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FATF & Egmont Group report: digital transformation for FIUs

Julian Dixon
December 13, 2021

November 2021 saw the beginning of a joint project by FATF and Egmont Group to help guide financial intelligence units (FIUs) in their digital transformation. The new Digital Transformation of AML/CFT for Operational Agencies report introduces:

  • How and when to find the right digital tools
  • How and when to introduce and optimise these tools for AML/CFT purposes  
  • How to overcome the practical and operational challenges arising throughout different stages and processes in the daily operations of operational agencies

In this blog Napier CEO, Julian Dixon, analyses the digital transformation executive summary through three important themes: data necessity, machine learning and artificial intelligence, and digitalisation benefits. Sharing his vast experience in digitalisation, he then discusses the practical considerations of the process.

Data necessity

FATF and Egmont Group very rightly place data at the foundation of successful digital transformation. It is crucial that FIUs adopt a data-led approach if they are to truly improve and make use of the best technologies available in AML and CFT. The many benefits associated with data collection, data triage, data fusion, data analysis and data communication and dissemination are the key drivers underpinning the introduction of digital initiatives. It’s impossible to imagine digital transformation without good quality data.

Machine learning and artificial intelligence

The report specifically highlights the value of data and the associated applications of machine learning and artificial intelligence in identifying suspicious patterns and improving the understanding and management of money laundering and terrorist financing (ML/TF) risks.

Artificial intelligence and machine learning hold enormous potential, but deep analytical insights and successful outcomes depend on the ability to access, process and analyse good quality data.  

Digitalisation benefits

FATF and Egmont Group emphasise that digitalisation is so important for FIUs because it can increase efficiency, enhance quality, optimise resource deployment and facilitate the adoption of a risk-based approach to AML/CFT.

Digital initiatives create many vitally important opportunities associated with increased data utility from new and more data sources, increased data handling capacities, strengthened analytical capacities, better understanding and management of ML/TF risks and improved management of STRs.

Practical considerations for digitalisation

Fully endorsed by the report is the need to embrace new technology to transform and become a data-led, digital organisation: “Digitalisation and digital transformation has the potential to bring immense opportunities to FIU workflows and there are practical needs for FIUs to harness technology to solve some of their day-to-day challenges.”  

Yet, digitalisation can be complex, not least for larger organisations that may have multiple, disparate data sources and years of poor data practice.

Drawing on his experience in digitalisation projects for the financial sector, Julian explains: “Ideally, an international consensus on the approach to digital transformation could allow collaborative approaches and uniformity. This would create practical efficiencies for reporting entities and allow their systems to automatically submit to FIUs.

“Yet, while creating a ‘golden source’ of data across FIUs is the ultimate objective, it must be acknowledged that this is extremely difficult because they all have different data schemes depending on the nature of their history, business and systems.”  

Julian adds: “Working with data and achieving transformation across the board is never easy; we have seen this for ourselves within our client groups who all have varying approaches to data management. But it is important to remember that while digital transformation can be expensive to do well, it is certainly more expensive when done badly. The opportunity costs from failing to achieve a predictive data-led state are huge. As we know from reports, globally there is a backlog in processing STRs because many FIUs don't have modern technology.”

FATF and Egmont Group helpfully detail how to formulate key strategic considerations prior to the introduction of digital initiatives to improve their success.

Final thoughts  

Digitalisation is a process that is well overdue for the AML industry. Successful digital transformation will make FIUs more efficient and give them more insights with richer datasets, as well as improved access to modern tech such as artificial intelligence and machine learning. While keeping all of this in mind, it must also be appreciated that digitalisation is a process that will take a great amount of time given the enormity of the task most FIUs face.

You can download the publicly available Digital Transformation executive summary here. The full report is available to public authorities.

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Julian has more than 20 years of financial services experience gained at major investment banks including Deutsche Bank, JP Morgan and Commerzbank. His roles have ranged from front-office sales leadership to private equity. Julian has extensive knowledge of financial services processes and technology.