Card issuers, banks, and financial institutions have a serious and growing problem. Money launderers are making use of the most sophisticated technology available to hide their tracks, and today’s risk analysts are often overwhelmed with false positives.
Regulators establish minimum Know-Your-Customer (KYC) standards for these institutions to follow, but these standards often fail to take institutional resources into consideration. Before, financial institutions could generally handle anti-money laundering compliance on their own in the pre-digital era, today’s systems are far more complex and sophisticated.
Institutions have no more room to retain highly manual KYC processes embedded in fragmented systems. These systems tend to be inefficient, inflexible, and expensive to maintain, leading to enormous resource consumption for relatively little risk mitigation.
Tomorrow’s regulators are not likely to be any more forgiving. In fact, it’s likely that future regulations become more complex and technologically sophisticated as time goes on.
Financial institutions invested in keeping up with these developments need to invest in regulatory technology that fights money laundering in an efficient, effective manner. Process automation and advanced analytics offer solutions that may soon become necessities to achieve these goals.
A Three-Way Approach to Handling Anti-Money Laundering Compliance
Financial professionals face significant challenges complying with today’s regulatory demands.
Financial institutions facing greater scrutiny for anti-money laundering compliance must invest in three interconnected fields in order to reliably contain illegal payments in the future:
• Improve Data Quality. According to NTT Data, 44% of financial service providers find it tremendously challenging to obtain high quality data for KYC processes. Manual processes and fragmented systems make it difficult for analysts to develop comprehensive 360-degree views of their customers.
• Reduce False Positives. False positives are a growing problem for KYC analysts. They contribute to the operational costs of anti-money laundering compliance without adding value to the process itself.
• Automate Manual Functions. Manual functions also add to the high operational costs of anti-money laundering compliance. Human error also plays a role in triggering false positives, increasing the amount of time and resources that go into verifying each record.
Financial firms need to get ahead of the regulatory landscape by implementing solutions that address these three challenges. Modern regtech solutions that use artificial intelligence-based analytics models can help make this a reality.
What the Regulatory Technology of the Future Looks Like
As the regulatory landscape tightens and the volume of transactions that financial institutions need to analyze grows, practical applications for cutting edge technology will dominate the KYC conversation.
Compliance teams are already stretching their resources to the limit, which demonstrates exactly what problems new regtech solutions will need to fix first.
• Artificial Intelligence. Artificial intelligence and machine learning offer powerful tools for identifying patterns in large volumes of data. An artificially intelligent KYC application can significantly reduce the overall number of triggers that a financial analyst has to process, leading to greater accuracy and a more manageable workflow overall.
• Cloud-Based API Infrastructure. In order for artificial intelligence to work, it must have access to high quality data. Linking fragmented systems to create robust, communicative platforms for data validation is key to delivering compliant results. A major point of competition between tomorrow’s financial institutions will be the efficiency and effectiveness of its regulatory technology infrastructure.
These technologies are never going to replace the value that a highly trained analyst brings to the process, artificial intelligence cannot replace human intellect in this field.
However, it can drastically expand the capabilities of each analyst. Along with better infrastructure, these two technologies will allow a single analyst to cover far more ground, far more accurately than ever before.
Ultimately, the financial institutions that invest in cutting-edge technology will be able to meet and exceed even the most stringent KYC regulations in order to mitigate the risk of money laundering. Those that do not will be mired in manual processes and unable to adapt to a changing regulatory landscape when the time comes.
Expert Deployment and Implementation Is a Necessity
One of the most common concerns that institutional executives and stakeholders voice concerning regulations is that updating regulatory infrastructure is disruptive and time-consuming. For institutions that take it upon themselves to upgrade their regulatory technology frameworks on their own, using their own in-house resources, this is true.
But institutions can rely on reputable third-party expertise for deploying and implementing best-in-class automated KYC solutions. This gives them the ability to keep their processes undisturbed while a highly qualified team of engineers, process managers, and regulatory experts work towards seamless integration.
Regulatory technology deployment does not have to be an expensive, nerve-wracking affair. Choosing the right technology vendor can make the transition a painless one.
Your institution can get a head start on meeting the increasingly stringent conditions of tomorrow’s regulatory landscape.
Talk to a regulatory technology expert at Au10tix today to get started.