New technologies and anti-money laundering

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On August 2nd the FCA published the results of a survey on new technologies and financial firms’ work to detect and prevent money laundering, to help make the UK a hostile environment for criminals’ money. The near 60-page long report details findings from research conducted with regulated firms, technology providers, RegTech firms and other bodies.

This report will be of interest for all regulated financial companies dealing with and employing new technologies and offers hints for self-assessment and, possibly, some actions. The list of applicable new technologies includes industry utilities, biometrics/video KYC, data analytics, machine-learning, natural language processing (NLP) and blockchain/distributed ledger technology. These technologies have significant disruptive or additive potential and they may contribute to the efficiency of regulated firms to tackle financial crime.

Key questions of the survey were:

  • What are the key functions of new and emerging technologies related to AML compliance, and how might they aid compliance activities?
  • What challenges might firms face in introducing new technologies?
  • What good practice examples and lessons learned are available for firms considering new compliance technologies?
  • What steps could the FCA take to encourage more innovation in this space?

Customer on-boarding and maintenance are areas where technology offers the most promise from the perspective of minimising costs and improving the user experience. In a nutshell:

  • For on-boarding and maintenance, many firms had considered or trialled new technologies, with utility technologies perceived as the most popular.
  • For client screening, firms were particularly focussed on using analytics techniques and machine-learning to increase the accuracy of their screening rates to diminish the impact of false positives.
  • Transaction monitoring was the area where new technologies were broadly considered to have the most potential – particularly in using data analytics, machine-learning and natural language processing (NLP) to enable firms to spot suspicious transactions and assess risk in real time. It came out that this has the potential to rapidly reduce the number of potential SARs needing human review or intervention, significantly reducing operational costs.
  • New technologies were also considered to have the potential to make a positive impact on reporting and management information (MI) – in particular using data visualisation techniques to allow firms to gain insights into their customer base and better manage their AML operations.

Some of the most prominent conclusions of the report:

  • New and emerging technologies have the potential to deliver both significant cost reductions in operational areas as well as significant enhancement of money laundering/terrorist financing/fraud prevention.
  • Adoption of these new technologies generally remains slow, with economic, regulatory and operational challenges cited as the reason. Many of these are unique to individual technologies, but with common concerns such as data privacy and data quality regularly identified. Challenges encountered by firms vary from risk aversion and lack of internal capabilities to limited budget and need for regional standardisation.
  • Some technologies have stronger support than others. Respondents were almost universally excited by machine-learning and NLP, but divided on distributed ledger-based approaches.
  • Many of the most promising use cases of technology depend on collaboration between regulated firms, such as agreeing standardised approaches to transaction monitoring. The overarching view is that this is unlikely to happen in the short to medium term without regulator intervention.

Objectivus provides assistance to financial services firms who are looking to make use of new technologies and to technology providers who may require guidance on compliance with financial services related regulation. Contact us today for more information.