Regtech for AML: 6 Regtech Use Cases to Improve AML Compliance

September 23, 2022

The Fintech industry is no stranger to financial crime and the negative impact it can have on companies and their customers. This is especially true when it comes to money laundering.

As exclusively digital services, Fintechs are prime targets of money launderers who feel that the digital environment provides an added layer of anonymity, allowing them to commit crimes undetected. To combat this, organizations need to follow a variety of anti-money laundering rules and regulations to ensure they protect against criminal activity.

While AML measures can improve security across these platforms, they can be tedious to incorporate throughout their services. Fortunately, Regtech software provides an effective option for risk and compliance teams to enhance their AML efforts. To learn more about how to use Regtech for AML, we’ll explore how they work together in the following sections:

Let’s get started with a look at why following AML regulations is important.

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The Importance of Following AML Regulations

As financial services expand into digital avenues, governing bodies across the globe are implementing a plethora of Fintech compliance measures.

There are two main reasons to follow AML regulations. First, they protect companies and customers from money laundering efforts. Second, they are required by law in most places, and there are substantial fines and penalties for not adhering to set regulations.

What some companies don’t realize is that optimized AML practices can allow them to mitigate money laundering on their platform and save on overall costs. By streamlining AML regulations with a Regtech solution that provides alerts about relevant regulations, companies can drastically reduce the impact money laundering has on their business.

Regtech and AML: The Perfect Pairing

Regtech (short for Regulatory Technology) is software designed to optimize and enhance regulatory processes, making it the perfect solution for AML compliance.

Manually maintaining AML compliance can be costly and time-consuming. Teams can spend hours simply researching regulations and monitoring their Fintech services for potential money laundering - taking their attention away from case management and improving their prevention strategies. Moreover, suspicious activity can still go unnoticed.

Finding the right Regtech solution can greatly help reduce the cost of AML compliance with rule-based workflows that allow businesses to automate many AML processes. Regtech’s use of automation and customizable rules help teams better prioritize their time and stay ahead of money laundering with improved accuracy and efficiency. Most companies will need to adopt a risk and compliance solution to keep up - it's simply a matter of when the best time to adopt a solution is.

How to Use Regtech to Improve AML Compliance

Meeting regulations and protecting Fintechs is simplified when Regtech compliance solutions are introduced. These solutions empower Risk and Compliance teams to strengthen their AML strategy and all related workflows by offering increased control over AML compliance efforts and guidance on best practices to follow.

This section covers several Regtech use cases to improve AML compliance.

1. Identity Verification and Authentication

One way financial criminals launder funds undetected is by using synthetic or stolen data to create a new account or access another user’s account. Using Regtech and KYC solutions within a Fintech’s onboarding orchestration can stop these criminals before they even access services.

Regtech software allows Fintechs to automate identity verification by integrating access to KYC data partners into their database. Onboarding workflows can be customized to compare the information a new user provides with formal documents from different partners. If the information seems falsified or doesn’t entirely match the KYC data, the user will be denied access to the platform. Otherwise, they’ll be instantly approved to use the Fintech service.

This creates an automated system that prevents new account fraud and identity theft - which gives AML specialists reassurance that bad actors are being kept off the platform and allows them to apply more effort towards their AML strategies.

2. Customer Due Diligence

Customer Due Diligence (CDD) is a requirement for most Fintechs that work with sponsor banks, so it’s important to make sure that this process remains efficient. This can be achieved by using identity verification and KYC data as a form of risk management when customers open an account.

The same Regtech tools that confirm the legitimacy of customers during onboarding can grant compliance specialists access to a customer’s historical transactions and financial behavior, allowing them to complete their CDD checklist on an ongoing basis. KYC/KYB partner integrations can even uncover information that might be hidden, such as a business customer’s Ultimate Beneficial Owner (UBO).

Risk and Compliance teams are able to automate the workflows for the CDD process and create custom rules that determine what types of KYC data are most suspicious. By doing this, they will be alerted when customers pose a certain level of risk for money laundering - which allows them to focus their efforts on monitoring these specific customers and stop money launderers in their tracks.

3. Transaction Monitoring and Screening

Customer transaction behavior can be a good signal of money laundering. However, a big struggle for AML specialists in Fintech is the inability to spot illicit transactions as they occur.

This issue is easily solved with transaction monitoring solutions that track customer behavior and flag suspicious activity for investigation. Transaction behavior can be compared to historical transaction data to detect anomalies in behavior, and then escalate these cases to a risk analyst for investigation.

Risk and Compliance teams can customize rules for how suspicious activity is flagged and prioritized for investigation, significantly reducing the time-to-investigate and the time-to-report.

Using Regtech to set up powerful AML transaction monitoring rules gives teams the reassurance that bad actors won’t go unnoticed, and allows them to focus more of their time on updating their AML strategies and case management.

4. Case Management and SAR Filing

Completing investigations and filing Suspicious Activity Reports (SARs) on time is a challenge that’s caused several Fintechs (and their customers) to lose money. Staying on top of suspicious activity and reporting is crucial to maintaining compliance.

Fortunately, Regtech solutions can be used to help risk and compliance teams take charge of their case management and automated SAR filing. When suspicious activity is flagged for teams to review, they are able to efficiently complete investigations by viewing visualizations and analytics in one dashboard. SARs are automatically created using templates and pre-populated information before they’re filed with FinCEN and goAML.

Selecting the right AML case management software will allow Fintechs to maintain compliance by ensuring they keep track of all their cases. They also complete investigations and file SARs much faster, so they are able to meet deadlines and better protect their customers.

5. Alert Scoring and Risk Profiling

Regularly being overwhelmed with false positives can hurt productivity and make it difficult for investigators to focus on the alerts that matter. This is why it’s important to have a strong AML risk assessment strategy.

Regtech helps make the most of a team’s strategy through the use of alert scoring and risk profiling. Alert Scores are an automated feature that allows teams to assign a score to accounts and transactions based on potentially suspicious activity. Additionally, risk profiles set a standard for what types of customers pose the greatest risk for money laundering. Together, these features are able to assign scores based on priority, and direct investigators to the customers and transactions that need attention.

Creating a system to prioritize high-scoring alerts helps teams improve their productivity by completing investigations faster and ensuring they’re able to focus on the alerts that matter the most.

6. Compliance Management and Auditing

Regtech is able to help Fintechs stay on top of their compliance in a variety of ways. This includes knowing where they are with their compliance efforts.

Investing in a compliance management solution lets risk and compliance teams use AML and KYC processes to meet all applicable regulations and easily determine which requirements apply to their Fintech company. Teams are able to use a dashboard to audit their workflows for their level of compliance and use compliance-ready tools to help them implement the minimum standards.

These tools give teams the confidence that they’re on track to maintaining compliance, while also saving them time and energy that would normally be spent manually tracking their compliance efforts.

Access the State of Fraud and AML 2022 Report Now

Regtech for AML: Final Thoughts

Now that you know how Regtech improves AML regulations and compliance for Fintechs, your risk and compliance team can explore a Regtech solution as an option for enhancing AML strategies. With the right system in place, you'll be prepared to handle upcoming fraud trends that threaten your organization.

You can buy or build compliance software, but in most cases, purchasing a high-quality solution designed specifically for risk and compliance is the best way to go.

With Unit21, your team will have access to identity verification, transaction monitoring, case management, and more to help fight back against money launderers. We’ve even helped DriveWealth file SARs 66% faster.

See how Unit21 can improve AML compliance for your Fintech by scheduling a demo with us today!

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