“What is AML in banking?” AML, what we commonly call as anti money laundering, is mandated by regulatory bodies to keep illicit actors away from your business and to minimize the likelihood and intensity of damage they can pose to the business.
Money laundering schemes are getting smarter and concealed with each passing day making it difficult to be detected by traditional ways of screening for illicit schemes. Among all industries exposed to the risk, banking and financial industry is on high target for the loopholes and easy to manipulate nature of their business and working models.
How does money laundering work in banking?
Money laundering in banking, without a second thought, is the act of converting illegally sourced money into white money. As rightfully said, “The illegally sourced money is often passed through several financial institutions including banks, insurance firms, real estate and investment brokers to further legitimize the money. Money launderers also deposit cash in small increments or sneak money into foreign countries to avoid suspicion.”
By allowing multiple suspicious transactions to flow through the system, the dirty money appears clean, which can be easily withdrawn and put out for use in multiple distinct ways.
This blog will be a walkthrough, the importance of AMLin banking compliance and top 5 ways to simplify the intricacies to deploying effective AML in the financial sector.
Is AML Screening still relevant for the banking industry?
When we talk about the financial industry, banks cover the major portion of the finance segment of the society. With an add-on feature of digital innovation that has increased reliance over digital transactions, the dependence on digital transactions is more than ever.
Taking advantage of this fact, criminal organizations find the financial industry as their easiest target to carry out money laundering related activities through banks and other financial institutions.
Banks are then faced with the challenge of simplifying their AML compliance process. Amidst increased reliance and large volume of alerts, how to ensure simplified compliance without causing exertion to the compliance teams and hampering overall workflow.
5 Must-Haves for Simplified AML Banking Compliance
While there is abundant information available online which talks about regulations and requirements of compliance, the financial industry remains unaware of the AML banking process.
With stringent regulations mandated by regulatory authorities, here are 5 ways to master AML compliance for your business that may nullify top industry challenges.
Integrate Advanced Technology
The new age of 2024 is all about technology and its role in simplifying compliance by automating most of the redundant manual tasks. If we talk about customer due diligence and transaction monitoring mainly, setting automated alarms on both the checks, can help reduce the manual workload of checking each error separately, rather the system may get efficient enough to prioritize cases that demand immediate attention.
Refer to Authentic Data Sources
AML regulation is only effective if it is backed by relevant and authentic data sources. Banks should focus on using a consolidated screening solution with all authentic sources unified in one place.
AML Watchers gather data from all the official sources and clean the data and offer up to the minute updates to the user screening against the database. Implementing quality AML compliance in the banking sector demands integrity, real time update and accuracy across diverse types of screening databases.
Use a Risk-Based Approach
A major advantage of using a risk based approach is to ease down the hassle of resource burnout. By using a risk based approach, companies can set up a risk score based on their risk appetite and the system can then automatically track the cases that surpass the assigned risk score thus high risk cases can be prioritized and dealt with in a better way.
Ongoing Monitoring is the Key
When it comes to banking industry and transactional patterns, ongoing monitoring is the key to handle risk at any time of the customer journey. It would be a big assumption to say that a low risk customer would remain at the same level of risk.
As the probability of being a high risk person remains at large, ongoing monitoring helps generate immediate alarm at the detection of risk so that no threat goes unnoticed.
Ultimate conclusion?
As part of the summary we can say that despite being progressive and living in the 20th century, technology at large is not being implemented to master the AML compliance as it could have been done already. Crimes are getting smarter and so must be the compliance measures.
