Top 6 Uses Of RegTech To Improve AML Compliance in the Finance Sector

The devastating effects of financial crime on businesses and their clients are nothing new to the FinTech sector. When it comes to the practice of laundering money, this is especially true. The UNODC reports that the world annually loses between $800 billion and $2 trillion to money laundering, equivalent to 2% and 5% of GDP.‍

Since FinTechs only exist in the digital world, they attract the attention of money launderers who believe they can operate more secretly in this setting. To combat this, organisations must follow various anti-money laundering rules and regulations to protect against criminal activity.‍

AML security measures can increase safety across various platforms, but implementing them can be time-consuming across all their services. Fortunately, RegTech offers a realistic choice for risk and accountability teams to improve their AML compliance initiatives.

How Regtech Improves AML Compliance

With the help of RegTech compliance solutions, FinTechs can more easily meet regulations and safeguard themselves. Moreover, $800 billion, or about 5% of the global GDP, is believed to be laundered annually. These solutions help risk and regulatory teams improve their anti-money laundering strategy and workflows by giving them more control over AML compliance efforts.‍

Many different applications of Regtech that enhance AML compliance are discussed below.

• ID Verification and Authentication

Financial criminals use synthetic or stolen information to establish new accounts or access other users’ accounts. FinTech onboarding solutions that use RegTech and KYC technologies can prevent these bad actors from using their services in the first place.‍

Incorporating Know Your Customer (KYC) practices into their database, the RegTech tool enables FinTechs to automate identity verification. Customised onboarding processes allow the cross-reference of data from new users with official documents from various partners. If the information seems falsified or doesn’t match the KYC data, the user will not have access to the platform. They’ll be automatically accepted to utilise the FinTech service if they don't.‍

AML specialists can focus more on their strategies because this automated system prevents new account fraud and identity theft.

• Customer Due Diligence

Maintaining an effective Customer Due Diligence (CDD) process is crucial for most Fintechs that partner with banks. Moreover, it is necessary to use Know Your Customer (KYC) and identity verification data for risk management when a client opens an account.

Compliance specialists can continuously fulfil their CDD checklist using the same Regtech tools that verify customers during onboarding. Integrating KYC/KYB partners can even help reveal previously secret data, such as the identity of an Ultimate Beneficial Owner (UBO).‍

AML verification can automate CDD operations and establish custom criteria to identify suspect KYC data. Thus, it will help them identify high-risk customers for money laundering so they can keep an eye on them and stop illegal activity.

• Transaction Monitoring and Screening

Money laundering indicators include suspicious customer transaction patterns. However, a significant challenge for AML experts in Fintech is the difficulty of identifying suspicious activity in real-time.‍

This issue is easily solved with transaction monitoring solutions that track customer behaviour and flag suspicious activity for investigation. By comparing current and past transaction data, anomalies in behaviour can be identified and passed to a risk analyst for further analysis.‍

Risk and compliance teams can customise rules for how suspicious activity is flagged and prioritised for investigation, significantly reducing the time to investigate and report‍

Teams can spend more time updating their anti-money laundering strategies and case management using Regtech to set up powerful AML compliance rules.

• Alert Scoring and Risk Profiling

The constant attack of false positives can improve productivity and help investigators correct critical alerts. This is why it’s essential to have a robust AML compliance risk assessment strategy. In 2022, financial firms were fined approximately $5bn for AML violations, sanctions crimes, and KYC system failures.‍

RegTech helps make the most of a team’s strategy through alert scoring and risk profiling. Alert scores are a system that automatically rates accounts and transactions for suspicious behaviour. Additionally, risk profiles set a standard for what types of customers pose the most significant risk for money laundering. Together, these features can assign scores based on priority and direct investigators to the customers and transactions that need attention.

By prioritising high-scoring alerts, teams can finish investigations faster and focus on the most important signs.

• Compliance Management and Auditing

RegTech can help Fintechs stay on top of their compliance in various ways. Thus, knowing their current compliance status is an essential part of this.‍

A FinTech company’s risk and enforcement teams can use AML and KYC processes to adhere to all relevant regulations by purchasing a compliance management solution. Teams can use a dashboard for auditing their workflows for regulatory requirements and using compliance-ready tools to enforce the essential standards.‍

By eliminating the need for manual tracking of compliance efforts, these tools convince teams that they are on the right track and save them time and effort.

Concluding Thoughts

The FinTech industry has progressed incredibly because of intelligent digital services. It points to the fact that they must ensure adherence to the AML compliance standards by international regulatory agencies. The consequences of non-compliance and outdated online security protocols are severe. The loopholes allow cybercriminals to use the system to achieve their goals. The intelligent systems have the support of Artificial Intelligence (AI) and complex Machine Learning (ML) algorithms, which facilitate adherence to AML monitoring standards. The intelligent features in the software produce high-quality output after anti-money laundering checks on user credentials.