AML Compliance: How to Prepare for Future Changes

Listen to AML Compliance: How to Prepare for Future Changes (9 mins):

FIs are spending big on the latest technology to support their revenue-generating endeavors.  The expectation slowly emerging is that the same thirst for technological advancements to generate capital and attract customers will be used to protect as well. Enter advanced technology to meet the demands of regulators and the new AML compliance landscape.  

How AML Compliance Will Evolve

Here’s what to expect as the AML compliance landscape changes. 

Emphasis on information-sharing

Information is power in the effort to stop money launderers and illicit activity. Externally, formal information-sharing programs will continue to evolve. Public-private collaboration between industry participants, regulatory bodies, and government institutions will search for responsible, secure vehicles for information-sharing. “Federated learning” is an approach that’s been gaining momentum.   

Internally, fraud and AML teams will share and leverage information and lean into their Information Security (InfoSec) team activities to establish more resilient financial crime-fighting workflows.

New investment priorities

FIs have traditionally focused the lion’s share of their investment efforts on revenue-focused technology. Control functions have, and often continue to be, considered a cost of doing business. This results in operations heavily reliant on manual intervention and budgetary constraints forcing teams to use legacy, antiquated systems. All the while financial criminals grow increasingly sophisticated.

Regulators understand how AML solutions have evolved in recent years. And they’re expecting their regulated institutions to take note as well. In practice, this means regulators will push FIs to build their own and/or embrace external solution providers for advanced technologies. This is where business spending converges with compliance spending. Regulated institutions will be expected to invest in current and forward-thinking technologies in their risk prevention, detection, remediation, and AML compliance capabilities.  

Forward-thinking risk identification

FIs can’t afford to think of risk-scoring solutions as a “set it and forget it” task. Regulators expect FIs to implement intuitive risk-scoring solutions that keep up with the latest money laundering tactics and customer risk attributes, particularly as we see cryptocurrency become more prevalent as a medium of exchange. Criminals will not “set it and forget it.” They will look to exploit any vulnerability in an FI’s system to move their dirty money to a safe haven. 

FIs need flexible and evolutionary solutions to clearly identify a potential client’s proximity to criminal activity. Enter the customer due diligence (CDD) process. Periodic, point-in-time reviews based on standard risk rating methodology will give way to evolution continuous risk identification. As customers interact with their FI risk attributes are continually updated.  

Prepare for crypto 

By the time you’re reading this, you’re likely behind. Cryptocurrency continues to gain momentum as a recognized form of payment, moving beyond the singular view of a speculative gamble (although that’s still the forefront in the minds of many). Regulatory expectations continue to take shape for FIs willing to take the plunge into cryptocurrency in a variety of ways. Financial crime teams must evolve and prepare. For example, has your FI performed a risk assessment on how crypto acceptance will impact your business? And what are your plans to monitor this non-Fiat currency for potential criminal activity? What processes are impacted? These are the types of questions that compliance officers and FIs should ponder before jumping into this new and emerging field of financial services. 

How FIs can prepare for new compliance expectations

New AML compliance technologies, innovative financial products, and shifting regulator expectations have changed the game. Here’s what FIs can do as the AML compliance landscape shifts. 

Use platforms, not point solutions

As FIs introduce new banking options – like cryptocurrency products, exchange services, and payment methods – they must take steps to ensure these products support their AML objectives. Some FIs will implement point solutions for each new product. But this strategy can prove cumbersome as each new product or channel will require additional investment, potentially a new system to integrate, and new data schemes to be mapped. What’s more, these point solutions will struggle to communicate effectively with the variety of other systems operating concurrently in your financial crime tech stack. Vulnerabilities and inefficiencies inevitably get exploited.

Investing in platform solutions will enable FIs to more easily implement a preventative or detective control framework as they deliver new banking products and channels. Integrate once and, when ready, simply enable additional solutions already pleasant on the platform. End-user friction and ramp-up time are mitigated with a similar UI and use case-specific UXs.   

Build your dream team

Enhanced communication has always been a central focus of AML compliance. As regulators raise the bar for FIs, ensuring your organization implements best communication practices will become increasingly important. Think of the types of information that your different teams – including fraud analysts, AML associates, compliance officers, and InfoSec personnel – require to do their jobs effectively. Consider the types of data that are available in your organization and how easy it is for different team members to access it. Once you understand where the gaps in data accessibility and communication exist, target them for closure with a time-bound remediation plan. You may also see an opportunity to rotate team members across disciplines who have the skill sets to be effective in other financial crime prevention roles. Lean into that as part of employment development opportunities.  

Open lines of communication outside the office

Strong lines of communication with regulators and other financial services industry experts will go a long way in consistently maintaining sound financial crime prevention practices. These open dialogues ultimately factor into setting priorities and align your organization with AML compliance best practices. It’s also an opportunity to understand industry direction and what advancements your peers are considering to get ahead of criminals. Proactivity with your regulators will mitigate unexpected complications in your audit process.

As AML compliance technology evolves, regulatory expectations have shifted. FIs will need to ensure their AML compliance delivers seamless communication both internally and externally, can accommodate emerging payment and banking options, and most importantly, stops financial criminals in their tracks. Invest in your AML and financial crime solutions, and invest in your people. 

 

Take a deeper dive into AML solutions by watching Enhancing AML with Machine Learning today!