Automating the Fight Against Financial Crime

A recent report found that regulators over the past 10 years have issued over $26 billion in AML/KYC and sanctions-related fines (and rising). This staggering number shows that related financial institutions had inadequate policy, processes, procedures and systems, in addition to poor governance and oversight in many cases.

Interestingly, a similar report found that the vast majority of these regulatory costs were associated with an AML/KYC-specific labor force. It comes as no surprise that asset managers are extremely keen to explore the continuous growth of automatic regulatory compliance surrounding the AML/KYC battleground. Projected global regtech spend is expected to reach $115 billion in 2023.

The Potentialities of Technology-Based Automation Continue to Grow

The highly time-consuming, resource-intensive and inefficient processes of manual AML/KYC compliance have resulted in asset managers increasing their scope to automation. The ultimate goal is simple: By streamlining the investor onboarding screening process, asset managers can significantly reduce their exposure to AML/KYC burdens, reduce costs, increase speed to revenue, improve the CX, mitigate risks and, perhaps most importantly, ensure they remain fully compliant with their respective regulatory bodies. So how will automation achieve these goals?

Automation in the AML/KYC sphere is a somewhat broad discussion, not least because of the vast range of technical advancements that have recently been brought to the table. The likes of artificial intelligence (AI), robotic process automation (RPA), distributed ledger technology, machine learning (ML) and even the internet of things (IOT) will potentially all have a role to play.

For example, an automated AML/KYC protocol can effectively monitor dynamic regulatory systems that differ on a jurisdiction-by-jurisdiction basis. Not only does this alleviate the risks of manual error, but the technology is able to continuously monitor and scrutinize investor information in ever-changing market conditions (within varying parameters).

Whilst advanced systems can achieve these goals by analyzing millions of data points concurrently, highly-trained AML/KYC professionals are somewhat limited in scope, meaning they can only dedicate resources to a finite number of accounts at any given time.

It is important to note that in order to avoid regulatory issues further down the line, asset managers are best placed to initiate the vast bulk of the KYC process during the onboarding stage. By allowing digital automation to achieve these goals, asset managers can perform a range of otherwise laborious tasks in a holistic manner, including but not limited to the collection of client data, the building of client profiles and the usage of risk scorecards.

However, the fundamental benefit asset managers can take away from the automation of AML/KYC processes is constant monitoring in an autonomous manner.

For example, by installing an automated regulatory technology (regtech), organizations can ensure internal policies are fully aligned with constantly changing regulations – something that is key in an asset management industry that operates in a somewhat borderless manner.

Moreover, with London-based think tank JWG estimating that by the end of 2020, financial regulations will surpass 300 million pages, asset managers are faced with an insurmountable task that is not only complex, but potentially contradictory too.

This is especially pertinent in the AML sphere, not least because there is no singular framework that applies transnationally. Whilst AML and terrorist financing standard-setters the Financial Action Task Force (FATF) have seen their list of legislative recommendations mirrored in over 180 jurisdictions, including that of five individual European Union Directives, there are still disparities in the underlying regulations on a country-by-country basis.

Therefore, by allowing regtech to automate the KYC application process, not only can asset managers save thousands of hours of repetitive and often grueling work, but essentially, they can instead focus on tasks that generate profit, such as onboarding more clients.

Whilst there can be no denying that automation of KYC/AML compliance will ultimately enable asset managers to concentrate on more productive and profitable tasks, human input will still be necessary when red flags are identified by the system.

It’s clear asset managers show a strong desire to innovate with regtech. Investing in regtech and new technologies allows them focus to change from laborious, manual processes to providing an excellent client experience and boosting time to revenue.