February 15, 2022
Back in 2021 the Financial Action Task Force (FATF) put out a paper on the opportunities and challenges that new technologies are bringing to Anti-Money Laundering (AML) and counter-terrorist financing (CTF) efforts. If you are unaware of who the FATF is it may be worth your while to investigate farther into it. For now, though, let it be known that they are an independent inter-governmental body that defines the rules and procedures that need to be in place to prevent these two criminal activities.
Technology advancements have come a long way since they started to come onto the market. But with everything new comes bad, and new AML tech is no exception. With that being said there are some substantial opportunities that have arisen because of the tech, as well as some challenges that are going to rear its ugly head. Let us go over some of the opportunities first, then we will hit on the challenges that will have to be faced head on.
Any opportunity to prevent crime should be on the forefront of all business operating plans. The FATF found though that the majority of big corporations do not use any of the innovative technologies when they come out, which should be confusing to all of us. The one point that they verified that is no surprise to anyone is that multi-national financial institutions are the sectors that want, and use, every piece of new tech that is placed in front of them.
It was found that the majority of the new tech was used to help prevent, and fight, AML and CTF issues. That should be expected because across the globe criminal activities are on the rise. Maybe the crime has been the same the entire time, but the tech has found a way to red flag them. The opportunities that can be had are extensive. We are going to discuss a few of them below before we move on to the challenges that will surely follow the implementation of new systems and safety programs.
- Artificial Intelligence (AI): We have just barely broken the tip of the iceberg, so to say, when it comes to AI and what it can actually do. AI systems are currently being used in many financial industries, such as chat bots and online application processes. Machine learning is a part of this recent technology that is coming to the front of many businesses. It brings a way for companies to automate their processes that would otherwise take more labor costs, but AI also brings the ability to monitor systems 24 hours a day, 7 days a week. Since AI is a computer system it will use mathematical equations to check numbers and facts. Any AML compliance issues can be brought to the attention of the compliance officers and can be stopped before it gets started.
- Natural Language Processing (NLP)-This is a part of the AI system that can mimic human languages in real time. If there are any missing sections of a conversation the AI system will use interpretative skills to fill in the blanks. It uses NLP to connect the dots to help complete a discussion that would otherwise be tossed into the garbage due to it being incomplete.
- Distributed Ledger Technology (DLT)-If you have heard of Blockchain, or seen it in action, this is what this tech is all about. It puts all information that is collected throughout the business day to a block of information on a virtual server. This information is added to the information from every other company on the server, making it a public ledger that all companies that need to see it, can. And it cannot be changed in one location without numerous others picking up on it.
These are three of the main opportunities the new tech brings to the table. There are many more, but we need to move on to some problems that will arise from all the new tech that is implemented.
There are just as many challenges as there are opportunities associated with innovative technologies. As with the writings above, we do not have enough room to cover all the information that we need to cover. You can always go to the paper and read it through from front to back, but until you do that lets cover the two most prevalent issues that will need to be faced.
- Regulatory Changes: Supervisors, managers, and owners need to be able to understand the modern technologies as they come to light. It was found during this investigation that most do not have the knowledge to understand the AI systems, let alone to be able to implement them into their operations. This comes down to one thing. The authorities and regulators of AML and CFT do not support and educate the corporate people that need to know more about the technology. The supervisors that are tech wizards and can adapt to anything are able to understand and implement AI, but they still struggle to maximize the potency of it.
- Operational Changes: These are changes to the daily operations of the financial institutions. Adjustments will need to be made, training will need to be completed and spread around to all that need to know, and programs and equipment will be added into the processes that the company undertakes. This may be the area that will prove to be the most challenging because those that have been in the business for awhile have set ways that they like to operate. This way of working will not mesh with the new way of things, making it a hard transition.
This article has only been able to touch on the subject of opportunities and challenges that come with modern technology. There is no doubt that innovative technology to combat crime is needed because the illegal activities are using innovative technology on their side of the fence. Without implementing latest programs and AI systems the people in the financial industries will never be able to keep up, let alone win the battle against it.