Anti-money laundering (AML) efforts have traditionally been among the least-effective enforcement efforts in the world: just 0.1% of all laundered funds are recovered according to one estimate. The sums that slip the net are colossal. The UN estimates them at between 2-5% of the global economy, or up to $2 trillion annually.
That is an institutional failing at a colossal scale. Yet not only is it challenging to catch sophisticated financial crime, trying to do so is an increasingly costly operational burden for financial institutions (FIs) – the patience of regulators at failures to tackle it has worn thin; both fines and reputational damage have mounted.
Yet AML doesn’t need to be the defensive battle of attrition it has become for most, says Livia Benisty, Chief Business Officer at Banking Circle; a payments bank with a near real-time clearing and settlement network that settles over a tenth of Europe’s B2C ecommerce flow. (The Stack has written more about Banking Circle here.)
Benisty, a former head of AML, Trade and Treasury Solutions, EMEA, at Citi – who speaks with a quick eloquence born of deep market experience – says AML and transaction monitoring (TM) efforts can in fact be enterprise enablers, driving efficiencies and leaner processes and even opening up new business opportunities.
As she puts it: “If you think about what we’re doing in AML, you are finding out lots about your customer; not just who owns them and where they’re based, and what their addresses are, but the kinds of clients they take on, what flows they expect to have… When you build that relationship with a client, you’re not just asking if they’ve moved address, or flagging a transaction, you’re saying, what does the future look like for you?
“In those flows you can also see potential to highlight a product that they might need, or perhaps a new currency that they might need. You can see what patterns there are in terms of volume and value. That more rounded perspective on a client can be incredibly useful to serve them from a commercial perspective.”
AML headwinds: Technology, culture, torpor…
Technical debt and data swamps are also commonly cited as AML hindrances. Yet the challenge is also arguably a deeply cultural one. As new whitepaper from Banking Circle – Rethinking AML for a Digital Age – recognises, “introducing new approaches to AML in the middle of a wholesale revolution in banking isn’t easy.
“Legacy technology stacks, dwindling IT budgets and poor data quality all make introducing new, digital-first approaches a challenge. However, the experts we spoke to for this study feel one of the biggest challenges lies in banks’ strategies and thought processes when it comes to fighting money laundering…
“New approaches and new thinking, such as the application of Artificial Intelligence (AI) to previously manual processes, are being applied in a piecemeal and inconsistent fashion… Interviewees also felt that those responsible for AML operations inside financial institutions didn’t help themselves sometimes, being too content to sit inside the compliance function and viewed as box-tickers or a cost centre.”
Many industry veterans argue as a result that AML compliance teams should see themselves as advisers to the business, “otherwise it becomes a question of ‘it’s their problem’, or, ‘out of sight is out of mind’”.
Banking Circle’s Livia Benisty, meanwhile, says that the scope for a more data science-led approach to help build this advisory and enabling capability is there with the right partners: “Getting more efficient with your transaction monitoring, and doing that through the use of AI and ML – which we’re doing at Banking Circle – means you can hire fewer analysts, and those you have get a lot more motivated and interested in their job because they’re not spending 99% of their time chasing after fake leads, so to speak; we are also able to gather data on our clients that show them an activity use that they might not be aware of in terms of how they’re using us. You can say ‘did you know that this is actually the majority of your flow through us? This is what we’re seeing, these are the concerns we have’. And that insight also has value to our commercial colleagues…”
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