New Year, New AML and Compliance Approach for Financial Institutions

It’s almost 2025, but many businesses are still facing the same old anti-money laundering (AML) and know your customer (KYC) concerns, among other compliance requirements.

With the news that Wise, the money transfer giant, has implemented a European regulator’s recommendations to bolster its AML programs, AML is emerging not merely as a regulatory obligation but as a strategic priority for the year ahead.

Particularly as financial services become increasingly faster and more accessible through technology, the risks of financial crimes are growing just as quickly, and regulators are demanding heightened vigilance.

Against this backdrop, AML which has traditionally been viewed as a cost center — a necessary burden to satisfy regulators — is becoming a cornerstone of competitive differentiation for financial institutions (FIs) in an era where trust is increasingly a marketable asset.

After all, Wise is far from alone. TD Bank reportedly is working to select compliance monitors to track its progress on risk and controls and report to regulators, as ordered by the U.S. government in October; while the U.S. Office of the Comptroller of the Currency (OCC) this past September signed a formal agreement with Wells Fargo to rectify deficiencies in its anti-money laundering (AML) and financial crimes risk management practices.

As a result of its past compliance failures, TD Bank is expected to pay a roughly $3 billion penalty and agree to limits on its growth in the U.S. And government agencies are reportedly also investigating Citigroup’s AML policies and its ties to a sanctioned Russian official.

With 2025 approaching, among the best ways for businesses to avoid penalties that erode both the bottom line and end-user trust is to embrace a proactive approach to AML/KYC. And next-generation technologies and artificial intelligence (AI) tools can help financial institutions detect and prevent AML anomalies better and faster than they ever could before.

Read more: Surging Business Innovation Puts Compliance Role at Center of Growth

The Expanding Scope of AML and Its Impact on Business

AML is no longer just about keeping a banking license but about protecting customers, reputations and the ability to innovate. FIs that don’t invest in sophisticated AML frameworks can face the risk of falling behind not only in compliance but in their ability to serve customers effectively.

The U.S., for example, has indicated that combatting financial crime will remain a bipartisan priority under the incoming Trump administration. And, of course, it isn’t just the U.S. where AML is grabbing headlines. In November, the United Kingdom’s finance regulator fined Metro Bank $21 million for failing to monitor AML risks.

This regulatory intensity coincides with a wave of technological innovation. Manual processes are no match for the speed and scale of modern financial crime, but AI and machine learning are playing an increasingly central role in AML, enabling FIs to sift through vast amounts of transaction data to identify anomalies in real time.

Seven in 10 FIs are now using AI and machine learning to fend off bad actors, according to the PYMNTS Intelligence and Hawk collaboration, “Financial Institutions Revamping Technologies to Fight Financial Crimes.”

In July, Wolfgang Berner, co-founder and CPO of Hawk, unpacked for PYMNTS the opportunities that large transaction models (LTMs) — generative AI models adapted to financial crime — represent in establishing more robust, accurate and comprehensive detection and prevention mechanisms.

“LTMs see transactions in their entirety without aggregation, maintaining a broad view and understanding language data within transactions, such as reference texts indicating intent,” Berner said.

See also: Partner-Bank POV: Why Third-Party Risk Standards Power Cross-Border Payments

AML and the Financial System of the Future

As PYMNTS’ Karen Webster wrote at the start of September, regulators aren’t shy now about aggressively examining and sanctioning FinTechs and FinTech models. Banks and payments ecosystems reassess FinTech partnerships. Sponsor banks turn down more deals and take longer to look at the ones that they’ll OK in the end.

Looking ahead, AML systems must no longer operate in silos. Integrating these systems with fraud detection, know-your-customer (KYC) and other compliance tools can help to create a unified defense against financial crime.

PYMNTS Intelligence shows that end-user expectations are evolving. The report “Progress and Protection: Balancing Convenience and Security in Digital Banking,” done in collaboration with NCR Voyix, found that 69% prioritize fraud and financial crime protection when selecting a financial institution, with nearly a third (32%) considering this the most critical factor in their decision-making.