Anti-money laundering (AML), is at the heart of a lot of compliance regulations issues for firms to face. A lot of financial authorities, like the Financial Conduct Authority, have the three main goals of protecting the customer, anti-money laundering and counter-terrorism financing. The last two tend to come interlinked, which is why money laundering is considered such a serious topic in financial regulations.
So, what are the particular challenges of AML today? And what can be done to curb those challenges? We explore in this guide.
Managing AML with technology
A problem for a lot of regulators is the speed at which tech and its operators learn and evolve. This is a problem when it comes to cyber security. Hackers are learning new ways around security as it is being developed, which means problems like ransomware, the security of customer data, etc. are all a concern for regulators like the FCA.
If they so choose, hackers have the means of going in and out of a firm’s databanks without leaving a trace and can then fund whatever they want with the stolen assets, like money laundering and terrorism funding.
It’s important that financial firms and their fintech products and services are fully optimised to create as secure an environment as possible.
Accommodating cryptocurrency
The FCA in particular is not very keen on cryptocurrency. As per a statement on their website, they have outlined their concerns with cryptocurrency as not being safe for consumers and often being a front for money laundering and terrorism funding. The FCA website calls crypto assets “very high risk, speculative investments” and they aren’t alone.
Nevertheless, cryptocurrency is rapidly becoming a common currency in the days of 2022, and a lot of financial firms are turning their attention to the new currency. This means that there is an increasing need for AML and Counter-Terrorism Financing (CTF) regulations.
In particular, the rise in popularity of e-wallets and Central Bank Digital Currencies has led to questions around privacy and regulation due to the anonymous nature of virtual asset networks. This anonymity is of course attractive to those looking to engage in money laundering and terrorism funding, so it would be prudent for financial firms to keep up to date with the ever-changing landscape of regulations where they concern cryptocurrency and digital assets.
Navigating new regulatory landscapes
As mentioned, the landscape of regulations is forever changing. This is partly due to the ever-changing nature of technology and society. Money feeds into every societal issue in some form or another, and the fintech industry in particular is going through a phase of rapid growth.
Regulation cannot keep up with all these changes. The famed slow nature of law and regulation making cannot keep up with the changes in priorities when it comes to societal issues and the speed of changes in technology. Regulators can disagree on what is a discrepancy, especially when it comes to AML and CTF. An alert for either in one system might not be cause for concern in another.
In the meantime, between 2% and 5% of global B2B cross-border payments are under investigation and regulators have to consistently pressure firms to comply and plan for their misconduct risks as best as possible.
Collaboration between regulators and Regtech
However, there is a silver lining there. Another product of the age of digital assets and financial technology is the rise of Regtech. Regulation technology is technology that uses IT methods like AI and algorithms to enhance and automate regulatory and compliance processes. The use of Regtech should allow some of the weight to come off both authorities and firms as it automates processes and strengthens regulations. With regulations strengthened firms will better be able to keep track of any AML or CTF risks and manage them better with the help of Regtech automating practices.
Conclusion
AML and CTF is a very big concern of financial industry authorities like the FCA, and this concern extends to businesses outside the financial industry. Any business with stored customer data, banking details, or managing their money online is of concern when it comes to AML and CTF. Keeping up with regulations is a good way to make sure that AML risks are minimised across firms.
