understood that getting AML right can deliver streamlined processes and create business value by unlocking efficiencies.

The report, by Banking Circle, highlights pathways to help tackle the rising compliance threat:

Embrace advances in Artificial Intelligence (AI) and Machine Learning (ML).

42% of senior bankers across Europe cited outdated legacy technologies as a major issue3. Separately, it is reported that some current AML systems generate 95% false positives4. Investment in modern automation and ML software is a must, particularly in response to the rapid adoption of Faster Payments and instant settlement.

From capture to labelling and analytics – radical data quality improvements are crucial.

Interviewees estimated that up to 15% of real-time transactions are being blocked due to poor data on either recipients or transaction initiators. Almost one in four respondents to our European banking survey (24%) cited poor quality data as a key concern for the success of their IT strategy, just behind data security at 28%5.

By using a wider range of data sources – including social media and government ID – respondents estimated it would be possible to reduce investment in staff resources to investigate AML cases by up to 15%6.

Cross-industry collaboration – including regulators – is essential as part of wider efforts to tackle the threat and extract opportunities from compliance.

More than a third of the senior bankers we surveyed said that inconsistent approaches represented a major challenge for them in 2021. With individual fines reaching record levels – such as the $1 billion fine handed to ING in 2018 – and criminal activity on the rise, industry and regulators must work together more closely on creative approaches such as the ‘regulatory sandboxes’ established in some jurisdictions.

It’s time for smarter systems and smarter regulation – and the realisation that all parties are united in a common goal.

To read the report CLICK HERE

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