AML Automation: What Is It? Do You Need It?

Combating the persistent issues of fraud and money laundering requires many companies to jump through – or carefully step through, one foot at a time – complex compliance hoops. 

Not for no reason, though. These government-mandated hoops are put in place to keep the world safe from funding criminal operations and terrorist organizations worldwide. Navigating them can be a time-consuming and expensive process.

One way to cut down on the resources needed for compliance, however, is through automation.

What Is AML Automation?

AML automation is the process of having AML software automate money laundering prevention and compliance tasks for an organization. In practice, this usually means combing through submitted data for risk-associated markers – including high-risk individuals and suspicious transactions, through transaction monitoring.

AML programs also include training and designated staff that facilitates the monitoring of a company’s user base for entities and transactions that potentially lead to financial crimes, and to compliance risks. 

What Is AML?

Anti-money laundering, commonly referred to as AML, is a set of statutes first put in place by the Bank Secrecy Act of 1970. These statutes, updated repeatedly and echoed by many world governments, require certain entities – chiefly financial institutions – to monitor and record who uses their services, and to monitor their activities for red flags associated with financial crime.

Though the requirements for compliance vary from country to country, generally they include:

  • Customer Due Diligence (CDD)
  • Enhanced Due Diligence (EDD)
  • ongoing risk-based assessment
  • logging of relevant transactional information
  • education on AML laws for staff and customers
  • submission of Suspicious Activity Reports (SARs)
  • appointment of a designated compliance officer

Many – though not all – of the on-the-ground practices associated with this process can be automated through software.

Other than the obvious time-saving that automation through software offers, there are financial advantages to integrating an AML solution into your security stack.

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Why Use Automated AML Solutions?

An automated AML process helps preserve businesses’ bottom lines by cutting down on resources devoted to compliance, as well as lowering the chance of reputational damage and fines incurred through non-compliance.

According to Napier, money laundering compliance alone cost international businesses nearly $214 billion in 2020. That figure is just what was spent for companies to bring themselves in line with existing regulations. It does not include any actual losses to money laundering, ROI impacted by reputational damage, or fines – all of which are considerable.

Automating some of these processes allows for streamlining and optimizing operations, working to protect your bottom line.

Benefits of Using an Automated AML Solution

The pros of AML automation include reductions in costs, fewer non-compliance fines, freeing up staff time and better overall fraud prevention.

In the course of an EDD or CDD procedure that make up a large part of any organization’s AML checklist, key identifying information of a customer has to be confirmed. Here, the advantage of automated software is obvious. Rather than having to manually check submitted documents for signs of forgery, checking pertinent PEP and other sanction lists, software can help bring down necessary work cycles.

Studies comparing larger EMEA companies that spent 50% of their compliance budget on AML technology versus those that spent 50% on compliance labor indicate that there are obvious benefits to integrating as much automation as possible into compliance programs.

The LNRS study in question found that companies that had handed over the bulk of CDD and EDD processes to software solutions had seen an average $122 million reduction in overall compliance costs.

As well as this, the negative impacts of integrated AML compliance – namely onboarding friction and internal manual workload increase – were reduced by up to 25% with an automated AML solution.

Is AML Automation Required?

Though not explicitly required by mandates, automated AML software is an implied necessity by the complex nature of AML compliance. It helps a company scale its AML efforts with efficiency.

Regulators are not unaware of the costs associated with BSA AML compliance. Their priority is a healthy economy as much as it is protection from criminal activity.

The Securities and Exchange Commission expects companies to have in place “policies and procedures that can be reasonably expected to detect and cause the reporting of transactions”, and there is no specific requirement for compliance-aiding automation or software.

Despite this, it is explicit that any controls put in place must be updated alongside the fast-moving regulatory updates, and that adherence to the law needs to be constant and vigilant – and the only way to do this is some level of automation.

Keeping pace with these updates is best handled by software, particularly when it comes to things like:

  • updating compliance platforms to encompass new dangers identified within the ecosystem
  • reviewing existing risk-scoring frameworks to ensure efficacy, as required explicitly by the SEC
  • reviewing existing ML-based risk screening procedures to make sure thresholds meet regulatory requirements

Moreover, assessing risk as required by CDD is a delicate process that, if undertaken by manual review, would add exponential amounts of friction to user experiences, especially for high-volume ecosystems. Not to mention the extra workload for risk analysts.

Here, many fraud-fighting solutions do a lot of work on the way to compliance by automating the risk assessment process.

How Can SEON Help with AML Automation?

Not only can SEON’s AML checks help bring your firm into compliance, but the risk-based assessments cut down on the friction associated with high security, automatically.

Through a process of dynamic friction for frictionless authentication, SEON keeps your customers flowing smoothly through their user experience, only throwing up security fences when necessary.

By taking the data points required by CDD, such as the customer’s name and address, and enriching them, SEON develops an accurate picture of whether that customer poses enough risk to put them through the EDD process.

If they do not reach that risk threshold, they are instead treated to as low-friction a process as your firm wants and your mandates require. This process happens automatically, only pausing the journeys of those customers who need more scrutiny for compliance.  

SEON’s risk scoring is also fully customizable, allowing users to adapt risk thresholds with ease in order to stay compliant with changing regulations.

For example, transactions over $25,000 can be flagged to comply with FinCEN’s guidelines for Suspicious Activity Reports (SAR), or whole geolocations can be flagged in cases of emerging sectoral sanctions, as is currently the case with Russian entities.  

Where a customer is found to be an untenably high risk – say, by appearing on a PEP list or showing transactions that meet the threshold for suspicion – that event may need an SAR filed. SEON automatically creates logs of customer transactions for this kind of reporting, so that the designated compliance officer can easily submit pertinent data as required.

Full AML compliance is a multi-handed effort that needs both digital and analog solutions. SEON is the kind of software that provides as much automation as possible, then facilitates the handover to the analog counterpart wherever it is required.

For industries dealing in securities that fall within the jurisdiction of AML laws, and thus are prone to potentially massive noncompliance fines, SEON is an excellent springboard for jumping your customer base through regulatory hoops, but also for safeguarding those hoops from fraudsters.

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Author avatar
PJ Rohall

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AML

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