NextGen AML: Getting there


NextGen AML: Getting there

A holistic approach to transform AML

In the previous blogs, we have identified issues with the current AML framework. We have discussed changes in five driving areas that can make AML efforts smarter, increase their impact and reduce operational waste. The challenge now: the entire financial ecosystem, from regulators and enforcers to FIs, must start taking action on all these good ideas at once and orchestrate them into solid momentum.

Current efforts by FIs to fight money laundering through their systems are costly, without as yet achieving the desired effect on financial crime. The complexity and consequences of financial crime call for broader solutions. A better AML approach would be driven by impact, become smarter and digitalised, turn wasted efforts into a connected defence, and prepare an adequate response to emerging crime schemes. What’s needed is a new perspective about how financial crime should be combatted in a joint effort spanning the whole chain. Still based on the legally bound roles of actors, but with enhanced and better aligned strategies. This is what we call NextGen AML. Getting there requires five change in five driving areas.

NextGen AML whitepaper

Activating the ecosystem

AML is the shared responsibility of all the public and private parties in the financial ecosystem. This includes FIs, legislators, supervisors, FIUs and law enforcement agencies. Better cooperation within the ecosystem will make the overall AML effort more efficient and effective. Existing public-private initiatives need to be incentivised, intensified and coordinated. Obstacles to such cooperation must be removed. Parties must draft a common ‘plan of attack’, based on an upgraded NRA. To do so, they need safe ‘highways’ for sharing information. Above all, a national AML coordinator is needed to steer the many existing initiatives and ensure that public private cooperation gains momentum.

Leveraging Intelligence

AML teams should be enabled to respond to the latest intelligence from across the ecosystem, for example data from criminal investigations, detailed modus operandi, actionable typologies, tactical information related to specific networks and schemes, and general intelligence on money laundering patterns. Sharing of such information should become the default and large scale, and legislative room must be made for it. This intelligence can be codified into a technical procedures, by a team of ‘purple people’ (technical specialists and financial crime specialists in 1). More intelligence and better processes for using it ultimately creates scope for FIs to give up current FTE-heavy blanket screening.

A keen eye on output

The ultimate aim of AML efforts is less money laundering, more justice, so parties need to look beyond output like unusual transaction reports and focus more on quality. The AML approach must become more risk-based: not screening everything so as not to miss a single risk, but directing efforts where risk is highest. This means regulators must grant FIs more room for error, and look more at what they’re doing right. Basing their assessment on norms agreed with ecosystem partners. These norms should incentivise innovation. FIs should not feel limited by scrutiny (such as lookback obligations) to do a better job on the AML priorities.

Better and shared data

To make the most of data in AML processes, FIs must climb the data maturity ladder. This starts with data remediation: improving the quality of the data by removing inaccuracies, standardising formats and moving all data to a centralised (cloud) location. Next is data optimisation: keeping the ‘clean’ data up to date, automating data management processes and enriching data with contextual info. The final, crucial step is data sharing among ecosystem partners. A national data institute could be established to uphold data standardisation and quality and to offer FIs’ clients a ‘safe’ where they can safely store their data and manage who accesses it. This could form the basis of an industry-wide KYC utility.

Smart use of smart technology

Advances in technology, and especially AI-based analytics tools, can revolutionise AML, promising faster and better analysis and fewer false positives. But to truly benefit, FIs must transform their legacy IT into a modular cloud platform that can accommodate further innovations as they emerge. Also, they must develop a comprehensive and integrated tech strategy — preferably together — for dealing with AML in the next decade. Regulators must keep abreast of new technologies and create a safe space where they can flourish.

Managing the change process together

Holistic approach

Our NextGen AML perspective is holistic, involving quite a lot of changes in the five areas highlighted above. Changes, moreover, that are interdependent. As such, it will require many conversations, loads of complex process redesign, shifts in relationships and a range of transformation efforts to come to a future AML framework.

Tactical and foundational change

Some change is and will be stepwise and tactical. For example when it comes to achieving more cooperation in the financial crime ecosystem, incorporating more intelligence into AML monitoring, and moving up the data maturity curve. Other essential change will be very foundational and will break through barriers. Examples are creating clear legal grounds for data and information sharing, developing mature regulatory perspectives on outcome effectiveness, and taking the step towards AML cloud platforms.

Debating roles

This kind of foundational change will have to be driven by a debate on the roles and incentives of each of the players in the AML chain. The gatekeeper role of financial institutions is one role that certainly needs further debate and clarification. What do we really expect from FIs in the fight against financial crime? But beyond that, other questions are waiting for well-considered answers. For instance, which party will be mandated to actively orchestrate actions and alignment in the full AML chain?

Focus on the future

The transition to NextGen AML calls for foundational and strategic thinking. It is that type of thinking and alignment that we would like to spark and facilitate. Because we believe that the current focus on fixing yesterday’s compliance issues should be recalibrated to the future. Some of the change and debate is already ongoing, but we need to go faster and deeper.
Our blog series is primarily written from the perspective of today. Likewise, discussions in the field are often focused on being more effective in the current framework and state of the business. The future of financial crime will, however, be even more complicated and challenging. Criminals will continue to find new methods to hide and exploit their funds of illicit origin. Amid the fast-paced changes in banking and payments that are ongoing and coming up, with supervision often lagging behind, there will be plenty of opportunity for criminals to innovate their money laundering schemes as well. Traditional “technical compliance” is only part of the answer, and by nature it is almost always too little, too late.

The way forward

In our opinion, the level of AML enforcement that we can achieve within the current AML framework is unsatisfactory. Even if it does result in compliance with current regulations. Society deserves better. All parties in the field should therefore support each other in finding new approaches to fight financial crime, with an open mindset on innovation.
Because the ultimate goal is not to prove 100% compliance to a law and avoid public and political scrutiny. The responsibility for all involved in the AML chain, either directly and indirectly, is to think and act beyond mere compliance. To create an environment that keeps up with the criminals, or preferably, stays one step ahead of them. The next horizon for AML is to do everything we can to maintain a financial system that is safe, trustworthy and accessible. For this generation and the next. We are ready to deliver for this future. Are you in?

Download the NextGen AML Whitepaper and discover new ideas on transforming the Dutch anti-money laundering effort.

Click here for an overview of the blog series

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