With the wider acceptance of the cryptocurrency, increasing adoption of mobile and digital banking, there is a need for the financial institutions (FIs) to rethink how to monitor the money laundering transactions.
As global cryptocurrency adoption continues, regulators in countries like Saudi Arabia & Vietnam are opting for an extreme strict control over the exchange while other countries like Japan and Switzerland have accepted the cryptocurrency as part of the payment mechanism.
China, on the other hand, has maintained a strict control over the public market but at the same time, introduced the digital currency across four cities as part of a pilot program in April 2020, paving the way for the full electronic payment system in the country.
Today, many FIs are working with the Fintech companies to develop a more sophisticated software to improve the AML monitoring and reduce false hits. The true revolution, however, will likely be coming from fintech companies that can successfully pull the big data from both banks and non-banks industries without breaching the data protection requirements.
For better monitoring, FIs are encouraged to collaborate with other FIs, Fintech companies, credit bureau, exchanges, money changers instead of working alone. Greater efficiency, better standardisation and quality can be achieved if AML monitoring function is centralised. A strong support and influence from the authorities, however, is required.
Today, many FIs are still not ready to give up their AML systems and share their customer data. The authorities, on the other hand, are busy trying to balance the digital development and the disruption that it brings. Redeployment of workforce, reskilling and data protection have become the biggest concerns for most regulators. We have seen countries like Singapore trying to centralise the AML platform during the digitalised economy campaign in early 2017, but eventually gave up in late 2018.
Big data and artificial intelligence (AI) will be the keys for the success of AML monitoring in the future. The data should be coming from the different sources, including social media and ecommerce platforms for better tracking of payment patterns and movement. Algorithms & AI are necessary to monitor the customer behaviour and to prompt any potential irregular transactions. AI development is particularly important when FIs are moving rapidly towards digitalisation, customer self-services (like cash & cheque deposit) and P2P payment.
Going forward, the demand for clarity on the Ultimate Beneficiary Owner (UBO) is going to increase, which originally started with the tax purposes like FATCA & AEOI requirements. In June 2018, the fifth AML Directives (ALMD5) was published by the European Union which requires companies to maintain the UBO registers assessable by the public. All members had to comply with the Directive by January 2020.
The AMLD5 amendments were introduced to:
- Enhance transparency by setting up publicly available registers for companies, trusts, and other legal arrangements.
- End the anonymity related to saving accounts, safe deposit boxes, trade of art, wallet & virtual payment.
- Lower thresholds for identifying purchasers of prepaid cards and for the use of e-money
- Introduce stricter due diligence for countries with higher risk.
- Enhance the powers of EU Financial Intelligence Units and provide them with access to broader information for carrying out of their tasks.
- Further improve the cooperation and sharing information between anti-money laundering supervisors and the European Central Bank.
In summary, all FIs, Fintech companies and regulators need to pull their acts together to build a better and effective AML environment in the new digital world.