How tech can help stop money laundering


Financial crime regulatory breaches, and data gathering requirements, can be costly. LIBF Visiting Scholar, Jonathan Holman, looks at the scale of the problem and the technology that banks and financial institutions can use to tackle anti-money laundering (AML).

In recent years, European banks have been fined more than ever before for financial crime regulatory breaches. The EU money-laundering directives have dramatically increased the data gathering requirements on banks for their customers. These trends have been followed globally.

This regulation has led to a situation where banks are spending a hundred times more than they seize, on trying to comply with new KYC and AML regulations. Their total combined is  around $180bn, yet they are still regularly failing and being fined.

The scale of the money laundering problem remains large, at 6.7% of global GDP or $5.8tn according to the Wolfsberg Group in 2018. Bank fines increased 80% in 2020 for failure to adhere to the process/ data gathering and refresh processes.

How technology can help AML

The scale of human resources and costs have forced some financial organisations take a more innovative approach to meeting the regulatory gathering requirements efficiently.

However, fundamentals are simply not in place in many companies. These include:

  • connections to regtechs – to validate all of the data available publicly,
  • onboarding forms, which capture and control data entry, and finally
  • updated internal records, using public and private data, with ongoing comparisons to the public data.

Companies also need a digital workflow to manage all of the steps involved in the aforementioned tasks. The good news is that the technology necessary for this functionality is now widely available, and mostly, but not always, as ‘software as a service’ (SaaS).

The implementation cost is relatively small, especially compared to the potential cost of responding to the consequences of not addressing these functionality gaps, and the total spend on FinCrime and KYC globally.

Artificial intelligence and AML

By creating removing manual work and understanding complex patterns, artificial intelligence (AI) can also help banks and financial institutions:

  • tackle AML more efficiently, via sanctions / PEP screening and false positive handling
  • spot patterns of organised crime and fraud
  • remediation exercises and data inconsistencies

This can normally only be achieved when the main foundational technology and data issues are resolved – ie the lack of a single customer view and consolidated dataset, in addition to the lack of digital infrastructure described above.

AI is frequently misunderstood, and it also comes with perceived existential threats such as the elimination of jobs. But it too has been automated, controlled and is now available out-of-the-box for anyone to use. It can be a tool to empower teams who understand AML and the risks involved.

We can meet regulatory requirements, if we use the right technology, with the right people, to implement processes that improve data quality and customer experience at banks.

But we do need to collectively start to spend the $180bn that we’re spending already on something other than manual activities – filled with their pitfalls – to be effective.

Dynamic technology and automation is the answer, but you can take these first steps without having to build a thing. An organisation’s first steps should include:

  • trying to gather the data they need to customers – digital forms
  • prepopulating, supplementing and validating data – integrated regtechs through an application programming interface (API)
  • manging the fincrime and onboarding tasks, in a controlled manner – digital workflows.

Know your customer

Industry-wide however, there is one option, that could inherently solve this issue.

We could centralise, improve and connect all data together in a national ‘know your customer’ (KYC) utility, which would have regulatory teeth and amalgamate company registers.

By doing this, we would remove the individual KYC burden on each regulated organisation and entity. Thus far, however, in the west, there have been too many AML breaches, damaging the impetus to campaign for this.

But if we can collectively rebuild faith via our endeavours to meet the regulations in place, we’ll be able to campaign to make it more effective. And we can push to solve this problem once and for all – together.

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