A snapshot of Australia’s approach to AI in AML regulation in 2024

2024-2025 Index Score: 3.43 / 10

Index score between 0-10, with a lower score reflecting a more efficient and innovative regulatory approach.‍

The Index combines four weighted category scores, AML attitude, AI/AML regulation, total cost of compliance, and AML effectiveness, to produce an overall score (where lower is better) that measures each nation's balance between anti–money laundering (AML) efforts and outcomes, while also estimating the potential uplift from AI-driven AML improvements.

The Index is designed to pinpoint what good looks like in the careful balance between efficiency and effectiveness in Anti Money Laundering. The Index, like Napier AI itself, is designed by data scientists (including me) and built on data science. It is designed to illustrate the art of the possible for AML and AI, by highlighting national regimes and financial services markets that are achieving great AML outcomes through innovations in AI.

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Click here to read it: Napier AI / AML Index.

Australia was one of the 27 countries to sign the 2023 Bletchley Declaration, signaling a commitment to human-centric and ethical AI. As a global financial hub, Australia is an attractive destination for money launderers to integrate criminal proceeds.

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There are generally no applicable laws regulating the use of AI in Australia; however, a voluntary set of AI Ethics Principles has existed since 2019.

Banks in Australia are already exploring the use of large language models and generative AI to fight against financial crime, but it is the market’s data laws that are curtailing implementation. Some are calling for enhanced public and private sector coordination and data sharing to improve the detection of emerging financial crime typologies. The ‘Tranche 2’ proposal is seen as a positive step towards increased collaboration. With the changes underway, Australia is putting itself in a good position for both private and public sectors to become AI innovators in financial crime compliance.

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Regulated firms in Australia are successfully driving down financial crime. This is partly down to the large, hefty fines for non-compliance, which are second to the US globally in total USD for fines. The market is focused on traditional banking, posing low risk, but if it opens more to fintech’s, it will be exposed to higher risk factors. As Australia implements Tranche 2 reforms and regulation becomes tougher, AI guidance will be needed to ensure the cost of compliance stays low and fines do not mount even higher.

In May 2024, the Australian Government published a consultation to reform its anti-money laundering and counter-terrorism financing (AML/CTF) regime. The fundamental objective of the proposed reform is to ensure Australia’s compliance with the international standards set by the Financial Action Task Force (FATF). The proposed reforms aim to improve the effectiveness of the current regime and ease the regulatory burden by simplifying, modernising and clarifying. Napier AI commented on Paper 5 ‘Broader reforms to simplify, clarify and modernise the regime’. The paper seeks to replace the current prescriptive AML/CTF program and Customer Due Diligence (CDD) requirements with clear, risk-based and outcomes-focused obligations. This paper also outlines reforms to ensure appropriate information sharing and risk management.

Read Napier AI’s response here

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Photo by Linda Xu on Unsplash

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