AML: Managing Compliance While Reducing Costs

By Ciaran Corkery, Horizon8

As financial organisations continue to pay exorbitant amounts in AML fines, along with huge cost outlays for current AML software solutions, Horizon8 proposes a new way of managing compliance and dramatically lowering AML costs.

Anti-Money Laundering (AML) is a frontier in the global fight against organised crime and terrorism. Banks and other financial institutions have an obligation to take measures to ensure the financial activities their clients and customers are engaged in are legitimate. While identifying suspicious behaviour is essential, investing in combative software solutions is often quite expensive.

While financial crime management and prevention is a costly exercise for financial institutions, failure to put appropriate AML processes in place can be even more expensive. Its well known that Anti-Money Laundering regulations globally give governments the power to levy extremely punitive fines for failure to comply, billions of dollars in fines are issued each year, and recent trends suggest that numbers are increasing. European regulators imposed the highest amount in fines by monetary value in 2019. Alongside worrying about fines, the regulations could lead to burdensome cost increases as personnel and technology are deployed to meet 6MLD (and all previous) requirements, due to come into force in December 2020, as well as the subsequent iterations of the EU’s AML framework. Lastly, companies need to consider reputational damage of non-compliance, a number of high profile articles and reports have surfaced in recent years that heavily criticise the failure of many obliged entities.

2019 was the second biggest year for Global AML fines since 2015, which suggests that regulators are flexing their power, and financial institutions are feeling the effects. Globally, fines for anti-money laundering and KYC violations accounted for approx. 60.5% of all fines, accounting for more than $6 billion USD, while penalties related specifically to sanctions accounted for 38.7% at $3.9 billion. The largest single fine issued in 2019 at $5.1 billion exceeded the offending bank’s annual net profit for that year. This is a price organisations can no longer afford to pay, and new, cost-effective solutions are desperately required.

It’s clear that combating money laundering is an area that must remain a high priority for financial institutions, however, the time may be upon us when institutions (of all sizes) ask if they are paying too much to meet their regulatory obligations. As technology and digital transformation move forward, can outdated, expensive and inefficient legacy systems be replaced with new, cost effect platforms capable of monitoring significantly more transactions per second while applying different anti-fraud rule sets to detect malicious behaviour?

With such hefty sanctions at stake, why are financial institutions often struggling to meet compliance obligations? In some cases they simply don’t have the capacity to carry out as many checks as they would like to. Quite often this is due to a combination of monetary cost, manpower constraints, licensing and business process difficulties that new technology and approaches can address.

There are a number of very competitive AML products on the market, and certainly these are changing and evolving all the time to keep up with ever growing market demands. However Horizon8’s valid8 AML offering differs in a number of ways:

  • You don’t get punished for screening more: valid8 AML boasts unlimited screening against our AML data sets (incl. sanctions / PEP’s/ Adverse Media and many more)
  • User Experience Matters: valid8 AML offers an intuitive user experience that makes it easy for anyone to use
  • Flexibility is better: valid8 AML delivers a flexible and robust rules engine to handle the most complex AML fraud scenarios; it also offers rule creation at client level all the way up to globally applicable rules.
  • Its Fast!: We believe in the growing need for real time capability. Our platform is able to handle 18,000 checks per second as standard with our base model, which, quite frankly is so much more efficient than traditional engines, this efficiency can lead to infrastructure savings
  • It works for you: Flexible hosting options available with both a SaaS and on premise solutions being released

When implemented alongside Horizon8’s Know Your Customer “KYC” product, valid8Me, financial institutions get a cost-effective two-tiered defence for KYC and AML against financial crime. Horizon8’s financial management suite of solutions can identify suspicious behaviour, reducing likelihood of AML fines, but also in reducing the costs of implementation and overall increasing legal compliance; a real win-win situation.

AML fines are incredibly costly and reducing exposure to them can have a dramatic impact on the bottom line. Governments and intergovernmental regulatory bodies are unlikely to ease pressure on financial institutions to have the right checks and balances in place; as a matter of fact regulations will likely continue to tighten in order to address the evermore sophisticated techniques utilised by money launderers. Going forward, Europe’s changing regulatory landscape will continue to pose compliance challenges to businesses big and small. It’s time for organisations to take a more creative look at how they manage their compliance.

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