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Why innovation is important in creating AML technology

It is easy to take innovation in the field of AML technology for granted but without it, our fight against financial crime would be utterly lost.

Nick Portalski
March 3, 2021

It is easy to take innovation in the field of AML technology for granted but without it, our fight against financial crime would be utterly lost.

Even just 15 years ago it was possible for AML compliance to be a manual process. Fast forward to today and not only are the regulations tough but the volume and type of transactions that need to be analysed have increased dramatically.

Over the last 30-40 years financial markets have changed beyond recognition.

The arrival of the internet, smartphones and digitalisation in banking and payments have created and are continuing to create sophisticated new money laundering opportunities.

Enter a global pandemic and the opportunities have multiplied even further, ranging from simple romance scams, and money mule swindles to sophisticated cyberattacks.

It is impossible to continue with processes built for an era gone by.  Proactively fighting financial crime takes a bit of looking into the future. And that requires inventive thinking. RegTechs like us are working hard to find new ways to do AML in smarter more efficient ways.

Here are three reasons why innovation must be at the heart of great AML technology:

1. Money launderers are innovating

Criminals are fantastic innovators. They are always looking to beat the system and for the next big opportunity to exploit. Money laundering syndicates also need to innovate to stay ahead of law enforcement and even other money launderers. The more they innovate, the more money they can make.

The bottom line is there is a huge amount of opportunity and money to be made in money laundering.

It is obvious, since the money launderers are innovating, there must be innovation in AML technology. As money launderers become sophisticated users of modern technologies, it becomes even more essential to innovate just to maintain a basic level of AML effectiveness.

Since money launderers innovate faster than the industry, pre-set rules are missing their suspicious activity. Innovative AML technologies can prevent this.

To get ahead, compliance specialists need the support of advanced technologies like artificial intelligence (AI) to detect unknown unknowns, preventing false negatives and reducing false positives.

2. Regulators are innovating

The more innovation in the financial industry, the more challenging it can be for regulators too.

We have seen this with cryptocurrencies as regulators have grappled with this technology and how it should be regulated.

Challenges aside, regulators around the world are taking a tough stance towards firms that fail to fulfil their increasingly demanding AML obligations. Fines and penalties are increasing and the pressure to comply has never been greater.

While regulators may be wary of innovation, they are not entirely closed off to new ways of doing things and encouraging it. The Monetary Authority of Singapore (MAS) is a fitting example, while here in the UK the Financial Conduct Authority (FCA) actively asks companies what innovation they are doing and invites them to innovate within its sandbox environment.

With AML regulatory obligations now spanning even more sectors due to the implementation of the EU’s 6th Anti-Money Laundering Directive for example, it is important for high-tech entities to seek equally innovative AML technology to help them comply.

3. The entire industry is innovating

The world does not stand still. Those that do will be left behind.

Regtechs and the wider Fintech industry are racing to innovate, to be the first to identify an opportunity with pioneering technology, products, processes, and services.

As a provider of AML technology, we need to be equally innovative or be left unable to meet the sophistication and scale of the ever-evolving technology and compliance requirements.

Napier and innovation

Innovation is integral to Napier. We would not and could not be who we are without it.

Today’s tech landscape means we can innovate so much faster than what was possible even just a few years ago. This is because the cost of trying is much lower due to the availability of computer power and the speed at which it can be turned on nearly anywhere in the world. This drives a virtuous circle of innovation.

Of course, innovation is cool and helps us attract the best talent (everyone wants to work for an innovative company) but it also serves a very fundamental purpose. We must innovate to survive and be successful. We cannot afford to be middle of the road.

“We provide the push of innovation but depend on the pull from our customers.”

Nick Portalski, Chief Technical Officer

It is extremely easy to have the rug pulled from under your feet. We all know how Blockbuster did not see the opportunity for online streaming that Netflix did. And even successful global giants like Microsoft and IBM failed to spot the opportunity for cloud computing services (eagle-eyed Amazon got that one).

It is important to stress that innovation must match industry. While we put enormous effort into developing AI-driven AML technology, we need customers who are willing to take the leap of innovation and try it, accepting their journey may not necessarily be easy.

After all, we could develop the most innovative solution in the world but if no one takes us up on it, we will fail. As innovators we need trend spotters and a culture that is willing to take the plunge, while accepting it may not come off.

Looking to improve your compliance processes with a trusted solution?

Contact one of our experts to find out how we can help or book a demo to see our Intelligent Compliance solution in action.

Nick has extensive leadership experience in designing and delivering enterprise products using multiple technologies. Having worked in successful FinTech start-ups and enjoyed global responsibilities with IBM, his expertise lies in taking concepts from embryonic vision through to advanced end products.
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