The passage of the Anti-Money Laundering Act 2020 in January was a warning for bankers. The most significant addition to U.S. financial crime regulation since the Patriot Act became law 20 years ago, AMLA 2020 brings heightened regulatory and enforcement scrutiny.
Banks must take action now to evaluate whether their current programs are up to the stricter rules.
AMLA 2020 is aimed at thwarting criminals such as drug traffickers, terrorists, and others who use the banking system to launder dirty money. The law requires the U.S. government to set national anti-money-laundering and counter-terror financing (CFT) priorities. It expands the power of the Financial Crimes Enforcement Network and grants regulators and law enforcement agencies more authority to fight financial crime. It increases congressional oversight of the Department of Justice and Treasury, including FinCEN. In the process, the AMLA 2020 creates hundreds of new requirements.
An important deadline is coming up fast. By July 1, 2021, the Secretary of Treasury must publish the U.S. national AML/CFT priorities for US regulatory and enforcement agencies. Regulators will then examine how financial institutions have adapted their AML/CFT programs to align with U.S. national priorities.
High on their list will be evaluating how your bank has updated its AML/CFT risk assessment policies and procedures. They will want to know if the national priorities present risk to your financial institution. How is that risk being identified at your bank? How are you tracking, managing, and mitigating it? Without these answers, your bank’s approach to AML/CFT risk assessment will be insufficient, which could lead to hefty fines and financial losses for your institution.
To prepare for these new requirements, banks should take three steps now:
Revaluate the way you rate customer risk and conduct due diligence. With national AML/CFT priorities established, banks must review and update their policies and procedures for customer risk rating and enhanced due diligence (EDD).
The national priorities will identify customers, products, services, and locations that the Treasury considers to be high risk. Financial institutions must determine if their current policies, procedures and processes for high-risk customer identification, EDD and ongoing monitoring address what the Treasury deems most important.
Update transaction monitoring detection systems. Banks have long complained that regulators focus on quantity rather than quality in suspicious activity reporting. Banks have also lamented that FinCEN does not provide enough feedback on their SAR filings.
Congress has been listening. The AMLA 2020 instructs FinCEN to publish a biannual report, Sharing of Threat Pattern and Trend Information, providing the financial crime techniques, or typologies, that law enforcement believes pose the biggest threat.
AML officers should have processes in place to quickly incorporate report findings to improve their transaction monitoring programs. This may include adding new monitoring scenarios or updating existing ones to ensure your bank can detect suspicious activity the government declares most risky.
Upgrade software and incorporate advanced digital technologies. The AMLA 2020 pushes financial institutions to modernize their operations. Using decade-old software, which buries investigators under mountains of false-positive alerts, is no longer acceptable.
As a result, AML/CFT officers need to look at new detection and reporting software. Ideally, banks should evaluate software that incorporates artificial intelligence and machine learning to help them identify financial crime more accurately and efficiently, while improving customer experience and reducing reputational risk. For some institutions, this may mean installing new transaction monitoring and case management applications. Others may need to consider software hosted in the cloud, also known as software as a service, which can reduce implementation time, expenses and ongoing maintenance costs.
AML/CFT officers should also explore how robotic process automation and data analytics bring improvements to everyday AML/CFT work. RPA automates much of the time-consuming data gathering investigators endure. Better data analysis reveals inefficient processes, measures individual investigator performance, and identifies transactions and customer behavior that improves detection scenarios.
When evaluating new detection and reporting software, it’s important to remember that the cloud provides the foundation for true digital transformation. Cloud technology helps companies deliver exceptional and innovative customer and employee experiences at speed and scale, backed by AI, analytics and automation. Building a strong cloud foundation now will pay off long into the future.
In Genpact’s report,
It’s in every financial institution’s interest to assess, strengthen and modernize its anti-money-laundering and counter-terror financing programs. You’ll be doing yourselves — and society — a big favor.
