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More threat, more technology: AML trends galvanising compliance transformation in 2021

Last year, compliance and AML professionals faced a perfect storm: a turbulent business landscape; millions of pounds in government relief; and an ominous uncertainty going in to 2021. At RiskScreen we have seen first-hand how criminals have capitalised on the chaos to slip under the radar for their own financial gain. Perhaps more than ever, AML compliance teams recognise the urgency of implementing dynamic AML frameworks to identify and stop fraud in real time.

Let’s consider a few key trends driving AML compliance transformation in 2021:

1) More threat, more technology

The use of technology in financial crime is an ongoing battle, and the Covid-19 pandemic has created an even more diverse ecosystem for criminals. As the number of customers choosing to leverage digital banking services increased, criminals have taken advantage of virtual currency vulnerabilities in second-tier jurisdictions such as the Middle East and Eastern Europe, easily accessing systems while remaining undetected.

In 2021, RiskScreen expects to see criminals shift attention towards digital and cryptocurrencies. As a result, regulator punishments will need to become stricter, especially with transactions. In the coming months, we expect regulators to focus on:

  • Enforcing KYC requirements
  • Custodian wallets
  • Flat currencies
  • Virtual assets
  • Pre-paid cards

These stricter measures (and their corresponding punishments) will expose the limitations of legacy rule-based systems which are unable to adapt; machine-learning AML tools will become an absolute necessity for certain use cases. Detecting transactional behaviour and pre-analysed patterns by assessing immense amounts of data and providing accurate and fast results will soon be the only way for financial institutions (FIs) to cope with evolving customer demand and the parallel regulatory environment.

2) Cost-effective AML strategies will be the priority

I’ve spoken on multiple occasions about how the Covid-19 pandemic has left a lasting mark on AML compliance. Many teams are still working remotely, and customer behaviours have evolved while the exposure to financial crime risks has exponentially grown.

In addition, financial crime collaboration is growing. Organised criminal networks are becoming more sophisticated as technology enables groups to efficiently steal credentials, create synthetic identities, and conceal themselves from detection. Increasing the size of AML teams to solve these challenges is expensive, and this is leading AML/compliance leaders to consider alternative methods to improve fraud detection and operational efficiency.

In response, we’re seeing increasing numbers of financial institutions adjust their short-term strategies and reprioritise planned efforts. This includes adapting (even holistically transforming) how they operate, along with attempts to reduce spend. The reoccurring message is “we need to shift to a more innovative AML compliance infrastructure that can answer the challenges of this new environment”.

3) A renewed hunger for innovation

I read a lot of articles that speak about “innovation” in the compliance industry – but few really understand what that means in practice. Put simply, the financial crimes that AML teams fight have become significantly more complex and diverse in the last five years – and the speed at which criminals have adapted to evolving environments (especially in the last 12 months) has been frustratingly innovative. The heart of this innovation is the use of information and automation technology at a reduced operational cost.

So, what is the innovative response needed from financial institutions? Cleary, FIs can no longer afford to fight these crimes in silos. An example of where this is changing can be seen in Karen Baxter’s great work since moving to UK Finance. And in speaking with countless risk and compliance professionals, it’s clear that the “innovation strategy” is geared towards an infrastructure that can replace or complement manual processes utilised to identify unknown threats and broaden risk coverage – without incurring higher operational costs.

RiskScreen is already well on that journey, with its multi-layered approach to financial crime prevention and compliance. Alongside this we are continuously enriching our technology with advanced algorithms and analytics, and this has enabled us to adapt to any situation. If you want to sharpen your anti-money laundering intelligence, as well as break down silos that have been limiting data sharing and analysis on effective compliance, then get in touch and let’s get to work.

By Hamish Singh, Head of EMEA, RiskScreen, 22 March 2021

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