The way to AML success?


 (“Tintra”, the “Group” or the “Company”)


Are increased levels of regulatory compliance the only way to ensure AML success?

Using RegTech may be the answer.

Richard Shearer, Group CEO, recently authored the following article on “Increased levels of regulatory compliance aren’t the only way to ensure AML success”, which will be disseminated through a number of media outlets:

During 2021, there was a significant decrease in fines to financial institutions for failing to comply with anti-money laundering (“AML”) regulations – but we should hesitate before celebrating this news. This may be a difficult temptation to avoid, since – from a purely statistical standpoint – the numbers seem noteworthy.

Regtech firm, Fenargo, has reported that, globally, financial institutions racked up $5.37 billion in fines in 2021, as opposed to the $10.6 billion incurred during 2020 – and compliance breaches only came to 176 last year, a substantial reduction on the 760 that made up 2020’s total.

On the face of it, it’s easy to see why publications like The Banker have celebrated this development as positive news in the AML world – but in my view it is somewhat of a mistake to assume that higher levels of compliance automatically equate to less financial crime, let alone more inclusive access to international transactions.

In fact, it may well be that the pandemic played a role in this downward trend – after all, investigators faced transitional periods as much as anyone else, and it wouldn’t be surprising to learn that fewer in-person or on-site investigations occurred in 2021.

For the sake of argument however let’s imagine for a moment that these figures do indeed reflect a financial world which is tracking more firmly within regulatory guidelines and behaving in a more risk-averse a manner.

Should we really see this as AML success?

Rethinking is Necessary

Perhaps one of the more obvious reasons to resist self-congratulation by regulators due to increased compliance is that AML procedures don’t necessarily work in the manner that they are intended.

A 2020 report from EY makes this point in admirably succinct terms. “Despite the evolution” of KYC/AML processes, the firm notes, “their effectiveness and efficiency often remains an issue.”

If AML procedures are in and of themselves – to some extent -ineffective, increased adherence to these rules doesn’t seem to be the goal we should be aiming.

EY’s report points to a number of typical issues that include issues such as inaccurate risk classifications, false positive alerts, and expensive human reviews, leading – as a result – to a system in which under 10 per cent of Suspicious Activity Reports are of any immediate use to the authorities. This is exacerbated when we add in an emerging market variable.

Not only do these routine procedural issues often fail to make inroads into the fight against financial crime, but they result – as one might expect – in costing institutions in the process.

EY describes current AML compliance in terms of “high levels of manual, repetitive, and data-heavy tasks” – all of which cost UK institutions around £28.7 billion annually, according to a 2021 report from LexisNexis and Oxford Economics.

Thinking about AML in terms of cost, effectiveness, and efficiency throws reports of increased compliance into a new light, as institutions avoid anti-compliance penalties by throwing money and human resources at procedures for a problem that is best solved by technology.

We clearly need a new way to measure success in the world of AML.

Fewer false positives, more financial inclusion

Solving this problem, properly and not just with rules that sound good and adherence to them is a goal of my business and a number of others. We need to truly be able to assess risk in a fast, constant and effective manner.

We need to think about different ways to define – and even celebrate – success in AML terms.

Rather than pointing to an [implied] increase in compliance with current guidelines, we should instead stress the value of adopting new and more sophisticated technologies.

Such was the conclusion of Steve Elliott, one of the authors of the Oxford Economics/LexisNexis report, who notes that “increasing AML regulations, rather than an evolving criminal threat is the primary driver for increased compliance costs in the UK” – and that we should be driven by “big data and technology instead of rules and manual processing.”

EY make a similar point, suggesting that “the time is now to explore the capabilities of artificial intelligence” in order to “scale and adapt to the modern threat of money laundering.” I would argue that it’s not just the time to explore AI capabilities but to build these engines that will fundamentally alter the financial landscape.

Of course, by using AI to automate processes and assess risk, we won’t just be fighting financial crime – we’ll also be performing a service for the victims of the false positives which currently make up 90 per cent of suspicious activity alerts. 90% of hits being proven to be good folks mis-rated by a compliance team suggests that there are a lot of offenders being missed.

This is particularly relevant for emerging market multinationals, who doubtless make up a huge swathe of these false positives, and for no other reason than operating in a country deemed ‘risky’ by prejudicial, I would argue biased, AML practices.

Celebrating opportunity

With the right training against bias, technology – like the advanced AI solutions my team and I are currently focused on – can prevent such victims of false alerts, including the many who operate in emerging markets, from having to leap through the hurdles of current compliance processes.

In other words, AML success should be measured via the adoption of new technologies and through reductions in false positive alerts and not by the fines exacted upon institutions who are implementing somewhat flawed systems in the first place. By extension, it is my strong belief that this AML success will be felt in the many financial opportunities currently delayed or denied to people, organisations and countries in developing parts of the world.

Richard Shearer, CEO of Tintra PLC