Anti-money laundering is one of the greatest threats to financial institutions today. In a world of instant gratification, consumers have put pressure on banks to deliver solutions that meet their expectations in the financial sector. As banks balance this demand with the need for compliance, many are struggling to meet regulatory requirements, deliver an exceptional customer experience, and secure their transactions. To overcome these challenges, banks are recognizing a need to revamp the current anti-money laundering process (AML). In this article, we discuss the ins and outs of AML and issues plaguing the industry today — and ultimately, how to improve the system.
What is anti-money laundering?
AML refers to measures used by financial institutions and governments to prevent and combat financial crimes. These include money laundering, drug trafficking financing, human trafficking financing, and terrorist financing. A financial institution’s AML policy is part of its wider AML compliance program, staying compliant with local AML regulations.
What every AML program should include
A typical AML program includes the following elements:
- Know Your Customer (KYC). Many banks confuse the details of KYC for AML, often resulting in weak compliance policies and leading to regulatory fines. KYC is the process of verifying a customer’s identity. Before a customer can use banking features, they must provide valid ID documentation.
- Risk Assessment. Risk assessment gives a full understanding of a customer and the potential risk associated with doing business. Banks can determine if a customer is low-risk or high-risk by gauging with a scoring model. This scoring model must consider several risk factors, like geographical location and the results of the KYC due diligence process, before proceeding with approval.
- More education leads to less ignorance and fewer mistakes, especially in legislation education. An effective AML training program should take into consideration the company’s risk profile and the type of services they offer. Staff training should also include extensive education in financial and legal frameworks and regulatory requirements.
