More and more banks, financial services, and insurance (BFSI) companies are embracing the digital revolution and the benefits that doing so can bring to the financial sector. These modern solutions allow for the use of unified digital data management systems, complex analytics, artificial intelligence, and automation, among other cutting-edge technologies. With them, financial establishments can provide timely, cost-effective, and convenient services to their retail and corporate customers.
However, BFSI companies are not the only ones eager to maximize the benefits of digitalization. Financial criminals are also making every effort to exploit digital technologies so that they can carry out malicious activities. Fortunately, financial regulators are doing their best to catch up and update their compliance rules, all while taking current digital innovations and future technologies into account.
BFSI companies can also do their part by strengthening their anti money laundering programs. Doing so ensures that the transactions and customers that these companies take on are within their level of acceptable risk. Otherwise, they may risk falling victim to financial criminals and garnering fines from regulatory bodies.
The Cost of Compliance and the Impact of Financial Crime
In 2021 alone, the global cost of compliance reached USD 213.9 billion, which is a 16 percent increase from the previous year. The good news is that the total amount of fines and penalties awarded by regulatory bodies was halved in the same period, going from USD 10.6 billion in 2020 to USD 5.4 billion in 2021. Of this USD 5.4 billion, USD 5.35 billion was fined to financial institutions for non-compliance to anti-money laundering regulations.
In addition to the high cost of compliance, falling victim to financial crime presents significant setbacks to BFSI companies. The numbers above do not account for the reputational damage that comes with being involved in a scandal, which can lead to loss of brand trust within the industry and among clients.
By implementing state-of-the-art AML compliance solutions, organizations can deter crime and better investigate individuals attempting illegal activities using their facilities. Successfully fending off financial criminals can thus help BFSI companies preserve their image and maintain customer trust, decreasing the likelihood of losing their clientele to other banks.
Indeed, achieving and maintaining AML compliance in the digital age plays a key role in enabling a financial institution to keep up with the competition. Specifically, adopting an AML program that’s geared for the digital age enables BFSI companies to:
Increase Efficiency and Explore Opportunities for Collaboration
A unified data management system serves as the backbone for a modern AML program. This component enables a BFSI company to gather every bit of necessary information for analyzing transactions and potential customers as well as for building and investigating cases.
On top of this function, however, a unified data management system is designed to make it much easier for different departments under the same organization to share information. This, in turn, makes it much easier for teams with different expertise to collaborate and come up with solutions to shared challenges. Such synergy can greatly improve the overall efficiency of an organization’s processes.
Reduce Risk Without Causing Disruptions for Clients
Customer due diligence (CDD) and know your customer (KYC) solutions are integral to a modern AML program, as they enable financial institutions to determine the level of risk that is tied to each prospective customer. However, screening each customer is a resource-intensive process, especially if a bank is dealing with a deluge of applications. Doing applications manually can take a lot of time, and even the slightest delays can cause legitimate customers to go to other banks instead.
It’s imperative, then, for modern financial institutions to screen their customers in a quick yet effective manner. Modern AML solutions can do this by determining which customers pose higher levels of risk to the bank. These customer applications go through a higher level of scrutiny compared to those that bear relatively lower risk levels. Segregating the KYC and CDD process in this way enables financial institutions to effectively screen risky clients without causing any delay for low-risk customers.
Detect Hidden Patterns of Criminal Activity
AML solutions that are made for the digital age can make sense of patterns between suspicious customers and transactions. Using advanced analytics, an AML program can present complete and accurate data. This gives financial institutions a huge advantage over criminals, as investigators can use this data to see the big picture in the cases they’re handling.
Modern AML solutions also make use of machine learning, and this enables financial institutions to adapt to the constantly changing nature of financial crimes. Thus, banks and regulators can always stay a step ahead of the entities that perpetuate financial crime. Such a capability not only ensures that banks are safe from criminals at present, but also helps BFSI companies build a brand that their customers can trust.
Digital technology is ever-evolving. Unfortunately, malicious individuals are also keeping pace with the modernization of the finance industry. As such, banks and other financial institutions need to be quick to adopt innovations if they want to stay ahead of financial criminals’ activities. For BFSI companies that aim to grow and thrive in the digital age, a modern AML solution will be an invaluable addition to their infrastructure.
