Anti-money laundering and fraud are rapidly changing areas, and while the pandemic and other challenges influenced the AML sector in 2021, this year will see a major shift as we continue to learn how to operate in our redefined world.
Some of the major trends from last year, cryptocurrency compliance, increased adoption of advanced technologies, the shift from quantity to quality across financial crime compliance operations, have all created the blueprint for this year’s top AML trends.
Moving from Event-Driven to Entity-Centric Detection
Operations teams often focus on alerted events and not the entity responsible for causing the alerted event, while law enforcement investigators focus on the individuals they investigate. Ultimately, it is the individual who will be prosecuted, have their assets seized, and/or go to prison. So, why does the sector focus so much on individual events to identify suspicion?
In 2022, we will see a seismic shift in the regulated sector’s focus from events to entities. This shift will not be easy due to legacy processes and systems and the need to ensure continued compliance. However, advances in technology have paved the way for this change.
Shifting to entity-centric AML will allow the industry to assess and monitor entities contextually. If we can assess and monitor the entity contextually, it will result in better detection, investigations and outcomes. Contextual understanding all comes down to having the right data and intelligence.
Increased Scrutiny of Corporate Entities
Transparency of corporate registers is a huge issue. Even after the EU introduced the 5th Money Laundering Directive, a number of EU countries have yet to fully implement the requirement to introduce the public beneficial ownership registers of legal entities. As of the end of 2021, four EU member states still have private corporate ownership registers (Finland, Romania, Greece and Spain), and a number of EU member states still charge a fee to access all or some of the corporate information, Meanwhile, three countries still have no accessible register (Lithuania, Hungry and Italy).
The management of corporate entities from a compliance perspective for the regulated sector is enormous. Incorrectly assessing a corporation’s risk can result in significant failings or compliance breaches from incorrectly managing and mitigating exposure to risk.
In 2022, there will be greater emphasis on understanding corporate entities and their risk, including ensuring the data available about them is accurate, their risks are accurately monitored and risk assessments are conducted continuously. This greater emphasis can only be possible with technology that provides the ability to monitor real-time changes in internal and external data (including corporate structures, addresses and contact information), adverse media, transactional activity and other information impacting risk.
Transitioning to Proactive AML from Reactive AML
The current KYC approach of reviewing customer risk once a year or once every few years during a periodic review is outdated and exposes organisations to unnecessary risk. Potentially waiting years to discover that the customer is now considered high risk does not seem to be an effective approach.
Increasing regulation, advances in technology, continued regulatory scrutiny and fines, and a desire by industry professionals to turn the tide in fighting financial crime have created the perfect environment for a shift towards a more proactive approach to compliance. This goes together with my first prediction because we have to adopt a proactive AML approach to take an entity-centric approach to AML.
In 2022, we will see a greater shift toward proactive AML. Organisations will increasingly implement technology that provides real-time or near real-time data assessment to ensure screening and detection of suspicious activity is always optimised and in line with the up-to-date risk posed by the monitored entities. This shift also includes a move to continuous KYC. Continually monitoring for changes in data that will impact changes in entity risk will ensure that organisations have a full understanding of entity risk and can implement measures, so the risk is always fully managed.
Proactive AML will ensure organisations always have an accurate understanding of their entities and the organisation’s exposure to risk. This information can inform monitoring and detection systems to ensure that entities are always appropriately segmented, monitored for the right risks, and that detection identifies only true suspicion or material changes in risk.
This approach will make compliance teams more efficient, AML operations more cost-effective, and law enforcement more informed with the right information about real criminals. It will also help reduce friction for innocent customers, who will no longer be asked unnecessary questions or potentially have transactions blocked due to false positives, thus increasing revenue potential for organisations.
Looking Forward
This year we can prioritize making a major difference by identifying and reporting criminal behaviour, taking one more criminal off the streets and taking away their assets, protecting one more victim. Working together, we can take the fight to the criminals. If my predictions for 2022 are correct, then by the end of this year, our fight will be a little easier as we move into 2023 and beyond.
By Adam McLaughlin, Global Head of Financial Crime Strategy & Marketing, NICE Actimize
