The Financial Action Task Force (FATF) is turbocharging its efforts to use technology to fight crime – and pressing companies to do the same.
The global watchdog’s Digital Transformation Conference, in June 2022, marked the completion of several major projects aimed at harnessing new technologies.
These looked at opportunities for new tools to boost anti-money-laundering (AML) in the private sector; the role of data pooling and collaborative analytics; and how investigators can harness big data. The task force has also produced a digital transformation strategy for law enforcers.
But far from resting on its laurels, a FATF spokesperson told RiskScreen that it is also planning several new works on digital transformation. These include a project on countering laundering from ransomware attacks; and a further report, due in July, aiming to help financial institutions use collaborative analytics, data collection and other sharing initiatives.
Why collaboration is key
These projects build on earlier work such as the FATF guidance on digital ID, virtual assets, private sector information sharing; and extensive engagement with the private sector on these subjects through workshops and forums.
The FATF is also furthering its support to companies to explore the potential of AML/CFT technology, and has asked supervisors to issue better guidance on this, with help from Its recent report on actions to support technologies.
At the June conference, incoming FATF President Rajar Kumar committed to continuing to push for digital transformation, saying, “I see digital transformation as not a nice-to-have, but an imperative, if you will keep up and win against the criminals.”
Outgoing FATF president Marcus Pleyer added, “Automation, blockchain, analytics, big data, artificial intelligence and machine learning all offer huge potential to help authorities detect and investigate money laundering and terrorist financing – and assess the risks.”
Kumar also mentioned the importance of collaboration and ‘getting the right people in the room’ to harness technology.
Pleyer said: “If we operate in bubbles, we fail to address the problems. Connecting the dots across our specialisms lets us see the bigger picture and solve the big problems we face today and tomorrow.”
The FATF spokesperson added: “Sectors that need to work together include law enforcement, financial intelligence units, supervisors and policymakers. They need to work with the private sector, including financial institutions, technology firms and experts in finance regulation and supervision.”
How CDD and API tools fight crime
Industry experts welcomed the FATF’s detailed 2021 report highlighting technologies that can help fight financial crime.
Firms should take careful note of this report, as criminals’ use of technology continues to advance, so should our efforts to stop them.
The report highlights that advances in customer due diligence (CDD) tools and application programming interfaces (API) can make AML/CFT efforts faster, cheaper and more effective. There are still barriers to adoption, but these can be overcome.
Emerging technologies allow financial firms to identify and manage crime risks more quickly and effectively; while supporting data collection, processing and analysis. They can also support firms’ onboarding practices, relationships with authorities, and accountability.
More accurate identification systems, monitoring, recording, and information sharing could also boost crime-fighting efforts, which are behind the curve in some firms, said the report.
Better use of client screening and matching technologies could boost compliance processes significantly. Reliance on out-of-date and regionally irrelevant sanctions, politically exposed persons (PEP) and other lists is an area for improvement.
Another obstacle is the low awareness and limited knowledge and expertise about these technologies among AML professionals.
Remaining challenges
The report emphasised the importance of using risk-based as opposed to risk-targeted CDD.
The former can be inaccurate and irrelevant, relying heavily on human input and defensive, box-ticking approaches. Meanwhile, legacy systems are static, obstructing a real-time view and the more detailed analysis available through large-scale data processing.
Such a defensive approach is inefficient, costly and burdensome, and does not reflect the real ML/TF threats to institutions, said the FATF.
It undermines a genuine risk-based approach by over focusing on low-risk situations and depleting attention on new or emerging risks. The result is financial exclusion; unnecessary costs and friction to customers; and undiscovered money laundering and terrorist financing.
Overcoming data protection challenges
The private sector has also identified that data protection is a key barrier to innovation.
The FATF has engaged with national and international data protection and privacy (DPP) organisations to encourage greater compatibility of DPP and AML requirements.
At the conference, Pleyer stated that digital transformation relies on a culture that encourages responsible innovation while ensuring protection of individual data rights.
Keynote speaker, Deputy Commissioner James Dipple-Johnstone of the UK Information Commissioner Office, said AML and DPP are not mutually exclusive and can co-exist. He recommended AML initiatives that account for privacy concerns at the outset. The FATF is planning yet another report covering data protection for July 2022.
With regulators and companies now adopting AML/CTF technology, it’s an exciting time in this space and no organisation should be left behind.
The latest automated digital tools are available for companies right now
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RiskScreen’s automated AML & KYC screening solutions are already being adopted by an increasing number of businesses to help them to meet and even surpass their regulatory obligations.
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