For anti-money laundering (AML) authorities, the decade finished with a bang: more than $8 billion in AML fines were served in 2019, doubling the number handed out the year before.
You could see this jump as being both very good and very bad. Good, because it shows that regulators across the globe are on high alert when it comes to financial crime. Bad, because it proves that criminal enterprise is still widespread and going strong. In the U.K., which had the second-highest number of penalties in 2019, the amount of money laundered each year is equivalent to 4% of the country’s GDP.
Whether regulators are pushing you to or not, your company needs to establish clear anti-money laundering protocols. When you don’t, you put yourself and your customers at risk.
As we look ahead to the 2020s and beyond, you can bet that the businesses that will survive are the ones that prioritize compliance on an ongoing basis. But the good news is, implementing new processes and ensuring frictionless screening for your customers doesn’t need to be onerous. Here’s what you need to know in order to minimize risk and maximize reward.
AML regulations have evolved with the times, and for compliance officers looking to stay aligned, an understanding of the major milestones can be a smart place to start. And while it can feel like there’s a lot to absorb, a solution like Cognito Watchlist covers all the screening bases for you.
Here are just some of the regulations we comply with.
The changing regulatory landscape in the U.S. is mirrored in countries around the world. Many have their own independent AML systems, some of which go beyond the global standards outlined by the FATF. Companies conducting international business need to comply with regulations not only in their own jurisdiction, but anywhere they operate.
Ensuring you have systems in place to detect suspicious activity is essential, including customer identification capabilities that have been externally tested.
In spite of high regulatory standards worldwide, AML compliance is not one-size-fits-all. Different companies have different tolerances for risk, depending on how they operate, where they operate, and what they offer. Compliance officers should focus on identifying the levels of exposure a company is comfortable accepting when it comes to compliance. You can start by considering specific factors as they relate to your organization:
All of these factors inform your company’s risk appetite. This measurement is often more difficult to quantify than other aspects of your overall risk tolerance, due to the need to balance customer privacy and fair treatment with strict regulatory compliance.
But remember: it’s never a good idea to skimp on compliance. As a general rule, your risk appetite should be sufficiently stricter than your country’s legal obligations; only then can you be confident that the rules you’ve set are acceptable in all jurisdictions.
If you want to embed a higher degree of certainty and security into your compliance strategy, start with customer onboarding. This is one of the simplest stages to find any red flags, since you’re screening customers for the first time. Ineffective onboarding opens your company up to unacceptable risks — and spotting potential bad actors is far easier in the early stages, before they’re exploring and exploiting your systems from the inside.
Protect your business with Know Your Customer (KYC) processes by having the following systems in place:
Thanks to digital technology, companies have all the data and documentation they need in order to properly identify and verify customers. The only problem is information overload: how do you ensure comprehensive reporting, record-keeping, and training when you’re managing thousands — or even millions — of customer accounts?
If you’re going to implement risk-based, global AML compliance programs that are effective, versatile, and cost-efficient, you’ll require automation. The good news is that solutions like Cognito Watchlist streamline and simplify the complexity of AML, making the manual aspects of assessment and reporting effortless.
While AML policies are necessary and mandatory, they can be expensive, with some of the major banks paying hundreds of millions — or even billions — of dollars to enforce them every year. And the nebulous nature of criminal enterprise makes it difficult to prove that these huge expenditures are actually helping to fight and prevent money laundering.
That’s why finding a technology partner that knows the AML space is critical: automation allows you to cut the costs of compliance so you can reinvest those funds in your people, products, and services. Even better, it improves the accuracy of your onboarding and re-screening processes so you can have more confidence in your risk-management efforts — and your customers can have a more seamless experience.
Cognito’s watchlist product is designed to keep your company AML compliant. Contact us to learn more.