In the past few years, we have seen a substantial increase in the number of legislations regarding how legal entities especially financial institutions combat financial crimes like terrorist funding, money laundering, and identity theft. A report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered. Businesses are in dire need of KYC and AML compliance to fight back all such frauds. Business owners are deploying various measures against scams but the AML compliance program is effective out of all.
AML compliance program is basically a methodology that defines the role that governs how a company monitors accounts, detects and reports financial crimes to relevant authorities. AML screening tackles with the intrinsic money laundering risks the company faces or can face in the future. The role of legislation is crucial in order to know how the AML compliance program should work. Customer screening for anti-money laundering is for completing due diligence to prevent and deter money laundering, terrorist financing, and other financial crimes and frauds.
Why AML Compliance?
AML( Anti Money Laundering) practices have been used for businesses around the globe and all regions require the businesses to perform due diligence on their customers in one way or the other. AML compliance is not as difficult for organizations to follow as it seems. An investment of a few thousand dollars can obviously demit the loss of millions in penalties that businesses will have to pay eventually.
To detect suspicious transactions and analyzing customer data, Anti-money laundering AML screening has been employed by financial institutes and other businesses. To filter customer data and classify it according to the level of suspicious and inspect it for errors is done by AML systems. Any sudden and substantial increase in funds or a large withdrawal of cash includes such anomalies. AML checks are not for money laundering but also put a tight reign on frauds like tax evasion, terrorist financing, etc. AML compliance has a system to report money laundering activities to relevant authorities evaluating the client’s risk profile.
Artificial Intelligence Enhancing AML Checks:
Artificial intelligence (AI) has the potential to transform financial institutions (FIs), disrupting every aspect of financial services, from the customer experience to financial crime. AI technology can be utilized by FIs in a number of ways, with anti-money laundering (AML) one of the main areas of focus. FIs can employ AI to analyze large amounts of data, to filter out false alerts and identify complex criminal conduct. It can identify connections and patterns that are too complex to be picked up by straightforward, rule-based monitoring or the human eye.
FIs are awakening to the potential of AI, both internally and externally, and beginning to embrace it. According to the Digital Banking Report, 35 percent of financial organizations have deployed at least one machine learning solution. Artificial intelligence has the ability to completely transform how banks perform AML and Know Your Customer (KYC) compliance. Additionally, for this need of anti-money laundering, artificial intelligence systems are capable to mine a great volume of data to prevent risk, which simplifies the process of identification of high-risk clients.
AI is crucial when performing repetitive tasks, saving a lot of valuable time, resources and efforts that can be refocused on other tasks. AI technology including natural language processing NLP and machine learning ML can create automation in process of AML screening.
How is AML Compliance impacting Businesses?
AML compliance can intelligently extract risk-related facts from a huge volume of data making the process of identity verification a lot more smooth and risk-free. It has the ability to track the alterations in regulations around the globe. It fights against financial crimes by identifying gaps in customer information by financial institutions and provide Know Your Customer ( KYC) alerts. Here are ways in which AI has revolutionized AML screening to help the client onboarding process easy, resulting in bringing higher revenue and lower fraud risk to the business:
Enhanced Due Diligence:
Artificial intelligence can automate AML screening that helps automate the creation and updating of the client risk profile to match this against the classification process i.e high, medium or low risk that ensures continuous compliance throughout the client life cycle. Moreover, it assists the process of identity verification easier for enhanced due diligence.
Improved Client On-Boarding:
When applied to workflow automation, AI along with AML has the ability to transform the generation of documents, reports, audit trails and alerts/notifications.
Risk Assessment :
AML compliance can help mitigate risk as whenever a client is highlighted with a suspicious activity system can block resulting in the removal of any sort of risk. It gives a full understanding of the different tiers of risks a customer presents and how to mitigate them
Detection of Suspicious Activity:
Any suspicious activity can be detected and immediately reported to the concerned department without putting yourself in trouble. The goal here is to have systems in place for prompt detection of activities associated with money laundering. For instance, suspicious activity can be:
- Increase in cash deposits of or business without any obvious reasons.
- Providing very little information when applying for a bank account.
Managing Regulatory Compliance and Change:
AML screening ability to counter patterns in a vast range of text enables it to make an understanding of all changing regulatory environment. Furthermore, to analyze and classify documents to extract useful information such as client identities, products, and procedures that can be affected by regulatory changes. It can be instrumental in helping banks and other financial institutions to fight back financial frauds.
AML Screening and Investigation:
A recent Dow Jones-sponsored ACAMS survey revealed the most challenging for bank compliance is of false positive. Underpinning the alert generation method with AML may end up in fewer false positives. whereas they’re a major part of the AML compliance method, alerts don’t seem to be enough to support an efficient and thorough investigation method. What’s needed is that the linking of high-quality information to the alert (via interpretation associate degreed link analysis) to supply a correct, graphical illustration of the legal entity structure. AML beside AI will facilitate to leverage antecedently performed steps within the alert investigation method to formulate a suggested next steps approach.
AMLD5- Closing the loopholes of AML:
Consider new technologies and improve transparency AMLD5 is here to fulfill the EU’s next-generation AML requirements:
The goals of 5AMLD are as follows:
- Impact on financial intelligence units and facilitate increasing transparency on who really owns companies and trusts by establishing beneficial ownership registers
- Prevent risk associated with the use of virtual currencies for terrorist financing and limit the use of prepaid cards
- To secure the financial transaction to and from the high-risk third parties.
- The access of financial intelligence units to information including bank account registers must be enhanced.
- Ensure centralized national bank and payment account registers or central data retrieval systems in all member states.