How RegTech can help banks to avoid AML breaches

When it comes to regulation, Anti-Money Laundering (AML) breaches incur serious penalties for firms. At the same time, the global financial landscape has become increasingly complex and compliance regulation continues to evolve at a rapid pace.

In this high-pressure environment, it can be challenging for banks and other financial institutions to keep on top of AML requirements, especially for those still working with manual processes.

To manage and mitigate the risk of AML breaches and the associated penalties and reputational damage, institutions are increasingly turning to RegTech software. New tools have the potential to streamline AML and Know Your Customer (KYC) processes, improving compliance and reducing risk. Here, we explore the challenges facing institutions and how RegTech solutions can help.

The importance of meeting AML obligations

Many banks find themselves in a difficult situation, under pressure to bring in new business and grow their existing customer base, while also balancing increasingly complex AML obligations. However, those that prioritize onboarding customers quickly over ensuring compliance obligations are met can face strict AML penalties when breaches are identified.

As regulators reckon with an increasingly digital, fast-moving and complex financial marketplace, they are putting the onus on banks to proactively monitor and investigate potentially fraudulent activity.

What are the consequences of breaching AML rules?

AML screening and monitoring provide essential protection for banks to manage risk and shield the organization from fines and enforcement action against individuals. While AML fines and penalties receive much of the attention, failure to adhere to regulations has wider consequences for a bank’s reputation and shareholder value.

Fines and penalties handed out for AML breaches

Infractions in AML compliance are taken extremely seriously by regulators, with the number of fines handed out continuing to rise. Authorities in the US, Europe, APAC, and the Middle East have levied nearly $26 billion in financial penalties against financial institutions for AML, KYC, and other violations over the past decade.

While these fines for AML breaches can be significant and the number of penalties rising, banks need to put greater focus on ensuring their AML compliance is watertight while onboarding customers as fast as possible. Which highlights the importance of RegTech for helping banks to both maintain compliance and streamline KYC and AML processes to improve customer onboarding times.

Reputational damage

Anti-money laundering compliance issues can also cause significant reputational damage – both at a company and industry-wide level. Valuable time and resources spent resolving issues ultimately impacts productivity, profitability and a bank’s ability to attract and retain customers, investors and top talent.

How to prevent your bank from AML breaches

Successful AML compliance covers a large range of activities that focus on different data points and procedures, however, the purpose is the same. The goal is to build a complete, accurate and up-to-date picture of each client relationship to minimize risk or reputational damage from doing business with a compromised organization and reduce disruption to the customer experience.

The challenge for banks working with manual processes is that meeting these obligations can be extremely time-consuming. This is a particular risk when it comes to growth. In the last year, 38% of UK businesses have deliberately abandoned an application for banking services due to ‘slow due diligence processes’. The fear of losing business, combined with the burden of compliance obligations, can lead to steps being skipped and an increased risk of AML breaches. However, by strategically leveraging RegTech software banks can automate the more time-consuming aspects of KYC due diligence to focus more on customer experience and enable efficient growth.

Why RegTech is key to ensuring you maintain compliance with AML requirements

RegTech gives banks and other financial institutions access to intelligent tools and processes that automate data collection, visualization, and analysis. This enables banks to onboard customers faster, more effectively and with less customer friction. By leveraging RegTech software, banks no longer have to choose between growth and meeting AML compliance obligations. Using smart automation and reliable data sources, banks can create secure, risk-proof processes that power unbeatable customer service.

6 ways RegTech solutions can tighten your AML compliance

There are RegTech solutions available to banks to improve regulatory compliance and prevent AML breaches. Using AML compliance software, you can automate your existing manual KYC processes and streamline corporate customer onboarding, freeing up resources to investigate more complex issues.

The key ways that RegTech can be used to improve AML compliance

1. Automating corporate data gathering

By integrating software with public and premium data sources, RegTech solutions can gather information needed for customer due diligence (CDD) and enhanced due diligence (EDD) based on your existing policies.

2. Verifying customer information and identity

By connecting to registries, regulators, stock exchange listings and business data providers, you can automate customer checks confidently.

3. Finding ultimate beneficial owners

With automated database searches, complex Ultimate Beneficial Ownership (UBO) structures can be collated in seconds, dramatically improving accuracy and completeness.

4. Risk screening

RegTech can help organizations monitor risk exposure by screening entities against preferred suppliers of PEP, sanctions and adverse media data.

5. Monitoring for changes in customer risk profiles

By using smart systems to continuously monitor customer KYC profiles for material changes, banks are made aware of information requiring review, faster.

6. Dynamic creation of a full audit trail

Digital profiles offer end-to-end proof of compliance for regulators with a dynamic audit trail of every KYC/AML action taken.

The Encompass platform is designed to meet the key AML compliance challenges that banks and financial institutions face. Our RegTech software, powered by intelligent process automation, is trusted by leading institutions worldwide to reduce risk and manage exposure at scale, and avoid costly AML breaches.

Explore the Encompass KYC and AML compliance products

Future-proofing your bank to prevent AML breaches

The world of AML compliance will continue to get more complicated, and getting it right is critical for success. Institutions that can combine robust anti-money laundering processes with a streamlined customer experience not only reduce their risk of AML breaches (and the subsequent penalties and reputational damage) but can also gain a competitive advantage in terms of speed, service and efficiency.

Encompass’ AML experts work with institutions all over the world to analyze processes, find opportunities and implement RegTech tools to help them stay ahead of the market, regulators and competitors.

Find out more about our RegTech solutions here, or get in touch with the Encompass team to discover how our software and advisory services can help you stay compliant and competitive.

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