Lightening the Load of Anti-Money Laundering Legislation

The Threat is Real, but Compliance Managers Are Facing the Burden

With the threat from money laundering and terrorist financing growing, anti-money laundering (AML) legislation has had to become more stringent in response. The regulatory burden has grown too much for compliance managers to bear on their own. Artificial intelligence (AI) holds the key to helping them combat financial crime effectively.

It is impossible to overstate the effect of money laundering and terrorist financing on a nation’s economy[1]. Not only do they sap vital supplies and assets from the country’s productive economic activity, they also help to finance terror attacks that are a threat to the international order, impacting on global trade and stability.

As national economies are now so interdependent, the effects of these crimes are felt all over the globe. Nevertheless, it remains far too easy for fraud to occur – money launderers and terrorist financiers can exploit the complexity of the international financial system, as well as discrepancies between national regulations to move their money across borders with impunity.

In order to tackle this problem, governments from the U.S. and the U.K., to China and South Korea, have put in place stringent Anti-Money Laundering (AML) legislation, including specific requirements for financial services companies to carry out “Know Your Customer” (KYC) checks. If they want to continue trading in these jurisdictions, companies need to ensure they do all they can to demonstrate compliance with these regulations.

A Lot to Handle

However, the number and complexity of the current regulatory landscape in the U.S. and elsewhere in the world can be challenging for financial services businesses and their compliance teams.

For example, the European Supervisory Authorities’ (ESA) Final Guidance on Risk Factors for financial institutions[2] requires institutions both to determine whether there are any adverse media reports against a potential customer, and their associates. They must find out whether they have had their assets frozen due to administrative or criminal proceedings, and if they have been the subject of a suspicious transactions report in the past. More, they must search their own in-house records to ensure they have no information that calls the customer’s integrity into question.

In addition to all of this, the ESA Risk Factors guidance expects companies to consider the credibility of allegations on the basis of the quality and independence of the source of the data and the persistence of reporting of these allegations.

AML regulations in the U.S. have similarly comprehensive requirements for seeking out adverse information, as do those in the U.K. and China.

Searching for all of this data can be a burden for compliance managers to bear without support. More and more, they are seeking out technological solutions to help them carry out these due diligence protocols.

AI to the Rescue

A new wave of RegTech powered by AI is promising to be an ideal tool to support compliance managers in meeting their KYC obligations, by helping them to explore information far beyond the relatively small bubble of the internet that is accessible to ordinary users.

One example of this next generation AI compliance technology is known as the digital compliance assistant. This works within SaaS-based search platforms to automatically explore the un-indexed “Deep Web”. In doing so, it can sift through millions of uncategorized data and documents to find any adverse information relevant to a business’s customers and their connections.

The digital compliance assistant continuously monitors all of an organization’s clients throughout the day, analyzing some 500 “stem words” that are commonly associated with financial crimes. The technology is multi-lingual, meaning it is able to search documents in every language, and even those written in local dialects.

In addition, where it would take a human days or weeks to explore this information, it can take a digital compliance assistant minutes to conduct the checks and interrogations that find indications of potential financial crimes and links with any “bad actors” or known perpetrators.

Extra Support

Advanced AI RegTech offers an array of benefits in addition to in-depth searches for adverse information on behalf of human managers.

AI can provide risk managers with reports on their searches, highlighting areas worthy of further investigation, so they can then search for further verification of information that has been falsified or suppressed. When it comes to investigating existing customers, such technology can also alert compliance teams as soon as any critical information relating to the individual is found, giving them time to decide on a suitable course of action.

On top of all this, digital compliance assistants, in particular, make use of voice-activated technology which allows compliance managers to interact with it as if they were another human team member. This means they can ask it to commence a due diligence check on their behalf, while they are completing another project, enabling multiple tasks to be done simultaneously and boosting productivity.

This partnership, combining the rigor and speed of cutting-edge AI solutions with the judgment and insight of human compliance managers can play an important role in supporting banks to comply with legislation, by identifying adverse information that would otherwise be too costly and time-consuming for a human to find on their own.