AML Hot Topics for 2020

Throughout 2019, new regulations were brought into force to enhance the scope of the AML compliance. In this ever-changing and demanding regulatory atmosphere, financial institutions, which are expected to adapt themselves and their systems to the needs of the evolving and competitive financial ecosystem, spent billions of dollars to come up with the AML compliances which become more and more complex with each development. However, it seems that in 2020, it will not be enough for the institutions to spare high budgets or resources for their problems since the challenges they face will require new approaches. The key concept of 2020 for AML compliance is the investment in the collaboration of the right technology, credible data, and human intelligence. For many, what was achieved so far was only the tip of the iceberg and 2020 will be a fruitful year to witness further enhancements in this field.

Developments in Europe

According to the 2020 plan of the European Banking Authority (EBA), AML is the top priority for the EU as money laundering and terrorist financing are the main risks threatening AML/CFT and prudential supervisors. To address the issue, the EBA will form a new committee to gather up all national AML supervisory authorities to ensure a united and collaborative approach towards the problem by working on a superimposable implementation of different policies. The committee also aims to investigate the breaches of AML regulations with consistency and take actions if necessary. Collection of data about the risks and trends about AML as well as sharing this data among national supervisory authorities are also assigned to the committee.

The EBA plans to continue focusing on enforcing and developing the consistency in AML supervision by supplying training and evaluating the improvement suggestions of NCAs. Additionally, the EBA will make sure that AML risks are well understood and tackled by the prudential regulatory tools which include appropriate evaluations, qualified governance, and administrative reviews. The EBA will also increase its powers and role in gathering, analyzing and dissemination of relevant data while at the same time encourage sharing information and foster cooperation among different authorities in the European Union.

Furthermore, the EBA will use its monitoring power to assess the implementations and risks of AML and will be able to appoint supervisors to examine the possible breaches of EU law. The identification of cooperation and liaison with Financial Intelligence Units and third parties in relation to AML is also among the responsibilities of the EBA.

In January 2020, only 1 year after its predecessor, the Fifth EU Anti Money Laundering Directive (5AMLD) will be in force and the financial institutions are to be prepared for the upcoming transposition by expecting an intensified enforcement of AML rules. As the requirements of AML compliance were already challenging for most of the financial institutions, the 5AMLD doubles the level of pressure on the organizations.

With the new directory, the scope of the rules that apply to service providers like electronic wallet companies and virtual currency exchange providers are enlarged and due diligence measures to track doubtful transactions in high-risk territories such as Afghanistan, Iraq, Iran, Syria and the Democratic People’s Republic of Korea.

The US Fiscal Plan

As these are the developments in Europe, on October 1st, 2019, the U.S. Office of the Comptroller of the Currency (OCC) published the Fiscal Year 2020 Bank Supervision Operation Plan and one of the key topics of the plan is “Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Compliance”.

The customer due diligence and beneficial ownership are at the center of BSA/AML Compliance in the FY 2020 Plan. The aim is to decide whether BSA/AML risk management systems are adequate to meet the intricacy of the business models and products; to measure the effects of technology solutions that are used to perform or develop BSA/AML functions; and to evaluate the sufficiency of the monitoring, reporting and operating systems to detect suspicious activity.

AI in AML Compliance

As the costs and challenges to comply with ever-evolving regulations for AML compliance increase day by day, the institutions incline more into possible solutions to make their lives easier. For this purpose, the biggest trend in AML for 2020 will likely be the use of AI thanks to its effectiveness in increasing operational efficiency and support in regulation compliance.

When an AI technology is employed at a scale, it can enhance the overall quality of transactions and AML compliance as it is capable of analyze and process large quantities of data and categorize them based on the level of suspicion as low, medium and high risks. This automatically eliminated the possibility of slipping through the net because of the factor of “human-fatigue”.

Since it is a system that never stops to learn, it can adapt new patterns and detect potentially risky transactions.

Also, the number of people employed in AML and KYC operations can be reduced and this workforce can be used in more creative and communicative fields to improve the customer experience.

The Power of Collaboration

As the main trend of 2020 for AML is the collaboration of technology, data, and human insight, it is possible to deduct that for the financial institutions, rather than an trying to focus on an isolated solution, adopting an approach combining AI and human intelligence will be beneficial cost-, time- and efficiency-wise. Collaboration may also mean the commitment of the stakeholders like governments, regulators and firms to foster a successful application of AI in the process of AML compliance. To keep up with the technology used in money laundering activities, it is essential to use the power of technology again and combine it with human intelligence so that a more powerful and effective comeback can be attained.

Ahmet Vefik Dincer, CEO