The Need for Anti Money-Laundering Automation

Anti-Money Laundering, Fraud and Cyber Security, AML, FinTech, Financial Technology
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The finance sector has been using IT extensively. However, recent development such as increase in mobile banking driven by increasing internet and smartphone usage, developments in AI-ML and discovery of new technologies like blockchain, increasing storage capacities, and more powerful microprocessors have dramatically altered the landscape and have fueled the development of the FinTech (Financial Technology) sector. The sector essentially utilizes advanced IT technologies to deliver various financial services.

FinTech and Anti Money-Laundering

FinTech allows faceless money transactions. This includes investment, money transfer, crowdfunding, mobile banking, E-wallets, cryptocurrencies, and such others. However, it comes with inherent risk factors like anonymity, harder traceability and functionality. This has led to an increase in misuse of FinTech by criminal elements. Europol had reported back in 2015 that 40 per cent illicit transactions in the European Union were carried out with bitcoin.  That is just one continent. Other sectors are also prone to misuse.  Regulators are trying to curb this misuse by incorporating new regulations such as AMLD5 and AMLD6 in Europe.

Agencies like Financial Action Task Force (FATF) are also issuing new guidelines concerning cryptocurrency transactions. However, what is becoming crystal clear is that as the FinTech sector continues to expand, concerns about legal issues and adhering to AML norms are also growing. Therefore, the FinTechs need to build AML compliance to steer clear of any criminal or legal matters arising out of crime or noncompliance.

Need for AML automation in FinTech

However, even after building a good AML compliance program, the industry’s troubles do not end.

Any AML system is plagued by one big issue: false positives. False positives tie up valuable resources like time and revenue, and ultimately lead to nowhere. The delay also results in slower onboarding of clients and processing of payments. Also, the sheer noise due to the high number of alerts increases the danger of failing to spot misdeeds and getting penalized by the authorities. Such actions can have serious repercussions, adversely affecting the organization’s finances and its overall image.

This scenario will be particularly damning for young startups by affecting its investor funding, R&D investment, and developing brand image. Also, compliance is a tricky issue. Each country has a different set of norms which can change quickly and may be in conflict with each other. For example, a tax haven may have less stringent norms when compared with other countries. Automation can take care of repetitive tasks and leave compliance teams free to tackle high-value tasks like investigations, thus reducing overall expenditure on compliance.

Thus, while there is a general view among FinTech about compliances being a hurdle to innovation, AML automation may help solve some of their biggest problems and also help save compliance costs.

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