Regtech stands for innovative technology used to help regulated financial institutions comply with regulations. One crucial area it assists with is Anti-Money Laundering (AML) compliance, often called Regtech AML. With financial crimes becoming more advanced, keeping up with AML regulations has become more challenging.
Regtech AML solutions are now central to ensuring AML compliance. Traditional methods of compliance are long and laborious. This is where Regtech AML shines, using new technologies like artificial intelligence, robotic process automation, and more to streamline processes.
This article will discuss how Regtech AML solutions are transforming AML compliance monitoring and enabling adequate adherence to dynamic anti-financial crime regulations.
The challenges of AML compliance traditionally
AML regulations have always made it challenging for financial institutions to maintain compliance. It involved reviewing every transaction and customer activity to find risky patterns. Given the millions of daily transactions, the workforce needed was enormous. On average, a transaction monitoring analyst could only review 1500-2000 alerts a month. This ineffective manual approach often led to false favorable rates of over 95%, causing delays in filing mandatory suspicious activity reports to regulators and impacting overall compliance.
Regtech in AML solutions address these long-standing challenges. When applied to AML monitoring, Regtech tools can increase the average volume covered per analyst to 20,000 alerts a month, reducing false positives to under 25% and enabling timely reporting of suspicious activities.
How Regtech AML Solutions Support AML Monitoring and Risk Assessment?
These Regtech AML compliance solutions would enable financial institutions to monitor, at any point in time, all the transactions conducted by customers and raise a red flag for any questionable activity or behavior. Thousands of behavioral parameters, customer demographics, amounts, locations of transactions, and others risks are detected with algorithms.
Some of the essential ways in which Regtech helps AML are in classifying all customers based on their risk profiles. It also helps to prioritize the monitoring of high-risk cases. It also conducts the initial filtering of all transactions through the application of dynamic rules. Only cases that are unusual in nature and that breach the predefined risk thresholds are elevated for manual review. This reduces the number of false alarms. Being digital in nature, all the regulated entities follow a similar risk assessment and transaction monitoring methodology as prescribed by regulators.
Automated Transaction Screening and Filtering RegTech
Traditional transaction monitoring resulted in labor-intensive manual screening of each transaction according to predefined rules. This resulted in slow processing and many false positives. With Regtech AML compliance solutions, financial institutions can now filter and screen thousands of daily transactions at a preliminary level.
Advanced algorithms and machine learning models within RegTech platforms scan real-time transactions with more than 300 dynamic parameters. Transactions are scored according to inherent risk. Only those exceeding predefined risk thresholds of about 15–20%, according to most RegTech solutions, are to be flagged for manual review. In this way, Regtech reduces manual work to a degree of over 70% and brings false alarms to under 10%.
Continuous Compliance Tracking and Reporting
Real-time tracking and documentation were required to stay compliant with the ever-evolving AML checks. Previously, companies were using manual sheets to track, in a scattered manner, their status and also compliance progress. This was both time-exhausting and prone to errors, too. Regtech solutions allow end-to-end digital compliance management. It combines transaction monitoring systems with case management and reporting tools.
In doing so, this allows compliance managers to have real-time visibility into high-risk cases, suspicious activities undergoing review, questions raised by auditors, and remediation taken through a centralized dashboard. Pre-built or customizable reports required to create periodic updates as required by relevant regulators can be developed most, thus saving 40 hours of work on average per reporting cycle.
Ensuring to keep abreast of dynamic regulations
One of the biggest challenges with ever-evolving AML regulations is that financial firms have static rule-based systems and need to be more capable of adapting to changes in regulations. The solution proposed is to use regtech AML compliance solutions. They use their capability in natural language processing to interpret new or updated laws within about 24-48 hours, on average.
Dynamic risk models analyze 100s of parameters, all applicable regulations, and so forth. This way, integrated case management and transaction monitoring systems automatically roll out new compliance requirements, and business units at the same time adhere to the changes, thus reducing delays and lapses in meeting emerging anti-financial crime standards.
The Future of AML Compliance with Advancing RegTech AML Solutions
As criminal networks employ more sophisticated techniques, Regtech plays an increasingly influential role in ensuring robust AML compliance. Such new technologies as AI, blockchain, IoT, and many others facilitate Next-gen Regtech AML solutions. This helps forensic experts pinpoint hidden links, whereas integration with blockchain helps in having an inviolable audit trail.
The Internet of Things helps control the physical flow of cash. Currently, almost 90% of global transactions are digitized. Such advanced tools of Regtech AML compliance promise near-instant risk assessment and response times. Financial crimes on the rise would require robust Regtech AML compliance to ensure the systems are safeguarded and that the global standards about the evolving anti-money laundering regulations are adhered to.