Technological disruption in Anti-Money Laundering (AML)

Technological advances are favouring the emergence of new business models in the financial and insurance sector. This said, these same advances help to develop money laundering and terrorist financing techniques. In fact, the mechanisms used to launder money from illicit activities are increasingly more complex and ingenious.

If we analyse the evolution of financial services in the last fifty years, we can see how technology has played a key role in transforming the financial industry. The new financial products and the new forms of commercialisation have given rise to new channels and methods for laundering money and financing terrorism.

Evolution of Financial Services and Anti-Money Laundering

There is really no way to quantify the amount of money of doubtful origin that enters in the circuit. However, the Global Financial Integrity (GFI) organisation estimates that, every year, a legal passport is issued to some 2 trillion dollars coming from illicit activities. This amount represents between 2% to 5% of the world GDP. Of this figure, only 1% of the world’s illegal financial flows are confiscated by the authorities.

Technology, a major ally in Anti-Money Laundering (AML)

The latest technological advances mean that we can access information which is updated and in real time. This means that we can track the background of suspicious subjects and operations of doubtful legitimacy all over the world.

There is absolutely no question that a efficient and effective Anti-Money Laundering and Terrorist Financing System (AML/FT) is an enormous challenge. However, within this challenge, it has technology as a major ally.

Predictive Analytics turn the data into valuable information which is used to establish the probable outcome of an event or the probability that a situation will occur.

If the information on customers and/or transactions carried out by the organisation is further enriched with other data sources (industry, regulators, etc.), the models become more precise when it comes to detecting and preventing potential financial crimes.

Artificial Intelligence (AI) and Machine Learning make it possible to identify patterns of behaviour. They therefore become a key factor in detecting and Anti-Money Laundering (AML). They also drastically reduce the false positives rate, endowing the system with the required efficiency and efficacy.

Biometry, at a time when relations between financial institutions and their customers are 100% digital, becomes mandatory technology. How, otherwise, can we verify that the person who is contracting a product and/or service is who they say they are? Biometric identification using facial recognition allows the institutions to apply adequate Due Diligence and Know Your Customer (KYC) technologies and comply with the regulation.

RegTech, the necessary balance

Today, financial institutions are obliged to change their business models in order to adapt to their customers’ needs and to be able to offer products and/or services which are more competitive and suited to the new era.

In turn, they must meet the increasingly more demanding regulatory and safety requirements in order to guarantee the integrity of the financial system and trust in it by the markets and their customers.

RegTech lays the way for this difficult balance with the use of disruptive technologies such as Predictive Analytics, Artificial Intelligence (IA), the most advanced biometrics or Blockchain techniques. Solutions conceived under this philosophy, like ALERT or SELF, enable the financial institutions to obtain a higher degree of satisfaction from their customers. In turn, they keep the institution a step ahead in the prevention of financial crimes.