What is anti-money laundering software?

Anti-money laundering (AML) software is an umbrella term for software used in the financial and related sectors that supports the requirement to comply with the tightening legislation imposed by regulatory bodies. It can prevent or detect anomalous activity, reduce false positives, and assist companies in accurate reporting of suspicious transactions.

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Globally, financial sector regulators follow the recommendations of the Financial Action Task Force (FATF) for combatting money laundering.  

Flagged financial transactions or suspicious activity must be reported to the regulatory body for investigation. AML software helps organisations achieve AML compliance and generally has three facets:

• Client screening
• Transaction screening
• Transaction monitoring
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Client screening software. This AML software verifies the identity of new clients at the onboarding stage. It also checks whether the new client is on any sanctions lists or other watchlists.  It assesses what level of financial crime risk your business incurs in the onboarding stage and can be utilised at any stage during the client life cycle. It is inclusive of:

• Compliance with FATF’s recommended risk-based approach. When customers are assessed as high-risk (such as politically exposed persons, or PEPs), organisations might implement a heightened level of monitoring known as enhanced due diligence (EDD). This AML process assesses clients’ activity or behaviour on an ongoing basis to detect if financial crime risk levels change.
• Ongoing know your customer compliance (Perpetual KYC). This AML software exemplifies the latest approach to truly understanding your customer. The proactive approach is to monitor customer behaviour continuously, with review alerts automatically triggered by their behaviour, rather than through periodic, manual risk assessments.

‍Transaction screening software. This AML software integrates and interprets multiple data points in transaction messages for each customer, including the identities of both sender and receiver, and establishes if either are on sanctions lists.

AML transaction monitoring software. Building on client and transaction screening software, this AML software analyses the patterns of each client’s transactions, typically against a library of rules or filters. It determines whether trends of transactional behaviour fit criminal profiles, as well as whether anomalous transactions by a client may require further investigation or not. Possible red flags raised are reviewed and analysed by AML teams and appropriate responses are decided upon, including whether a suspicious transaction report (STR) is necessary.

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• Increased criminal threat level. Rapidly evolving financial crime typologies are exploiting technological advances and digitalised money, which means that money laundering is accelerating.
• Political pressure. Globally, entire economic regions and governments are pressuring regulatory bodies to close legislative loopholes which make the financial sector vulnerable to money laundering and other serious economic crime. Regional record fines for individual institutions were smashed the world over in 2020, and the total number of fines issued to financial institutions increased by 141% to 198 from 82 such penalties in 2019.
• Unsustainable compliance costs. The costs of labour related to anti-money laundering among middle to large-sized financial institutions is increasing worldwide. The LexisNexis 2020 Global True Cost of Compliance Report concluded that 2020 saw an increase of US$33 billion in AML costs since 2019, from US$180.9 to US$213.9 billion. This represents a global increase in AML expenditure of 18.2%.
• Struggling AML compliance methodologies. AML compliance teams in the global financial sector are struggling to keep pace with innovative money laundering techniques, owing in part to the silo effect of outdated practices. This means unwelcome scrutiny from both the regulators- which resulted in AML/CFT breaches constituting 54% of the cash amounts of fines issued from 2008 until the end of 2020- and the media, whose negative reporting on transgressions causes inevitable reputational damage.

AML practitioners the world over face regulators on one hand, and criminals on the other. It has never been more important for the financial sector to embrace AML software.

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Founded in 2015, Napier is a UK-based RegTech company with a global presence, specialising in AML compliance software for finance sector clients of any size. Central to our AI-driven solutions is our Intelligent Compliance Platform, which can bolt onto any system, providing immediate and measurable benefits to your business.

Regardless of the size of your organisation, Napier’s solution can integrate your client and transaction screening, client re-risking and ongoing KYC, and transaction monitoring needs into a user-friendly and purpose-built dashboard which will preserve your resources, save you time and money, and help you grow your business. Once on board, your dedicated customer service manager will see to your training needs on the use of our platform, and your AML team can access continuously upgraded resources and guides.

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