Financial Services

AML Compliance in the Digital Age: Challenges and Solutions

Money laundering is an age-old threat to the world of financial services. While it has always been a critical issue in the financial sector, it takes on unprecedented proportions in digital economies with highly interconnected financial systems.

Money laundering threatens the stability and integrity of financial institutions by enabling criminals to disguise illicit funds and integrate them into the mainstream. Anti-money laundering (AML) regulations are vital in detecting and preventing money laundering-related crimes, including terrorist financing, drug trafficking, and fraud.

While AML compliance is mandatory for banks, financial institutions, and Money Service Businesses (MSBs), implementing it in the digital age comes with a peculiar set of challenges. This blog discusses some common challenges in AML compliance and their potential solutions.

Challenges in AML compliance

Most AML challenges stem from the growing complexity and scale of digital transactions and a continually evolving regulatory landscape. Countering them requires a proactive approach that combines regulation technology (RegTech), continuous process improvement, and a robust AML compliance strategy.

Below are the key challenges in AML compliance and suggestions to overcome them:

The growing complexity of money laundering methods

With the evolution of digital economies, money laundering crimes have grown in volume and complexity, making it difficult for organisations and regulatory bodies to detect and deter these activities.

Traditional money laundering methods involved activities such as smurfing, trade-based laundering, cash smuggling, and shell companies to legalise illicit funds. Many of these methods are still rampant.  

However, the rise of digital banking, e-commerce, digital currencies, and virtual assets now enables criminals to effectively disguise the source of the funds and convert them into virtual currencies via layering and integration. Older AML systems are unable to keep pace with the speed and sophistication of these methods.

Solution: To overcome this challenge, organisations must leverage advanced technologies to enforce preventive and deterrent measures for AML compliance. Modern AML compliance solutions must include -

• Research and analytics for identifying emerging money laundering trends
• Artificial Intelligence (AI) and Machine Learning (ML) tools to detect and flag transactional anomalies in real time
• Blockchain technologies to gain visibility into the movement of funds



Changes in the regulatory landscape

The increasing sophistication of money laundering schemes necessitates frequent changes and updates to AML compliance regulations. However, adapting to frequent regulatory changes can overwhelm compliance teams, create compliance gaps, and increase compliance costs.

Solution: Banks and financial organisations can keep pace with regulatory changes by -

• Investing in regular compliance training sessions to keep abreast of regulatory changes
• Integrating automation technologies into compliance systems to streamline compliance-related tasks
• Partnering with compliance management services to leverage domain expertise and strengthen compliance frameworks

While compliance costs may strain budgets, organisations must learn to regard them as a strategic investment rather than a burden. It is crucial to remember that the financial, legal, and reputational costs of non-compliance may be much higher.




Multi-jurisdictional compliance

AML compliance regulations vary across jurisdictions. For organisations with a global presence, it is a challenge to ensure compliance with multiple cross-border regulations.

Solution: Such organisations must develop customer due diligence (CDD) procedures that align with the highest regulatory requirements across all jurisdictions. A compliance management partner can help them centralise the compliance function and stay updated about any changes in local and cross-border regulations.




Compliance process inefficiencies

The use of legacy software, manual processes, dependence on physical documentation, and siloed systems impact the speed and efficiency of AML compliance processes.

Solution: Banks and financial institutions must combat this challenge by integrating AI tools such as robotic process automation (RPA), biometric identity verification, and automatic document verification into their AML compliance solutions.

This will eliminate the need for manual data entry, in-person verification, and paper documentation in essential regulatory processes like KYC and CDD.

Automation can also mitigate the risk of human error, fast-track compliance, and allow for a more scalable compliance model.




Data management

Organisations collect vast amounts of customer, transactional, and third-party data from multiple sources for AML compliance monitoring. This may impact data quality and raise data security and privacy concerns. Inaccurate or incomplete data can lead to false outcomes in anomaly detection, impeding the efficacy of risk assessment.

Solution: Financial institutions must establish a robust data strategy for compliance requirements. It should include –

• Centralised data management
• Trusted data sources
• Regular audits to ensure data quality and comprehensive data coverage
• Integration of disparate systems to create a ‘single source of truth’
• Security measures and access controls

How can Infosys BPM help?

Infosys BPM Compliance services include end-to-end digital solutions for AML compliance and management. Our team of 750+ domain experts operates globally, delivering tailor-made compliance solutions to financial institutions through strategic partnerships with FinTech and RegTech companies.

Get in touch with Infosys BPM’s compliance management services for customised compliance solutions.