By Tony Raval
As criminals become more sophisticated at performing money laundering activities, regulators are increasing their commitment to anti-money-laundering (AML) compliance. For banks, this means they must work diligently to maintain AML compliance amid a sea of growing regulation. It is now more important than ever to remain on top of AML compliance measures within institutions. In this article, we will explore three of the key anti-money-laundering trends and challenges for 2019.
1. AML Compliance For Cryptocurrency Becomes Standard
Global cryptocurrency adoption will continue to expand in 2019. This is causing regulatory bodies to work diligently to create AML standards for cryptocurrency companies. In 2018 we saw the release of the Fifth AML Directive in the EU, which created regulatory obligations for crypto exchanges. The Financial Action Task Force (FATF) will also be releasingspecific international AML standards for crypto companies in mid-2019. As more governments acknowledge the role of cryptocurrencies in the financial system throughout the year, crypto companies will need to become serious about maintaining AML compliance.
Many crypto companies are realizing that regulations are necessary in order to keep expanding the cryptocurrency market. Regulations are not something they can avoid, and crypto companies are going to have to deal with them. As one crypto company executive put it, “One cannot exist without the other.”
2. AML Becomes Automated As False Positives Continue To Increase
The number of people with access to financial services has steadily increased over time. Financial technology (fintech) is facilitating financial inclusion in previously underrepresented populations around the world, leading to an increase in consumer adoption of financial technologies and services, especially from fintech disruptors. This is increasing the transaction volume financial institutions must monitor to maintain AML compliance.
Many financial institutions use outdated technology to run their AML programs. This technology leads to a high volume of false positives, which has adverse effects on banks. Not only does this add more friction to customers during onboarding and payment processing, but it also increases operational costs for financial institutions. As fintech disruptors continue to gain market share among consumers, many banks are shifting toward automated technologies to completely transform their AML procedures.
Expect to see fraud and risk departments in many financial institutions increase their adoption of AI and machine learning for AML monitoring. AI can detect patterns in large volumes of data as well as adapt to changes in criminal activity over time. Plus, many fraud management departments will likely add blockchain technology to monitor complex transactions in conjunction with AI technology. Since blockchain is a cryptographic ledger that is decentralized, secure and immutable in nature, it is an ideal technology for maintaining AML compliance. This means that building an AML system with AI on the blockchain will identify and stop suspicious transactions effectively with minimal friction and high efficiency.
Overall, these tools should increase the effectiveness of AML while also simplifying the process for many financial institutions.
3. Financial Institutions Work To Combat Identity Theft
With the number of data breaches reaching an all-time high in 2018, the amount of identity theft taking place in the global landscape is staggering. Criminals are using stolen identity information to create synthetic identities they then use to gain access to financial services to perform nefarious activities such as money laundering. These facts are making know your customer (KYC) an essential part of an overall AML strategy. It’s a part of the process financial institutions cannot ignore.
Regulatory technology companies are creating solutions that aim to make identity management much easier for financial institutions. Rather than relying on an internal team, financial institutions can now use identity verification solutions to quickly and efficiently verify customer identities during onboarding. Automated identity checks offer companies faster results, lower consumer friction and more accurate detection of high-risk individuals.
These technologies will help financial companies remain in compliance and avoid costly fines.
It is more important than ever to maintain AML compliance. With money laundering taking place in increasingly complex ways, the pressure is mounting for financial institutions to combat financial crime. For many institutions, increased regulations will cause them to refine their AML strategies. This will cause many fraud and risk assessment departments to use new technologies to combat money laundering within their institutions, from AI for transaction monitoring to identity verification solutions for KYC checks. These trends will shift the AML landscape in 2019 and lead to better risk management by financial institutions overall.