Effective AML transaction monitoring is critical in ensuring a business is safe and secure. Also, AML and fraud costs are getting worse every year. The United Nations Office on Drugs and Crime estimates it currently costs 2-5% of global GDP, or an eye-opening $800 billion – $2 trillion annually.
Regulators are constantly pressuring financial institutions to be more innovative and quicker in reporting these suspicious transactions. Organizations must therefore learn to stay vigilant and keep abreast of the changing world of transaction monitoring.
So what solutions are out there that can take you to the next level? Artificial Intelligence (AI) can play a crucial role by providing enhanced analytic capabilities. The extra insight from AI can improve your compliance outcomes and protect your businesses from potential problems.
The Main Problems Associated With Transaction Monitoring
It’s a beautiful paradise for financial criminals and a complete nightmare for consumers and organizations. It’s never been so easy to hack into somebody’s bank account, change one small thing and gain full access. Fraud opportunities are rife for financial criminals, who are now using clever social engineering tactics to get ahead.
Transaction Monitoring Issues
If your transaction monitoring is not firing on all cylinders, several issues can directly affect your business. Here are some of the most common:
Higher Level Of Risk
As a financial institution, you will have a higher level of risk overall if you haven’t set up some form of transaction monitoring. It’s fair to say it is a necessity for you.
Internally Data Issues And Layered Transactions
When a company has internal data issues, it can be one of the main culprits of excessive false positives. Also, it can be hard to stay on top of any layered transactions in real-time with traditional methods.
Anti-Money Laundering Fines
If you completely mess up and are fined by the regulators, it can be a costly and reputation-damaging experience. An example from last year would be the $390,000,000 fine from FinCEN slapped on Capital One.
Organizational Profitability
If the management of your transactions is non-existent, it will hit your bottom line. Also, the cost of reissuing cards to your customers if you’ve had a messy merchant breach can be expensive, especially if you don’t know which customers.
Staff Costs To Cover Extra Work And Recruitment Issues
You might have to pay out more money to your employees to deal with different problems. Additionally, compliance teams can lose qualified staff who are burning themselves out handling excessive AML transaction issues.
Leading The Way In Transaction Monitoring With AI-Enhanced Analytics
The industry can be grateful that some trailblazers are looking for more modern solutions to these common issues. Companies like Napier are leading the way in transaction monitoring, especially using AI-enhanced analytics. At the end of last year, RAW Compliance awarded Napier with Transaction Monitoring Firm Of The Year.
Planet Compliance asked Napier’s Chief Data Scientist, Dr. Janet Bastiman, to give her expert opinion on how AI will be a game-changer for transaction monitoring. She said, “AI can be powerful particularly in situations where static rules-based approaches are not effective. AI can find unknown unknowns, making the process more efficient, while reducing a compliance team’s workload.
By using a combination of transactions, watchlists, and historical customer behavior, algorithms can complement traditional rules-based reviews of customer activity by identifying patterns that are difficult to spot amongst high volumes of data.”
Using The Benefits of AI-Enhanced Analytics
Technology like AI and ML can help you. However, the transition to a new AI-supported system needs to be given more support by regulators. The current environment needs to be more flexible so that AI can spread its wings and do what it needs to do to be effective. Here are some of the benefits of AI-enhanced analytics:
Financial Investment And Expanding Compliance Teams
The financial investment for companies to stay compliant and keep regulators happy grows every year. Once you start using AI, you can drastically reduce your costs and keep the size of your compliance teams in check.
A Higher Level Of Security
Nothing is ever 100% foolproof, but AI capabilities give organizations higher security levels than ever before. Not only in transaction monitoring but across other areas of the business.
Constantly Changing Regulatory Requirements
AI can help organizations handle changing regulatory requirements. Once you start putting technology into AML compliance, authorities can spend more time on high-risk transactions than low-risk alerts.
Quick And Accurate
AI helps improve the capability of compliance departments so that they can detect suspicious transactions quickly. This speed helps reduce the workload for compliance officers and overall costs.
Customer Trust
When your AI-enhanced analytics are rocking your transaction monitoring system, you can enjoy a positive vibe in your company. Also, customer trust will be higher, building your reputation further and strengthening your enterprise.
Don’t Forget About The Quickening
While it is still unclear how long the pandemic will last before it is declared endemic. It is prudent for businesses to stay on top of things in a changeable environment. To give you a head start, here are some of the expected trends in AML and Fraud for 2022 to help you guide your business strategy.
According to McKinsey, we have jumped a decade ahead in only 90 days, thanks to the pandemic. Everybody was working from home, and e-commerce demand went into the stratosphere. It is something McKinsey refers to as “The Quickening.” Digital-first consumerism became a reality for many businesses that quickly adapted.
In Conclusion
Using AI-enhanced analytics is an effective strategy to combat crime. But the regulators and the industry need to work together to smooth out some areas. For example, the privacy issues of financial services sharing information, so they can then maximize the ability of AI to detect and adapt over time.
Transaction monitoring will evolve quickly, pushing more organizations to use AI-Enhanced analytics. If the regulators can learn to be more flexible with AI, transaction monitoring can potentially be far more efficient. They ultimately save businesses valuable time and money and improve their compliance capabilities.
Sally Leslie
Sally creates B2B content for businesses, entrepreneurs, and startups. She has a PR degree and a background in business development and sales. She is passionate about motivation, time management, and the changing world of finance.
Would you like to share your insights and knowledge with the planet? You can get involved and write a guest post for Planet Compliance. You can also set up a free business listing on our website. We can’t wait to hear from you!