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AML Trends and Technology 2023

Safeguarding members and credit unions from the threat of financial crime in 2022, and beyond

By Verafin

Keeping pace with the growing complexity of financial crime was a challenge for financial institutions in 2022 – finding a balance between meeting customers’ needs for faster, frictionless banking while managing regulatory scrutiny is no easy task. Investigators striving to follow the money, uncover hidden connections across networks, and provide actionable intelligence to law enforcement were challenged by disparate data sources, manual processes, first generation transaction monitoring systems, and stretched resources.

In our recent end of year webinar, 2022 AML Trends and Technology, we explored how in 2022 financial institutions embraced a risk-based approach to AML. With regulatory changes on the horizon, institutions need solutions that can keep pace with new trends and changing regulations in 2023 and beyond, while maintaining existing anti-financial crime models.

AML Trends in 2022

The Critical Role of Compliance

Compliance continued to play a vital role in protecting the integrity of the financial system. In March 2022, U.S. Department of the Treasury released the 2022 National Risk Assessments for Money Laundering, Terrorist Financing, and Proliferation Financing. In remarks by Under Secretary for Terrorism and Financial Intelligence, Brian Nelson stated:

“The assessments highlighted an array of illicit finance risks—including the abuse of legal entities, the complicity of professionals that misuse their positions or businesses, small-sum funding of domestic violent extremism networks, the effective use of front and shell companies, and the exploitation of the digital economy. I would encourage you to use these assessments to evaluate the specific risks facing your institutions as you seek to develop and maintain a risk-based compliance program.”

The National Risk Assessments, along with the Anti-Money Laundering Act of 2020 and the Anti-Money Laundering and Countering the Financing of Terrorism National Priorities of 2021,  point to a renewed emphasis on a risk-based approach to anti-financial crime management in the U.S. Institutions must prepare AML programs to align with the evolving regulations to maintain compliance in 2023 and beyond.

Crypto and Sanctions Emerge as Trends

Meanwhile, the growth of cryptocurrency and the emergence of FinTechs within the mainstream financial system created new challenges – institutions must adapt their business models to meet consumer demand for new services while maintaining anti-financial crime programs. P2P transactions are also increasing and inevitably, frictionless banking enables frictionless crime. There is a growing demand for regulation as more financial institutions enter the digital space.

“History has thrust the compliance sector into the center of events.”

Sanctions became front and center due to geopolitical events that rapidly developed in 2022. Economic sanctions quickly became more complex, requiring a new approach to effectively target violations and evasion. Technological gaps in sanctions detection resulted in daunting problems for institutions, and with growing sanctions regimes, institutions were spending more on resources to meet the demands.

Current monitoring solutions tend to use similar algorithms across different transaction channels, which result in an overwhelming volume of false positives. Poor search capabilities and duplication of investigation efforts cost institutions valuable time and resources. Ultimately, gaps in your sanctions program can result in reputational damage, civil penalties or enforcement actions. Institutions capable of sharing information and collaborating with one another are in a better position to identify and manage sanctions-related risk.

The Role Technology Played in 2022

Driving Efficiency with Innovation

As early as 2018 there was a call “to encourage technological innovation and the adoption of new technology by financial institutions to more effectively counter money laundering and the financing of terrorism.”

- Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing

Data is key to addressing the inefficiencies and limitations of conventional AML approaches. To obtain a complete picture of your customer’s activity and understand their behavior, including relationships and interactions, investigation teams need a data-driven, holistic approach in a single system of record.

Systems that accurately represent transactions, entities or interactions are essential – Verafin analysis shows that 1/3 of investigative tasks are research into customer interactions and relationships. That translates to 60% of an investigator’s time spent on counterparties, seeking to understand the other side of their customers’ transactions.

Conventional solutions lack the sophistication to determine multiple interactions with the same entity during a transaction – low visibility limits insights into customer activity and counterparty risk. Solutions that provide entity resolution ensure investigators are presented with only unique counterparties. Accompanied by transaction resolution, providing information from rich data sources such as ACH, wire, P2P and check platforms, investigation teams have a holistic view of customer activity.

Automation and Collaboration Improve Investigations

Smart investigation tools can help investigators automatically identify and display counterparties, making investigations more efficient.  Relationship graphs and link analysis provide important insights into customer activity and connections to visualize a wide range of data points from movement of funds, transaction channels, and devices used, to providing vital intelligence into beneficial owners and account holders. Automated Suspicious Activity Report (SAR) narratives also increase efficiencies for AML investigators.

Information sharing and collaborative investigations remain instrumental in financial crime management. Cross-institutional information sharing expedites due diligence processes and can help explain away low-risk interactions to reduce false positives.

With over 300 million counterparties resolved in the Verafin Cloud, counterparty profiles reveal transactional relationships and behavioral trends allowing transaction resolution across core systems and rich financial data sources, including payments.

Finally, a new approach to combat sanctions evasion became more crucial in 2022. To effectively improve sanctions monitoring and detection, institutions need a single, consolidated platform with advanced analytics capable of analyzing multiple pieces of evidence, while reducing false positives, including common name matches. Verafin’s geocoding and geofencing capabilities are instrumental in detecting transactions in shifting and specific sanctioned regions. Having the ability to efficiently investigate sanctions risks and report potentially suspicious activity to manage the growing complexities of today’s sanctions risks is essential.

Key Challenges in 2023

In 2023, financial institutions must focus on the challenges of:

  • Increased scrutiny from the Corporate Transparency Act, beneficial ownership, and sanctions regulations
  • Virtual currency regulation and the impact on the financial industry
  • Expectations and consumer behavior, particularly around the need for faster payments

In 2023, financial institutions should consider innovative anti-financial crime solutions that can rapidly adapt to evolving financial crime threats, keep pace with regulatory change and ensure operational efficiency and proven effectiveness. Institutions can benefit from a holistic, cloud-based approach to financial crime management that can enhance money laundering detection, strengthen investigations, and effectively fight financial crime.

About Verafin

Verafin is the industry leader in enterprise financial crime management, providing a cloud-based, secure software platform for fraud detection and management, BSA/AML compliance and management, high-risk customer management and information sharing. More than 1,200 credit unions use Verafin to effectively fight financial crime and comply with regulations. Leveraging its unique big data intelligence, visual storytelling and collaborative investigation capabilities, Verafin reduces false positive alerts, delivers context-rich insights and streamlines BSA/AML compliance processes. Verafin has industry endorsements in 45 states, including the TBA, WBA, FBA, MBA, and CUNA Strategic Services.