AI to help combat fraud and money laundering - The EE

AI to help combat fraud and money laundering

RegTech 2017

Financial crime continues to grow and its effects are vast, says Jane JeeCEO at Kompli-Global.

It is also helped by the complexity of the international financial system, coupled with variations in legislation at a country level to create a suitable environment for money launderers, fraudsters and financial terrorists to hide and move funds between jurisdictions without drawing attention.

To address these issues, governments around the world have implemented strict, multi-layered local and global anti-money laundering (AML) legislation, alongside regulations stipulating Know Your Customer (KYC) verification.

To continue operating in regulated markets, financial services companies must take all measures to comply with these standards, as well as looking to the market at the latest technology that can help them achieve this. But how can organisations still ensure they have the required procedures in place, save time, money and drive a new era of automated compliance?

AI can act as a competitive differentiator

A new wave of Regulatory Technology (RegTech) that harnesses Artificial Intelligence (AI) and human expertise is playing a major role in assisting compliance teams in upholding AML and counter-terrorist financing (CTF) legislation around the world.

This technology has moved beyond experimentation to become a competitive differentiator in financial services, as it can ‘learn’, interpret and comply with all applicable laws, from KYC and AML to asset management regulation. However, AI (like any tool) can be and is exploited by criminals, which makes regulation a pressing necessity.

The more criminals use the technology to exploit the weakest links, the more law enforcement is hampered without it. But discussions on AI must focus on the technology’s effects and benefits instead of emphasising fears about the technology itself.

The benefits of AI are often overlooked due to a general lack of understanding but when combined with Machine Learning (ML), those regulated entities can be put off by the difficulty of understanding core concepts, such as algorithms and built-in bias, to a non-tech audience. To get around this, it is important to partner with the right provider as they take on the heavy lifting and use their expertise to communicate the information required efficiently and effectively.

Additionally, human compliance teams also play a vital role. The deployment of AI should be used to enhance these teams, not replace them.

What are the barriers to adoption?

Jane Jee

Traditionally, banks have struggled to make sense of the data they collect and house it in silos with limited visibility across the entire organisation. As they are conservative entities, they do not naturally embrace new or not well understood technologies.

Therefore, some of the barriers sit in compliance departments, legacy systems and even a certain degree of legacy thinking and lack of training to keep up with compliance and regulatory changes, but also with evolutions in criminal tactics.

Furthermore, banks are under pressure from fintechs and challenger banks and their margins are getting squeesed as they look to reduce costs. Compliance is increasing as a share of bank costs, so there is a vital need to control and reduce these costs. However, compliance and risk management need to be seen as an investment, not a burden.

Investment in the right technology is the only way for things to improve but this can mean proper investment in the short term, to get value in the long term.

COVID: Why action must be taken now

As well as the issues mentioned, the COVID-19 pandemic has led to an increase in fraud, and the exploitation of government funds, which is creating new sources of proceeds for illicit actors. Furthermore, in the UK for example, the pandemic has to some extent also impacted the government’s July 2019 Economic Crime Plan.

Currently, the Royal United Services Institute (RUSI) reports that, 38% of actions in the plan had been completed, 44% were in progress, 9% were overdue, 6% of actions either had no due date or had been paused.

The missed opportunity here is that there are few chances for technology companies to input into the government’s thinking. For example, JMLIT (part of the National Economic Crime Centre) has no technology representation so the government does not know what technology (often with real-time capability) already exists to help prevent financial crime.

However, COVID-19 has also accelerated digital transformation and regulators freely acknowledge that RegTech companies provide significant opportunities to manage some of the issues presented by the pandemic. In effect, the regulators are encouraging the use of technology to improve “the security, privacy and convenience of identifying people remotely for both onboarding and conducting transactions while also mitigating ML/TF risks”.

Policy makers, regulators, investors and shareholders are increasingly looking for firms and the right technology to not only meet new regulatory requirements, but also ensure the effectiveness of what has already been built across the sector. Until the industry is ready to embrace this fast-moving technology, we can only demonstrate its potential and we need to allow the market to catch up and that is the process we are witnessing right now.

The author is Jane Jee, CEO at Kompli-Global.

After qualifying as a barrister, Jane worked in commercial and legal roles in compliance, credit and payments. She was managing director at Access credit cards and a director at Worldpay Plc.

In 2014 Jane obtained a Post Graduate Diploma in Governance, Risk and Compliance from the International Compliance Association (ICA) where she is a Fellow. Jane passionately believes that good compliance makes good business sense. A thorough knowledge of your customer enables you to retain their business and potentially better target your offerings.

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