AML Compliance Controls Can Be Costly


Recent scandals involving Deutsche Bank and Swedbank have made consumers reconsider their trust in financial institutions, many of which are scrambling to keep fraudsters out and bring customers back.

Money laundering has always troubled financial institutions, but today’s digital banking system creates additional complexities as fraudsters around the world take advantage of financial technologies. Between $800 billion and $2 trillion USD is laundered each year, according to the United Nations Office on Drugs and Crime.

The latest Digital Banking Tracker brings research and expert commentary from the FinTech and consumer banking space with a focus on anti-money laundering (AML) and solutions.

The Cost of Compliance

Scandal and fraud tarnishing banks’ reputations aside, the impact that AML compliance controls have had on these banks’ bottom lines can’t be underestimated.

A majority of FIs plan to invest more in financial crime compliance than fraud risk management, though 43 percent reported no integration between fraud and financial risk compliance.

According to a recent study by Duffs & Phelps, in 2019 the largest proportion (57 percent) of financial institutions spend up to 10 percent of their overall budgets on regulatory compliance, a figure that is estimated to increase to 61 percent by 2023.

And yet, per that same study, 30 percent rate at least one of their AML components as being either “not at all” or only “somewhat” effective. However, more than half (51 percent) characterized their AML risk assessment, specifically, as “very” or “completely” effective.

A majority (57 percent) believe that more sharing of information between regulators and industry would be the change that would have the greatest impact on improving global AML efforts.

Challenges and Solutions

Many FIs are adding artificial intelligence (AI)-based security tools and services to their digital banking platforms to fight fraud, and many are exploring enhancements and innovations to entice customers to stay.

According to a KPMG study, 63 percent of financial institutions use transaction monitoring based on rules and machine learning. The leading technology used by FIs is transaction monitoring that scores risk in real time (70 percent), followed by physical biometrics like fingerprints or facial recognition (67 percent) and behavioral biometrics (33 percent).

In an interview with PYMNTS, Michael Bopp, chief customer engagement officer for Synchrony Financial, explained how matching regulations is only part of the AML puzzle, as modern FIs must protect many channels from cybercriminals. Mobile, online and phone channels all have distinct fraud challenges and customer needs.

Synchrony Financial continues to innovate its AML approach, experimenting with machine learning (ML) technology to provide greater speed to customers and using AI to offer stronger personalization. “We’re scaling ML models to identify fraud patterns to combat and prevent coordinated fraud networks at twice the speed,” said Bopp.

Meg Birch, vice president of AML solutions at Feedzai, spoke about how a financial institution’s AML program can be a growth strategy. “It is only by investing in technology that we can identify and fight the financial crimes of the future [to] remain competitive. When you look at your AML program as a strategic growth initiative, it shifts the whole playing field. Competitive possibilities emerge.”

She recommends using ML and rules-based code to strengthen models and reduce high-volume, low-value alerts.

Most financial institutions know that emerging tech and new tools can help fight fraud and money laundering, but many are still held back.

The biggest challenges to regulatory tech adoption were developing a data strategy that links technology, workflow and compliance requirements, cited by 49 percent, and finding technology that delivers as expected (37 percent).

Federal standards exist for data security, AML and other anti-fraud measures, but state-level governments and legislation can also affect what is or is not allowed. U.S. banks have to analyze AML regulations before even beginning to innovate, and the rules in question change often.

In the Duffs & Phelps study, more than half (52 percent) said better coordination between jurisdictions on regulation could make the biggest impact on global AML efforts, while 43 percent cited better coordination between authorities within countries as a factor that could make the biggest impact.