Make AML Compliance Your Bank’s Next Competitive Advantage. Here’s How.
Complying with anti-money laundering or AML regulations is a demanding and costly activity for banks and other organizations that are part of the financial industry. It’s estimated that keeping up with financial crime compliance, as a whole, will cost the collective financial industry a total of $213.9 billion in 2021. In comparison, the cost of compliance in 2020 peaked at $180.9 billion. These amounts include the expenditure for carrying out AML and know your customer (KYC) measures, sanctions monitoring, and transactions monitoring.
Some traditional bank managers and officials still see AML compliance as nothing more than a substantial expense for the company. Fortunately, there are also many others who acknowledge the role of AML measures in minimizing the possibility of receiving sanctions from regulatory bodies and in reducing the possibility that financial criminals will use the bank to carry out their illegal activities. Knowing exactly how strict adherence to AML compliance impacts the company is a significant step in the right direction. This makes it easier to convince the bank’s decision-makers and officials that investing in a cutting-edge AML case management solution will allow the company to enjoy a competitive advantage.
But what advantages does having an effective AML solution offer to banks and other financial institutions? These are:
Have a Unified Platform for Carrying Out Analytic Functions, Monitoring, and Investigations
Using separate systems for handling analytics, case monitoring, and AML investigations leaves a financial institution with many vulnerabilities. Financial crimes are more sophisticated than ever. Criminal organizations make every effort to fine-tune their modus operandi to exploit vulnerabilities in banks and ensure that their illegal activities will remain undetected. With a unified platform for detecting and investigating AML cases, a bank has a better chance of picking out suspicious activities and transactions, monitoring them, identifying involved parties, and conducting thorough investigations with minimal effort and human intervention.
A unified platform—one that is capable of quickly processing huge amounts of data and sifting through data attributes—can be used as a data source for machine-learning models. These models, in turn, can be used to enrich existing AML solutions so that they can effectively detect more complex criminal activities. While AML efforts still require human judgment, access to added functionalities that come with using modified platforms and machine models means that the AML team members can do their job effectively and in a timely manner, all while keeping overall compliance costs at a minimum.
Make It Easy to Access On-Demand Data That Can Be Opened in Numerous Languages as Needed
The ability to use multiple languages is essential for an effective AML system. Up until recently, many financial institutions relied on data silos, with each department storing data using their preferred format and language. As a result, making all this information useful would be a challenging task, as the data would need to be standardized first. Alternatively, the data could have been stored in a single data lake and the task of reading the information would then fall on the AML solution. Either way, it’s imperative that the bank makes use of an AML system that is capable of supporting and loading information from the data lake on demand.
The use of an AML solution with the capability to work with different languages significantly reduces the time that data analysts need in order to prepare the data for analysis. The analysts, then, can focus on using their expertise to judge the information presented to them instead of spending time and effort to ready the data that they need to look at.
Detect, Address, and Prevent Organized Criminal Activity in a Strategic Manner
Finally, seamless access to data, the use of advanced analytical tools, and the availability of machine learning models enable data scientists and investigators to detect and investigate financial crimes without increasing the cost for the financial institution that they are working with. The data from each investigation that they undertake can then be used to predict the new strategies that financial criminals are using to bypass security systems. This reduces the bank’s potential for being targeted in financial criminal activity.
The Factors That Drive AML and Other Financial Crime Compliance Expenses
It’s expected that the cost of financial crime compliance will continue to rise in the coming years. This is driven In part by the fact that compliance measures are frequently being updated and reviewed to ensure their continued and consistent effectiveness against financial criminal activity—which also evolves with time. The snowballing effects of the ongoing pandemic to the economic sector are also seen as a contributor to this.
There is one factor that banks can control in order to stay on top of compliance expenses: the technology they use. Financial institutions that still use legacy systems to detect and investigate cases of money laundering and other financial crimes tend to spend more over time, as the solutions they use are no longer able to keep up with the exacting demands of regulatory bodies. At the same time, they have less assurance that their legacy AML detection system is able to effectively fulfill its purpose, increasing the company’s likelihood of being used in financial criminal activities and receiving sanctions due to failing to meet their compliance obligations. To stay competitive, banks should seriously consider speeding up their efforts to adopt digital technologies and be proactive in their modernization efforts.