Fraud and Financial Crime Management
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Recent revelations through major document leaks such as the FINCEN Files, Panama Papers, and Paradise Papers, as well as several instances of regulatory fines and consent orders on financial institutions, have highlighted the shortcomings of the current AML screening regime and drawn heightened attention from regulators, political authorities, media, and the public at large. This has prompted regulators and supervisory agencies to strengthen scrutiny; their emphasis is shifting from technical compliance to improving effectiveness of outcomes, which is raising the bar for FIs.
Geopolitical tension among the major economic blocs is adding to the challenges as sanctions are increasingly used in international relations. This means FIs now need to monitor individuals, entities, hostile governments, and unfavorable jurisdictions, as well as industries and business practices such as weapons manufacturing or drug trafficking in accordance with continuously evolving laws and regulations. There is added scrutiny on screening ultimate beneficial owners (UBO) because this has emerged as a popular channel for criminals to obscure their operations.
Digitalization of financial services is creating new products, channels, and business models. New players such as digital banks, payment and remittance providers, and fintechs are emerging and competing with incumbents. Digitalization is also reshaping customer behavior and expectations as they increasingly demand rapid onboarding, instant funds transfer, and a frictionless user experience. The pandemic has intensified these trends.
Growing regulatory scrutiny, continuously changing watchlists, and the complexities of an increasingly interconnected and international financial services ecosystem are exposing the limitations of traditional screening technology. FIs are struggling to screen growing volumes of customer and transaction data against a variety of watchlists. They are turning to modern technologies to reimagine screening operations and enhance screening efficiency and effectiveness in a compliant and cost-effective way.
Legacy screening solutions are not well suited to tackle the challenges of the digital era, and they create many challenges for AML screening operations.
Screening solutions prevalent in the market today were conceived in the early 2000s, when financial services technology was much simpler and rudimentary. They are not well suited to tackle the challenges of exponentially growing transaction volumes and data complexities of the digital era.
Financial Institutions and Corporates firms have a growing ethical and legal obligation to comply with fast moving international AML/CTF regulations. Failure to do so can result in heavy fines, suspensions or even imprisonment.
The regulatory changes for the EU AMLD6 and the US Anti-Money Laundering Act (AMLA), provide alignment across countries and regions, closing the gaps and loopholes for money laundering gangs and terrorist financing networks to launder funds via digital transaction channels. The broadening of AML regulations is relevant for both FIs and corporations.
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