Financial institutions are on the frontline in the battle to combat financial crimes, such as fraud and money laundering. These criminal activities impose massive costs on the global economy. In fact, the United Nations estimated that laundered money in one year amounts to approximately 2- 5% of global GDP.
Although FinTechs around the world are increasing financial investment and expanding compliance teams they are still caught up in a cat and mouse game where financial crime is still finding holes in the system, resulting in hefty charges for companies.
Just to name a few examples; ING got fined with $900 million in 2018, recent news revealed that ABN AMRO is set to pay $575M in a money laundering settlement and even German Neobank N26 is in hot water with German regulators for having “inadequate anti money laundering measures”. - in short: hot topic with hefty consequences for those lacking.
As payments continues to grow globally, so does the pressure on governments to build structures to counter money laundering. With every new revelation, regulators gain a better understanding of the common practices used by financial criminals and, find themselves in need of expanding existing regulations.
Which is exactly why Europe regularly updates its anti money laundering directives, which are intended to counter money laundering or terrorist financing and establish consistent regulations across Europe.
The latest Anti money laundering directive imposed by the EU is the AMLD6, which is the 6th anti-money laundering directive which came into effect in December 2020 with a set deadline for its implementation and full development last June 3rd 2021.
Given the strict nature of these directives, and the regular updates, companies can get overwhelmed by the toughness of the task and often can not comply with requirements.
One of the most common practices in anti money laundering is transaction monitoring, which allows financial institutions to monitor customer transactions on a daily basis to assess risk. When it comes to transaction monitoring, a widely used method is the risk-based approach. That approach requires financial institutions to employ intensive measures to manage risk for clients or scenarios that are deemed high-risk. For lower-risk clients or scenarios where there is no suspicion of money laundering, simplified measures may be permitted.
While highly popular because of its flexibility, this method has its limitations. Implementing this requires well trained professionals that have a holistic understanding of the business and the market. Aside from that, it is not a fool-proof way of detecting fraudulent activity.
The approach to money laundering detection and prevention clearly needs a change – and technology, like artificial intelligence (AI) and machine learning (ML) may provide part of the solution. Sentinels; a Dutch AI-powered transaction monitoring startup is an example of such solution provider, who actually just raised €5.7M in seed funding earlier this month.
By implementing AI and machine learning, businesses can improve their transaction monitoring and make the process significantly faster.
The following are just a few advantages of utilizing AI:
The combination of strict AML regulations and the competitive nature of the fintech landscape, has and will continue to fuel the demand for automated anti money laundering solutions. In fact, the market size of anti money laundering solutions is expected to reach $3.7 billion by 2026. So it goes without saying that the market for AML is a very lucrative market for KYC solutions and the emerging RegTechs.
The dimensions of AML, AI and transaction monitoring are countless, and cannot be covered in one video. But if we would sum it up, there is a clear correlation between the growth of the payments industry and the growth of AML and KYC solutions. Additionally, there is certainly a promising future for anti money laundering tools, especially given the growing understanding of the uses and benefits of AI. That being said, we still have a long way to go before finding a cost and time effective method, but the emerging regtechs might be key to speeding that up
Will there ever be a fool proof way to combat money laundering? Or will regulators need to be constantly updating and extending their requirements?
With non-cash-transactions continuing to surge, the world's central banks are working fast to create digital versions of national currencies. In the latest news, Japan said it aims to launch a yen-based digital currency in 2022. This digital currency will be backed by bank deposits and use a common platform to speed up large-scale fund transfers and settlements among companies. So what is the digital currency hype all about and what implications does this have for the world of payments?
Something peculiar is unfolding between Amazon and Visa. It’s not unusual for merchants to drop schemes and networks, so the news that Amazon is considering shifting its US co-brand credit card from Visa to Mastercard, is not particularly alarming…. but adding that they banned the use of Visa cards in the UK, raised Visa credit charges in Australia, and that they are incentivizing their customers to use other payments methods, then one starts to wonder:
Open banking, once introduced as a revolution in banking by allowing for free movement of customer financial data, is currently one of the hottest topics in FinTech Advocates say it could democratize data and fuel a fintech revolution. But…. reality often fails to live up to its potential and the dream, as open banking has been received with an underwhelming adoption rate, non-cooperating banks, and unimpressed regulators.