Overcoming the AI Barriers to Combat Fraud and Money Laundering

January 2021 Jane Jee, CEO at Kompli-Global

The scale of financial crime is vast and continues to grow, affecting everyone. The complexity of the international financial system, as well as variations in legislation at a country level have created a suitable environment for money launderers, fraudsters and financial terrorists to hide and move funds between jurisdictions without drawing attention.

Although investment in financial crime prevention solutions for Anti-Money Laundering (AML) and fraud have been mandated by regulators for decades, penalties continue to plague regulated entities. Not only do such organisations need to use more effective systems, but they also need encouragement from regulators to incorporate new solutions without fear of punishment.

At the same time, rapid globalisation and innovation in payment services have set off a technology explosion, spawning new strains of financial crime to be grappled with. To address these issues, governments around the world have implemented strict, multi-layered local and global AML legislation, alongside regulations stipulating Know Your Customer (KYC) verification. So, to continue operating in regulated markets, financial services companies must take all measures to comply with these standards – but how can organisations still ensure they have the required procedures in place, save time, money and drive a new era of automated compliance?

What are the barriers to technology adoption?

While excitement about the impact of AI in financial services is mounting across the industry, there are several barriers to AI uptake that we see time and time again.

Historically, banks have struggled to make sense of the data they collect and house in silos with limited visibility across the entire organisation. They are typically conservative entities and do not naturally embrace new, not very well understood technologies. The barriers can reside in compliance departments, legacy systems and even legacy thinking and lack of training to keep up with compliance and regulatory changes, but also with evolutions in criminal tactics.

Additionally, banks are under pressure from fintechs and challenger banks and their margins are getting squeezed, as they look to reduce costs. Compliance is an increasing cost, so there is a need to control and - if possible - reduce these outgoings. However, compliance needs to be seen as an investment, not just a burden. Investment in technology is the only way for this to improve but this may mean investing properly and adding more headcount in the short term, to get long term value.

How an AI powered approach is a competitive differentiator in driving compliance

A new wave of 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.

Such AI powered 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. It is sophisticated analytical technology and a powerful ally in boosting operational efficiency, delivering a hyper-personalised customer experience, detecting potential instances of fraud and misconduct – among many other applications – thus, raising and reporting these instances to ensure regulatory compliance is easier for compliance teams.

Just like any other tool, AI 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. However, discussions on AI – or Augmented Intelligence as we prefer to call it – must focus on the technology’s effects and benefits instead of fears about the technology itself.

The beneficial uses of AI often get overlooked due to a general lack of understanding. However, this is where the value of partnering with the right provider, such as Kompli-Global, is vital as we take on the heavy lifting and use our expertise to communicate the information required efficiently and effectively. This ensures that compliance experts have more time to focus on those cases that are flagged.

It is also essential to communicate that compliance teams continue to have a significant role to play in most organisations, and the deployment of AI should be used to enhance these teams and provide better productivity and job satisfaction, not replace them. Working together, AI and human managers can enhance each other’s complementary strengths to deliver frictionless, accurate and comprehensive intelligence on organisations and their people.

Now is the time to act

The pandemic has led to an increase in fraud, as well as an exploitation of government funds, which is creating new sources of proceeds for illicit actors. However, COVID-19 has also accelerated digital transformation and the burden brought about by the crisis determined regulators to acknowledge that regtech provides significant opportunities to manage some of the issues presented by the pandemic, thus 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 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. However, there is still a certain degree of reluctance because people do not fully understand the value of AI in business, but I feel we are breaking through.

Until the industry is ready to embrace this fast-moving technology and its value, 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.

To find out more about how we can support regulated entities, please contact us