Given the phenomenal growth of the world’s online markets and the emergence of trends like cryptocurrencies and NFTs, developers of Anti-Money Laundering (AML) systems have been busy keeping up with all the changes and innovations in the global financial sector.
However, even with the challenge of keeping up with the times, implementing AML systems today is much easier than it ever was for the world’s financial institutions. Here are five reasons why AML is much simpler today for banks, investment companies, credit unions, and other institutions.
1.) AML Software Are More Advanced Than Ever
Software today benefits not just from iterative improvements from previous generations of AML solutions, but trends in data analysis, machine learning, artificial intelligence, and worldwide connectivity, as well.
Thanks to these developments, basic AML processes like confirming customer due diligence could now be done faster and with more accuracy compared to what was possible with older manual and digital solutions.
Additionally, the marketplace for AML Software has expanded significantly over the years, with many more developers working within this space. This has driven innovation and given businesses affordable yet very effective options for AML compliance and implementation.
2.) Artificial Intelligence Is Particularly Better at Flagging Suspicious Transactions
Even though AML software has come a long way in terms of functionality, connectivity, and ease of use, the human aspects of fraud mean that much of the work of determining whether or not a transaction should be flagged has to be done manually.
However, with billions of financial transactions occurring each day, keeping up with all this activity is bound to strain any system dependent on humans. This problem will only be compounded as more people in developing economies start to participate in formal financial markets.
AML systems have long used artificial intelligence to quickly detect patterns of behavior that may indicate fraud. However, these early AI tools, while useful, had various deficiencies that would not be addressed until fairly recently.
Some of the same advances in machine learning and modeling that made search engines better over the past decades have also been put to use in AML systems. Newer algorithms, deep-learning methods, and neural network systems have made it easier to quickly sift through millions of transactions and flag potential problem transactions within moments. This not only allows for better AML capabilities, but it also allows financial institutions to use smaller teams to get the job done.
3.) The Cost of Effective Implementation Has Gone Down
AML software and fraud detection have not only improved in the past decades, but the technology has also become much more affordable. This means even smaller financial institutions can go beyond mere compliance and implement truly effective AML measures.
Historically, the main barrier for businesses complying with any regulatory measure is the upfront cost of compliance. Businesses as a whole are not necessarily rational, and this is reflected by the predictable resistance to upfront regulation costs, even if the regulatory actions will result in lower overhead expenses and reduced risk over time.
Over the years, this resistance has led to many institutions investing the bare minimum in AML, which predictably allowed countless cases of fraud and money laundering to occur unimpeded. You would typically only see significant investment beyond the minimum in cases where effective measures could be scaled well throughout the whole organization. This scale was not always available for smaller organizations.
Today, this is much less of an issue. The cost of the technology has gone significantly down, allowing even smaller institutions to easily implement the latest AML best practices. Newer generations of software have also cut down the need for human input and analysis, further driving down the upfront costs of implementation.
4.) There Is More Access to Data on Criminal Activity
A generation or so ago, fraudsters and criminal financiers could rely on the fact that most private and government financial institutions rarely coordinated with each other on suspected cases of money laundering.
Specific knowledge of potential criminal activity was often contained within one institution and sometimes went unreported to the authorities. This needlessly left other institutions vulnerable to any exploitation techniques that were unidentified but left unshared.
Thanks to better coordination between financial institutions, financial criminals now have a much harder time avoiding detection. Simply trying out other financial institutions to exploit has become a far greater gamble, as identity vetting now tends to go through multiple institutions.
5.) Worldwide AML Laws Are Catching Up
Uneven legislation and lackadaisical enforcement have long been allies of money launderers. This has caused AML measures to lag behind even in countries where there were AML laws on paper. This is certainly no longer the case, and the usual havens for money launderers have all but disappeared in the modern context.
Terrorism, drug trafficking, and other international crimes are very serious problems facing many of the world’s leading economies. The ease of money laundering has a direct effect on various criminal organizations’ capabilities. This makes the enforcement of AML standards and the creation of better legislation a priority for the countries most threatened by international crimes.
While far from perfect, most of the world’s economies have developed or are developing new legislation that promise to better address problems related to money laundering. Additionally, there is also more diplomatic pressure for all countries to fall in line, which may soon further reduce safe havens for criminal financiers.
Even as criminals continue to innovate ways to transfer dirty money, their options for doing so are getting fewer each year. Best of all, thanks to developments in both tech and policymaking, the cost of keeping your organization safe from money-launderers and fraudsters is lower than it has ever been.
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