EU Takes First Step to Set Up Anti-Money Laundering Supervisor

EU Takes First Step to Set Up Anti-Money Laundering Supervisor

The European Union should contemplate creating an independent agency to supervise anti-money laundering compliance, the bloc’s finance ministers said Thursday. 

The finance ministers have urged the executive arm of the EU to evaluate and develop legislative proposals to establish a new supervisory body. 

In the EU, anti-money laundering supervision is largely handled on a country-by-country basis in the EU rather than through one central agency. 

The push by the finance ministers comes amid a plethora of allegations of weak internal control at some of the largest banks in the region. In a July report, the European Commission accepted that this fragmentation is the cause of the increased criminal activity in the financial system. 

A statement issued by the Council of the European Union, comprising of the bloc’s finance ministers said that the commission should explore the “possibilities, advantages and disadvantages” of creating an independent, EU-level body. The council also asked for more inclusive harmonization of anti-money laundering regulations across all the member states. 

A critical issue in the topic of a central agency for anti-money laundering is the level of authority an EU-level body should have. On Thursday, representatives from several countries raised their concerns about proposals that could limit the power of national supervisors.

Kaja Tael, permanent representative of Estonia to the EU, said 

“National authorities have a lot to offer—they have the local know-how, the ability to react quickly. But international cooperation needs to be improved.”

how ai is transforming the banking sector

How AI is Transforming the Banking Sector

Artificial Intelligence has extensive applications across several domains: from banking to health, to travel, to finance. It continues to gain traction across industries that rely heavily on data which virtually encompasses all industries. The IHS Markit’s “Artificial Intelligence in Banking” report declares that the global cost for artificial intelligence is expected to reach $300 billion by 2030. AI in banking sector is no exception and it is providing remarkable benefits to banking. 

A study by PricewaterhouseCooper shows that 52% of the financial services industry is making considerable investments in artificial intelligence. 72% of business decision-makers assume that AI will be the business advantage of the future. Machine learning has become an important fixture in banking, leading to infinite possibilities as it continues to grow and advance.

How is AI Contributing to the Banking Sector 

There are a number of ways artificial intelligence is revolutionizing the banking practices. Fraud detection, seamless customer support, mobile banking, risk management are some of the fields in which AI is contributing in. 

Fraud Detection 

For financial institutions like banks, security is one of the topmost priorities as banks are under constant threat of frauds and hacks.  Through AI, decreasing rates of false positives, preventing fraud attempts and lessening manual reviews of potential payment frauds is achieved. According to a recent survey, ‘AI Innovation Playbook’ published by PYMNTS in collaboration with Brighterion, 80% of fraud specialists who employ AI-based platforms believe the AI technology helps reduce payment frauds and prevent fraud attempts. 63.6% of financial institutions that utilize AI believe that it is capable of preventing fraud before it happens. This shows the scope of AI for the mitigation of payment frauds. Payment frauds are reduced through AI’s ability to interpret trend-based insights through supervised machine learning, which is then joined with completely new knowledge achieved through unsupervised machine learning. Through the combination of both types of machine learning, it is determined whether a transaction is fraudulent or not. 

The following points depict why AI is one of the most used tools to combat payment fraud: 

  • With the advancements in technology, payment fraud attacks are increasing in complexity. These attacks normally have a digital footprint or sequence which makes them undetectable using predictive models alone. AI plays its role to mitigate these kinds of attacks and provide a security layer to the bank. 
  • Through the use of AI, payment fraud can be detected swiftly even on a large scale. This is how AI provides an immediate advantage to banks in battling the many risks and methods of fraud. 

Through AI’s predictive analytics and machine learning, anomalies in large-scale data sets can be found in seconds.

Cost Reduction 

Along with the number of other advantages of AI in the banking sector, cost reduction is a big one. It is estimated that by 2023, $447 billion will be saved in costs through the use of artificial intelligence. By utilizing AI, banks can cut costs in three key areas: 

  • Cycle Time

A huge amount of time is spent in digitizing, identifying and onboarding document templates. Through the automation of the digitization process, banks can reduce the total time spent on this circle. This results in highly improved cycle times and the benefit of redeploying employees to more important projects. 

  • Error Rate 

Errors are costly yet unavoidable. A recent survey by Netwrix shows that human error is one of the leading causes of financial data breaches. Through automation in banking systems, errors are lessened to a remarkable degree without an increase in cost. AI systems are much better at handling unstructured data which leads to lower error rates. 

  • Solution Costs

Costs of document digitization are huge. Based on the data from IBM, the traditional onboarding process can cost hundreds of millions of dollars. AI tools that are 80% automated and results in 90% accuracy are utilized so that banks are capable of reducing the costs of these onboarding processes. Approximately 30 to 40 percent of the original cost spent on the onboarding process can be saved. The AI-powered onboarding process also results in lessened error rates and greater use of employee labor. 

Enhanced Regulatory Compliance

Banks are always under intense pressure from regulatory bodies to enforce the most recent regulations. These regulations are there to protect the banks and customers from fraudulent activities while at the same time, reducing financial crimes like money laundering, tax evasion, and terrorism financing. AI in banking also helps ensure that banks are compliant with the most recent regulations. AI relies on cognitive fraud analytics that watches customer behaviors, track transactions, recognize dubious activities and assess the data of different compliance systems. 

Businesses can remain up to date with compliance rules and regulations through the use of AI. AI systems can read compliance requirements and detect any changes in the requirements through deep learning and natural language processing. Through this, banks can remain on top of ever-evolving regulatory requirements and align their own regulations with them. Through technologies like analytics, deep learning, and machine learning, banks can remain compliant with regulations. 

Seamless Customer Experience

Customer experience affects every business in the world, including the banking industry. Customer experience directly affects the way people perceive an organization. Especially in the case of banks, people want access to their money 24/7 and they want swift and easy transaction as well. This is where AI chatbots and voice assistants play their role. Chatbots don’t follow any timezone which helps users access them anytime, anywhere in the world. 

The most important feature of these chatbots is that they are constantly learning through previous customer interactions which in turn helps enhance them and their customer service. An example of chatbots in banking is the virtual assistant of Bank of America, Erica. Erica constantly sends notifications to their clients, updates users about their credit scores and helps them pay bills and make transactions automatically. 

Apart from chatbots, banks are also employing humanoids. Pepper, which is a humanoid developed by SoftBank, is one such example. Through the use of AI, customer experience is enhanced which in turn increases revenue. 

Risk Management

When it comes to customer onboarding or granting credit cards to clients, there is always a risk factor associated with it. To mitigate it, a thorough check of the potential customer is needed to authenticate the client. Through the use of AI, Know Your Customer (KYC) checks are done in real-time to identify the clients. Thus, AI offers the chance to save banks millions of dollars due to fraudulent or poor credit applications. Through the use of biometric technology which includes fingerprints, facial recognition scans, iris scans, voice recognition, etc., banks can implement a supplementary layer of security which in turn helps mitigate risks. 

Mobile Banking

Mobile banking is also another application of artificial technology in banking. AI in mobile banking has remarkably revolutionized the concept of banking and customer experience. The core features of mobile banking are 24/7 availability anywhere in the world as well as providing more opportunities for the bank staff to concentrate on more complex issues. According to a survey by the National Business Research Institute, 32% of financial institutions are already using AI tools like predictive analytics, voice recognition, and recommendation engines to provide a more personalized touch to the customers. 

The impact of artificial intelligence and machine learning in the banking sector runs deep. As we continue to become comfortable with the existing AI applications, it will continue to enhance and grow savvier. The banking industry is seeing a number of innovations due to artificial intelligence and machine learning and in the upcoming years, these innovations will continue to progress.

How is Libra Launch Changing the Cryptocurrency Landscape

How is Libra’s Launch Changing the Cryptocurrency Landscape?

Libra will have to go the extra mile to prove itself worthy of global acclaim that it aims to achieve.  

Since the news came out that Facebook is launching its own cryptocurrency there has been a lot of criticism from several entities. Regulatory authorities are giving the Libra Association a hard time before its launch. The new cryptocurrency received significant  criticism from global regulatory authorities, analysts, and lawmakers. 

Facebook will have to take major security measures for KYC/AML Screening and data security to gain the confidence of the global regulatory authorities and other stakeholders in the global financial system. 

There are several reservations of the global regulatory authorities related to Facebook’s Libra. The unconventional framework of the Libra association, its huge goals and the closely knitted stewardship of the company are some worth mentioning. Due to this not so typical cryptocurrency business model, Libra is facing huge criticism from the masses. But the founders are persistent in their goals and aim to get the regulatory authorities by their side before the launch of Libra. 

Introduction and Timeline of Libra

Libra is a cryptocurrency founded by Facebook under the supervision of Libra Association, registered in Switzerland. It is projected to be launched in 2020. Facebook shared the news with the world in 2019 and triggered the bombardment of criticism from several entities towards Facebook and Libra association. 

Libra association is a group entity, it plans to onboard 100 members and currently, it has 28 members. Some big companies like PayPal, Visa & MasterCard and Uber are some exceptional members of Libra Association. 

Libra is the first corporate cryptocurrency and it is going through a tough phase of negotiations with the regulatory authorities. Facebook is still in talks with the U.S Senate, the cryptocurrency hasn’t received a green signal from the U.S regulatory authority, as per the news. 

Libra Association aims to start its operations after receiving acceptance from major regulatory authorities but projected to launch in 2020. Ever since the news of the launch of Libra, the cryptocurrency market also experienced major fluctuations of its history. 

The reservations of regulatory authorities, lawmakers and analysts over the Launch of Libra

The regulatory authorities, analytics, and lawmakers have a list of reservations over the launch of cryptocurrency by Facebook. Below is a list of some of the major reservations that gained acclaim from the masses: 

  • Facebook’s global clientele and Libra’s success

The lawmakers are concerned over Libra’s connection with Facebook. It is expected that Libra will be the most quickly and widely accepted cryptocurrency because of the massive global clientele of Facebook. This will affect the cryptocurrency market and might make Libra the competition of global fiat currencies like dollar, etc. 

If Libra received the success projected by the analysts then it might be the substitute of fiat currency. But the co-founder of Libra, David Marcus acclaimed that Libra is not designed with the intention to compete with fiat money, it is merely a solution to ease global online payments. 

  • Libra will be a fully fiat-backed cryptocurrency

Libra will be backed by fiat reserves on a ratio of 1:1, and this is one of the major concerns of regulatory authorities. If Libra will receive the expected growth it will gain tremendous economic power which will affect the fiat currencies and governments. 

Although this feature of fully fiat-backed cryptocurrency makes Libra worthwhile for the investors, as most of the investors prefer to invest in currencies with low risk. 

  • The stewardship of Libra raising concerns

Libra has raised a huge chunk of investment from diverse industries. The Libra Association has members from telecommunications, non-profit organizations, payments, and venture capital. The members infer that they joined the Libra association because it is a revolutionary project.  

The analysts are raising questions on the credibility of Libra due to the closely knitted board of the association. A few major investors like Peter Thiel, Fredric Court, Mark Zuckerberg, David Marcus, and a Venture capital firm Andreessen Horowitz, are somehow related to Facebook or were related to it in the past. 

This closely related stewardship of Facebook is raising suspicion. It is inferred that Facebook is a high-authority member of Libra and will exercise control over the Libra Association. 

Although the cryptocurrency market showed good progress since the news of Libra’s launch. It is expected that Libra will form a hegemony in the cryptocurrency industry. The crypto wallets and other cryptocurrencies might face downfall because the companies that invested in Libra will guide their customers to pool in Libra. This reservation is still in an ambiguous state until the launch of Libra. 

  • Data security and tinted background of Facebook

Facebook was charged with heavy fines in the past due to misuse of the personal data of its users. It was fined $ 5 billion over violations of consumer data protection. The company was fined for giving access to Yahoo and Amazon to the personal data of its users. Also, FB claimed that it saved $3 billion in its budget for non-compliance penalties. 

The past of Facebook is raising suspicion among the regulators, it is expected that if Facebook’s Libra did this once to the financial confidential data of its users, it will wreak havoc in the global economies. 

How is Libra Association Coping with this Barrage of Criticism?

Facebook will be a separate entity

Facebook infers that the Libra Association is a separate entity and will not affect the operations or the interest of the Libra Association. 

Libra is a combination of companies and non-profit organizations and plans to onboard only 100 members who will have to invest at least $10 million in it, with the exemption of non-profit organizations. So, Libra Association will work independently and Facebook will just be a member. 

It is a cryptocurrency and not an investment vehicle

The reservations of the regulatory authorities are answered with the unconventional model of Libra Association. The association is aiming to create ease in global payments and to decrease dependence on banks. The new cryptocurrency aims at creating ease in payments and developing a decentralized payment solution for the people around the world and not the creation of global speculation opportunities in cryptocurrency exchanges. Libra association has clearly declared that its primary aim is to provide a global payment solution and not the investment vehicle. 

Libra is striving for the approval of the global regulatory authorities

Libra Association is planning to start operations in 2020, and is registered in Switzerland, but plans to get the approval of major regulatory authorities like the U.S. and the UK. The association needs the approval for two reasons; to gain a positive image in the eyes of the regulatory authorities and to grab market share around the globe. Regulatory approval will help it in gain customer value. 

David Marcus the co-founder of Libra expressed his commitment and said, “I agree with you that this needs to be analyzed understood and the proper oversight needs to be set up before Libra can launch. This is my commitment to you: we will take the time to get this right.”

What might be the impact of Libra on money laundering and terrorist financing?

Global regulatory authorities are working hard to enhance the security practices of cryptocurrency facilitators. KYC and AML screening of investors and users is necessary for several global regimes, like FATF, etc. The launch of Libra might be exploited by money launderers and terrorist financiers as the cryptocurrency will provide easily accessible payment solutions. To eliminate this risk, Libra Association will have to implement stringent security measures like in-depth screening of its customers, record keeping of all transactions, etc. 

Libra will have to invest a lot in identity verification and KYC/AML screening of its stakeholders. With the tinted past that the company has with regard to information security, it will have to take huge steps to go the extra mile in preventing its misuse. 

Outsourced KYC and AML screening solutions can be a feasible solution for Libra Association because many criminals and speculators have seen opportunities in it. Online KYC/AML screening of all the concerned entities – investors, customers, partners, employees, etc – will help the association in gaining a global risk cover for its global project.