Given the phenomenal growth of the world’s online markets and the emergence of trends such as cryptocurrencies and NFTs, anti-money laundering (AML) developers have been busy keeping up with all the changes and innovations in the global financial sector.
But even with the challenge of keeping up with the times, implementing AML systems today is much easier than ever for the world’s financial institutions. Here are five reasons why AML is much easier for banks, investment companies, credit unions and other institutions today.
1.) AML software is more advanced than ever
Software today benefits not only from iterative improvements from previous generations of AML solutions, but also from trends in data analytics, machine learning, artificial intelligence and global connectivity.
Thanks to these developments, basic AML processes such as confirm customer survey could now be done faster and more accurately compared to what was possible with older manual and digital solutions.
In addition, the market for AML Software has expanded significantly over the years, with many more developers working within this space. This has led to innovation and provides businesses with affordable yet highly effective options for AML compliance and implementation.
2.) Artificial intelligence is especially better at detecting suspicious transactions
While AML software has come a long way in functionality, connectivity and ease of use, the human aspects of fraud mean that much of the work in determining whether a transaction should be flagged has to be done manually.
However, with billions of financial transactions happening every day, keeping track of all these activities is sure to put a strain on any system that relies on people. This problem will only get worse as more people in emerging economies participate in formal financial markets.
AML systems have long used artificial intelligence to quickly detect patterns of behavior that could indicate fraud. However, these early AI tools, while useful, had several shortcomings that would only be fixed quite recently.
Some of the same machine learning and modeling advances that search engines have improved over the decades have also been applied to AML systems. Newer algorithms, deep learning methods and neural network systems have made it easier to quickly search millions of transactions and spot potential problem transactions within moments. Not only does this improve AML capabilities, but it also allows financial institutions to deploy smaller teams to get the job done.
3.) The cost of effective implementation has fallen
AML software and fraud detection have not only improved over the decades, but the technology has also become much more affordable. This means that even smaller financial institutions can go beyond maritime compliance and implement truly effective AML measures.
Historically, upfront compliance costs have been the number one barrier for companies to comply with a regulatory measure. Businesses as a whole are not necessarily rational, and this is reflected in the predictable resistance to upfront regulatory costs, even if the regulatory action will result in lower overheads and less risk over time.
Over the years, this resistance has led many institutions to invest the bare minimum in AML, predictably allowing countless cases of fraud and money laundering to proceed unimpeded. Typically, you will only see this significant investment above the bare minimum in cases where effective measures scale well across the organization. This scale was not always available for smaller organizations.
Today this is much less of a problem. The cost of the technology has dropped significantly, making it easy for even smaller institutions to implement the latest AML best practices. Newer generations of software have also reduced the need for human input and analysis, further reducing initial implementation costs.
4.) There is more access to data on criminal activities
A generation or so ago, fraudsters and criminal financiers could rely on the fact that private and public financial institutions now rarely coordinate with each other when money laundering is suspected.
Specific knowledge of possible criminal activity was often located within one institution and was sometimes not reported to the authorities. This unnecessarily left other institutions vulnerable to any exploitative techniques that were not identified but not shared.
Thanks to better coordination between financial institutions, financial criminals now have a much harder time evading detection. Simply trying out other financial institutions to exploit has become a much bigger gamble as identity research now tends to go through multiple institutions.
5.) Global AML Laws Are Catching Up
Unequal legislation and poor enforcement have long been allies of money launderers. This has left AML measures behind, even in countries where AML laws were written. This is certainly no longer the case, and the usual havens for money launderers have all but disappeared in the modern context.
Terrorism, drug trafficking and other international crimes are very serious problems facing many of the world’s leading economies. The ease of money laundering has a direct effect on the assets of various criminal organizations. This makes the enforcement of AML standards and the creation of better legislation a priority for the countries now threatened by international crimes.
While far from perfect, most of the world’s economies have or are developing new legislation to better address money laundering issues. In addition, there is also increased diplomatic pressure on all countries to get in line, which could soon further narrow the safe havens for criminal financiers.
Even as criminals continue to find ways to transfer dirty money, their ability to do so diminishes every year. Best of all, advancements in both technology and policy-making mean the cost of protecting your organization from money launderers and fraudsters is lower than ever.
