As per international anti-money laundering legislation, professionals and companies must comply with anti-money laundering (AML) and know your customer (KYC) obligations to mitigate the risks of international AML and terrorist financing (CFT). However, the current AML regulations do not specify which instruments or limits should be checked against. Instead, they assign general principles of responsibility and good management for performing AML and KYC functions. Specific normative references are attributed to the SAR's reporting phases, registration of personal and fiscal data, and storing of all data and documents in physical and telematic archives.
In the digital age, AML functions have evolved to help MLRO (Money Laundering Reporting Officer) and Compliance Officer managers fulfill AML regulatory obligations. With the technological advancements in Fintech, Big Data, and financial crimes, some sectors have also undergone procedural evolutions in their AML and KYC procedures to ensure AML/KYC compliance.
Type of software in Anti-money Laundering discipline
There are various types of software that are used in the Anti-money Laundering discipline. These include:
- Cross-analysis of data for Suspicious Activity Reports (SARs) for internal reporting
- Cross-analysis of data for SARs for external reporting
- Submission and exchange of AML data between Money Laundering Reporting Officers (MLROs) and state supervisory authorities such as Financial Intelligence Units (FIUs) or Central Banks (this type of software usually requires a government license)
- Database of individuals, entities, associations, organizations, and states that are considered to be at risk of money laundering or terrorist financing (also known as a "Blacklist")
- Database of entities subject to tax sanctions
- Registration and storage of AML data (such as Archivio Unico Anti-riciclaggio)
- Monitoring and transfer of any financial transactions
- Data interconnection between payment software systems and operating systems (such as Android and iOS) for remote customer due diligence and digital identity verification.
Supervisory authorities recognize the value of these services as useful tools for combating money laundering and terrorist financing, thereby enhancing AML/KYC compliance. However, it is important to note that regulatory requirements must be respected when using these software packages, such as protecting personal privacy data and ensuring the proper execution of AML procedures (including communication procedures, reporting, and maintaining confidentiality).
It should also be noted that the use of AML software is not always mandatory by law. Even if a company or individual does not have access to one of these software packages, they are still responsible for ensuring AML/KYC compliance. The decision to use AML software will depend on the type of obligated party, the AML/CFT risks associated with the client portfolio, the type of clientele, and economic relationships.
How Companies Can Use AML Software for KYC Check
There are numerous ways in which companies can utilize AML software for Know Your Customer, with the help of artificial intelligence technology, complex operations that were once performed manually or automatically can now be expanded upon. Through integration with computer-based information systems, the capabilities of AI solutions are rapidly increasing.
Thanks to advanced transformation in information technologies, AI solutions are able to imitate human intelligence and develop further with the information it collects to fulfill tasks. This technology is commonly seen in video games, suggestion engines, and systems such as smart assistants. Furthermore, AI solutions offer significant benefits in the context of AML/KYC compliance activities.
By utilizing AI solutions for repetitive tasks, companies are able to save valuable time, effort, and resources, especially in the context of KYC checks. This allows them to focus on higher client-value tasks and ultimately improve their overall productivity.
AI Solutions For AML/KYC Compliance
Enhanced Due Diligence (EDD)
When assessing potential business partnerships, Enhanced Due Diligence is a valuable tool for identifying risks that may not be detected through Customer Due Diligence alone. Both CDD and EDD are part of the KYC process, with EDD involving a more thorough analysis of a customer's identity and risk category. This involves various procedures, such as using a risk-based approach, monitoring ongoing transactions, assessing adverse media and negative controls, conducting on-site visits, and developing ongoing risk-monitoring strategies. With AI-enhanced EDD, financial institutions can gain a more comprehensive and holistic understanding of a new customer's business relationships and financial activities, empowering them to make more informed decisions about potential partnerships.
Ultimate Beneficial Ownership (UBO)
The term UBO refers to the individual who ultimately owns or controls a customer or the real person on whose behalf a transaction is being conducted. Failure to disclose UBOs can allow for money laundering through businesses, making it crucial for countries to be aware of UBOs in their fight against money laundering and terrorist financing. In the case of companies, UBOs are individuals who hold at least a 25% stake in the capital of the legal entity, have at least a 25% voting right in the general assembly, or are beneficiaries of at least 25% of the capital. The identification and verification of UBOs should be done during account opening and when updating KYC information while obtaining banking services or product forms. It is important for policies, procedures, and processes to require account holders to declare the UBO and to update the Financial Institution if there are any changes to the declared UBO. Additionally, UBO verification and UBA checks are crucial for companies.
Transaction Monitoring
Automating the transaction monitoring process allows financial institutions to handle billions of transactions efficiently. It is mandatory for businesses to comply with Anti-money Laundering obligations. However, AML Transaction Monitoring controls often produce an excessive amount of false-positive alerts and place a heavy workload on operations. The investigation process also suffers from inefficiencies, resulting in a considerable discrepancy between the efforts invested and the effectiveness of the monitoring controls. By incorporating machine learning techniques at various stages of the transaction monitoring process, AI provides meaningful opportunities to significantly reduce operational costs without compromising effectiveness.
Managing Regulatory Change and Compliance
The advanced capabilities of AI to identify patterns in large volumes of text allow it to gain insight into the constantly evolving regulatory landscape. Moreover, through the use of Natural Language Processing (NLP), documents can be analyzed and categorized, yielding valuable details such as client names, products, and procedures that may be affected by regulatory adjustments. This process ensures that both the bank and the client remain informed of any regulatory updates, including know your client requirements, to enhance compliance.
Improved Client Onboarding and Document Management Automation
Financial services institutions are faced with the challenge of adapting to digital transformation, meeting regulatory requirements, and keeping up with evolving customer expectations, all while ensuring AML/KYC compliance. To enhance customer experience, increase revenues, and ensure regulatory compliance, new client management strategies are being developed. In this context, KYC procedures have become more complex, with excessive time and money spent on manual processing. However, with the help of advanced AI and machine learning technologies, automatic AML/KYC compliance verification can ensure regulatory standards are met without relying heavily on internal resources. Thanks to technological advancements, financial institutions can now implement automated solutions that offer numerous benefits at a lower cost than traditional processes, making the onboarding of new clients in a highly regulated industry less complicated.
How Sanction Scanner Helps Your Company
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