ReleaseWire Connect

There is a lot of talk about Compliance Risk and how to mitigate this and minimize it. In fact, 'compliance' can become a word that has such broad usage that many forget its most important meaning. That's especially so as the scope and complexity of what non-compliance means is constantly being updated. Take the new rules that came into force in June 2021 in Canada, significantly increasing the risks and complexities associated with non-compliance. The update principally concerned Know Your Client requirements - being able to verify the identity of the persons or organizations that the business is dealing with in certain circumstances - and includes obtaining beneficial ownership information. Non-compliance with these rules is likely to mean administrative penalties as well as a range of other consequences.

AI-driven AML Transaction Monitoring is increasingly in demand as regulators all over the world crack down on banks and financial institutions where financial crime is concerned. Recent years have seen record fines being imposed globally for failures in anti-money laundering compliance and this is triggering unprecedented demand for protection, such as software that offers AML Transaction Monitoring. Financial institutions today are significantly increasing investments made in measures to reduce exposure to financial crimes like money laundering - most recent figures indicate American banks are spending up to $24 billion. They are closely followed by counterparts in Europe where $20 billion a year is being invested in compliance solutions such as AML Transaction Monitoring.

The Basel AML index is an annual index ranking global FinCrime compliance efforts. While the findings of the index as a whole show that global progress on tackling financial crime is stalling, Finland has retained its place as one of the top ranked countries. According to the Index, factors such as the improvements that have been made in implementing and enforcing compliance frameworks remain overwhelmed by persistent problems such as corruption and a lack of corporate transparency in much of the world. So, the global outlook is not that positive but for Finland, the rating remains high.

Many obstacles exist when it comes to applying Anti Money Laundering law to Crypto. However, that doesn't mean it's a challenge that lawmakers are shying away from. In fact, a recent draft of EU Anti Money Laundering law specifically refers to money laundering through Metaverse, DeFi, and NFTs. The aim is to target huge crypto transactions, as well as the vehicles that can be increasingly used for money laundering in virtual environments, such as Metaverse, DeFi, and NFTs. However, this legislation is far from finalised and in fact still seeks to find consensus among all the various political elements in the EU.

There are many initiatives being developed across the Nordic region to help improve accessibility to digital banking. The P27 is a joint initiative by six banks in Denmark, Sweden and Finland aiming to make cross border payments in the Nordics swifter and more efficient - and also to deliver at lower costs. The P27 follows in the footsteps of similar initiatives in other jurisdictions that have been able to deliver on the goal of making instant cross-border payments a reality. One particularly beneficial impact of the push towards instant cross-border payments is that it could actually make AML Transaction Monitoring easier too.

Decentralised finance (DeFi) is increasingly the focus for regulators and lawmakers across the EU. The European Commission has now started to look further into DeFi, in particular when it comes to developing, deploying and testing technological solutions for "embedded supervision of DeFi activity." This is all about transaction monitoring and using tools like AML Transaction Monitoring Software to provide more insight and transparency where this type of finance is concerned. The way that the European Commission is proposing to implement this is by studying Ethereum data, which is the biggest settlement platform of DeFi protocols.

We are entering an era where monitoring transactions in real time has become vital. However, post-event transaction monitoring systems still have a key role to play in AML Compliance. Given the increasing complexity of transactions today and the pressure to ensure compliance standards are being met, post-event monitoring is still crucial. This is, essentially, a tool for less critical situations (i.e., where payments may not raise an immediate suspicion), which involves regular reviews that may take place on a weekly or a monthly basis. Indications of unusual activities will arise over time through the monitoring of patterns. Post-event transaction monitoring also involves looking at completed payments alongside money laundering typologies to see where more investigation is likely to be necessary.

Given that money laundering is human-generated - and the Metaverse is a human creation, full of (virtual) humans - it's perhaps no surprise that this is the next big challenge for AML compliance globally. One recent study found that 17 million Ethereum transactions between Q4 2017 and Q1 2022 were associated with both criminal and licit operations. Last year, cyber money laundering activities increased by a third and there are now billions in cryptocurrencies being laundered every year. Part of the reason for the acceleration in crypto money laundering is that many of the systems being used to combat the issue are hopelessly out of date. That's why Anti-Money Laundering Software has such a big role to play in tackling financial crime in the Metaverse.

The global payments ecosystem is thriving, despite the challenges of recent years. Last year payment industry revenues grew by 11%, reaching a new high of $2.1 trillion globally. The sector is expected to top $3 trillion by 2026 and growth is strong all over the world, from Europe to the Middle East, Africa and North America. This is being driven largely by fee-based income, which is increasing at a faster rate than net interest income and now makes up more than half of the total revenue figures. FinTechs and startups have had a big role to play in helping to evolve the global payments ecosystem in recent years, creating opportunities for new ways of thinking - such as commerce facilitation, which goes beyond the checkout to enhance the entire commerce journey.

As financial services have developed increasingly quickly, thanks to a combination of disruptive technology and digital transformation, there are clear signs that many organizations in the financial services sector are struggling to keep up. The speed at which money can be moved today, and the distances it can cover, have put a lot of pressure on firms when it comes to AML Compliance. It could potentially take just a few hours for someone to open a bank account, move funds globally, and then close the account again. The swiftness of transactions means that real-time transaction monitoring is now not just a 'nice to have' but an increasingly vital part of the future of AML Compliance for businesses looking to reduce their exposure to financial crime.