After a brief introduction about Anti-money laundering in the last blog of the series. Here we will be discussing the need for AML, is it required by the organizations or can they function without this as well.
FinTech has enabled anonymous money transfers, investment, financial transactions, fundraising, online banking, e-wallets, cryptocurrencies, and other services that fall under this category. However, there are risks associated with it, such as secrecy, difficult tracking, and usefulness. As a result, criminal elements are increasingly misusing it. In 2015, Europol stated that bitcoin was used in 40% of illegal transactions in the European Union. Misuse is equally common in other industries and for that new laws, such as AMLD5 and AMLD6, are being implemented in Europe to try to prevent this misuse.
New cryptocurrency transaction standards are also being issued by organizations such as the Financial Action Task Force (FATF). However, it is becoming increasingly evident that as the FinTech sector grows, so do worries regarding legal challenges and compliance with anti-money laundering regulations. As a result, organizations must implement AML compliance to avoid any criminal or legal issues that may arise because of crime or noncompliance.
However, the industry’s problems do not end after establishing a robust AML compliance program. False positives are a major problem in any AML system. False positives waste precious resources such as time and money and lead to oblivion. Client onboarding and payment processing are additionally slowed because of the delay. Furthermore, the sheer volume of notifications increases the risk of refusing to acknowledge misconduct and being penalized by the authorities. Such actions can have significant consequences, negatively impacting the organization’s financial affairs and its brand image.
This approach will be especially damaging to fledgling firms since it will have an impact on investor funding, R&D investment, and the development of their branding. Compliance is often a difficult issue. All company has a set of norms, which are subject to rapid change and may contradict one another.
While there is a prevalent perception among organizations that compliance is a barrier to innovation, AML automation may help solve some of their most pressing issues while simultaneously lowering compliance expenses.
Implementing and managing AML compliance is a real challenge and is being dealt with absolute focus and determination by organizations. But with increasing digitization, it is becoming more strenuous. Another impediment is the complex and stifling nature of AML compliance, which makes the entire situation exhausting. However, the situation could be mellowed down by examining and understanding your organization’s exact needs for AML compliance and implementing the same.