Many financial institutions are ramping up their anti-money laundering (AML) efforts to meet compliance requirements and to prevent financial criminal activities from taking place in their establishments. In 2021 alone, the global financial industry is projected to have spent a total of USD 213.9 billion in compliance costs, which is 16 percent higher than that of the previous year. This investment seems to be paying off, as the total cost of AML fines went down from USD 13 billion in 2020 to USD 2.8 billion in 2021, which is a reduction of around 78 percent.
Despite this development, it’s imperative for financial institutions to quickly find the perfect balance between their anti-financial crime efforts and compliance costs. This is because the total cost of ensuring compliance with various regulatory bodies now averages at around USD 10,000 per employee for a large financial firm. Worse, this amount is expected to keep on rising as the world contends with the effects of the pandemic.
How Can Investing in the Right AML Solution Benefit Financial Institutions?
Anti-money laundering and financial crime and compliance management (FCCM) programs are often employed to meet regulatory requirements and to deter and detect financial criminal activities. That said, the additional benefits of these solutions can be far-reaching. For one, these programs can reduce the cost of following compliance guidelines and minimize the chances of incurring damages due to being involved in financial criminal activities.
But these aren’t the only advantages to embracing these solutions. In fact, implementing the perfect AML solution can also make your establishment work more efficiently by:
Eliminating Operational Silos
Many legacy core banking systems rely on silos to manage their data and operations. Put simply, these systems make use of a disparate collection of applications, processes, and methodologies that fulfill specific purposes.
While this model offered plenty of practical advantages prior to the wide adoption of digital solutions, data and operational silos are no longer compatible with today’s compliance rules. Siloed systems feature plenty of gaps that make it particularly challenging for financial institutions to smoothly address the requirements set by regulatory bodies.
In situations like this, investing in AML solutions that offer improved infrastructure and easier global implementation will prove to be more cost-effective in the long run. This is because these solutions are designed to meet the current regulatory requirements, adjust for future changes in the said guidelines, and manage different scenarios that can make financial institutions more vulnerable to criminal activity. At the same time, AML solutions that do away with operational silos enable banks and other financial organizations to collect, store, manage, and share data across different departments and functions under the same company.
Expediting the Know Your Customer Process
Knowing your customer is one of the first steps in ensuring that malicious entities cannot gain access to your financial institution. This stage is when you determine whether the risk level that comes with accommodating a particular customer is within the threshold that the bank can safely accommodate.
Unfortunately, gathering information about an individual consumer or a corporate customer can be a tedious and time-consuming process. Banks that take too much time in vetting their prospective clients may risk losing these customers to competitors who can approve their applications more quickly.
To address this, modern AML solutions provide banks with a systematic and efficient approach to scrutinizing the customers that want to access their financial services. Often, these KYC programs are capable of ranking applications according to the level of risk that they bring to the company. Then, the people or groups that present lower risk levels go through the regular vetting process, while those that bring elevated levels of risk undergo higher levels of scrutiny. This capability to prioritize helps speed up the KYC process while maintaining or increasing the effectiveness of the bank’s AML system.
Unifying Your Core Banking System
Overcoming data silos is a significant challenge for financial institutions that still rely on legacy systems. If your bank still uses silos, then you’re probably dealing with an assortment of data in different formats and even languages. This lack of data consistency can make it more difficult for your organization to share crucial information with different departments.
Fortunately, modern AML solutions have integration processes and middleware that can help bridge the differences between the data collected and maintained by the various departments in your bank. This, in turn, will make it much easier for your organization to collect, compile, share, and analyze customer and transaction information.
This advantage not only improves your bank’s capability to detect and deal with financial criminal activity, but also enables your organization to fully utilize the data that you have to make informed business decisions. On top of identifying novel modes of financial criminal activities, you can also use the interconnected data that you have to address customer needs and acknowledge emerging trends before your competitors do.
Acquiring an AML solution that suits the digital age is a significant investment. But given the importance of cybersecurity in the financial industry, there’s no question that it’s a necessary step to take. With the right software, your organization will be capable of meeting the current needs of your customers and accommodating the changing guidelines that regulators use. Make the shift today by equipping your institution with a modern FCCM and AML solution that not only suits the times, but also helps you prepare for the future.
