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Why should Anti Money Laundering be the top priority in the Digital Era?

Ashish M. Shaji

| Updated: Aug 21, 2020 | Category: Digital Lending

ANTI-MONEY-LAUNDERING

Anti Money Laundering (AML) initiatives is the key to banking institutions for prevention and protection. Considering in today’s day and age, it becomes significantly critical for financial institutions to have sound AML policies.

What is Money Laundering?

Money laundering means the illegal movement of money in order to hide its original source. The black money gained through illegitimate sources (through selling drugs, human trafficking, terrorism, etc.) is transferred in a pattern to manipulate authorities and to hide the money trail.

What is Anti Money Laundering?

Anti-Money Laundering includes policies, rules, and regulations to prevent financial crimes. It is a common term used throughout the world to prevent money laundering.

Every country has different AML policies. AML guidelines came into prominence globally due to the formation of the Financial Task Force and the promulgation of an international framework of AML standards.

What is the significance of Anti Money Laundering, especially in times such as these?

The significance of AML has never gained much attention than today. As financial institutions build long-lasting brands, they aspire to be associated with financial success and excellent service. However, they cannot expect a smooth ride if they don’t have sound AML policies and practices.

As the laws are stringent, it doesn’t mean that AML compliance is another regulatory burden; it has many ways of benefitting your institution. Its compliance is the primary source of risk prevention, especially in today’s digital era.

Financial institutions are held to high standards in terms of following procedures to identify money laundering. All bank employees are trained to some extent, to identify and monitor suspicious customer activities. In order to keep pace with the tactics of money laundering criminals, banks must innovate and develop AML policies and practices.

Which factors have brought Anti-Money Laundering (AML) to the forefront?

The following factors have brought AML to the forefront:

Factors have brought Anti-Money Laundering
  • Threat evolution

In this digital age, where financial institutions are employing the use of advanced technology, criminals have also stepped up their tactics and are using more sophisticated means to remain undetected. Lone wolf terrorists buy weapons and vehicles at a low cost that are tough to detect. Cyber-enabled criminals are globally connected, using sophisticated technology and insider information to target technology weak links and e-commerce, a huge market that has made it easier for criminals to pose as legitimate online merchants or payment providers.

  • Reputational Risk

AML is critical to consolidate the future of a financial institution. Cases of money laundering put a financial institution’s reputation at risk because what is at stake today is monumental. No institution would want to go through investigation on charges of Money Laundering or be fined under AML laws because it would hamper their reputation. Accusations of financial corruption are serious, and you don’t want to be part of the headline for wrong reasons.

  • Customer Value

Customers would feel secure with banks and businesses that take measures to secure their customers. No one would want to lose customers’ trust and have a bad reputation regarding AML.

What advantages can financial institutions gain by investing in Anti Money Laundering?

By investing in AML, financial institutions can gain a lot of competitive advantages like-

  • Superior Customer Experience;
  • Attract emerging talents;
  • Scalability;
  • Readiness to adapt to new regulations;
  • Reduced reputational risk; and
  • Improved efficiency.

The Continuing Technological Advancements and Combating Financial Crime in this Digital Era

Digital evolution is gaining momentum, and don’t be surprised to see companies switch to cloud technologies for many channels like analytics security, KYC verification, risk scoring, financial transactions, etc. digital augmentation comes before a bang of cyber security and its building curiosity as to how it will impact AML compliance and the management of security across the financial space.

An outlook of businesses conducted in the last few years is different when compared to the coming years. Previously AML compliance was drifting and evolving with increased government policies and regulations. Money laundering activities and terrorist funding has been growing significantly, keeping pace with new technologies; crimes have evolved and have become a matter of great concern. 

Therefore banks must constantly keep on updating their AML solutions and processes and adhere to compliance regulations lest they are penalized. Banks must combat the ever-growing threat by adopting new technologies, updating frameworks, policies, and being flexible. Financial institutions should concentrate on digital payment issues, regulatory framework, and money laundering risks relating to the internet payments method.

Enterprises must consider shifting from traditional risk methods to innovative technology. It’s high time for companies now to leave legacy systems and leverage the use of new techs with intelligent automation in their compliance programs to combat crimes like money laundering in this digital era. Technology can provide the defence to banks in their fight against frauds and provide security to customers in their battle against cybercrimes.

The Future of Anti Money Laundering Compliance

With the way technology is evolving and advancing, cutting edge Anti Money Laundering compliance departments would change the way how they investigate suspicious activity, conduct KYC, etc. Don’t be surprised to see automated investigations and KYC may be conducted in a seamless way, and Machine Learning will quickly identify any suspicious activity.

As a result, the need for humans shall move from conducting simple investigations or KYC reviews to operating as anti-financial crime specialists.

Conclusion


The cybercriminals today have devised new ways of committing financial crimes; therefore, it becomes increasingly critical for financial institutions to adopt Anti Money Laundering policies and practices that will give them long term benefits.

Read our article:Why should Anti Money Laundering be the top priority in the Digital Era?

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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