Anti-money laundering (AML) guidelines have become increasingly important globally in the wake of the September 11, 2001 attacks and the passing of the Patriot Act in the United States. This led to the formation of the Financial Action Task Force on Money Laundering (FATF), which has influenced many jurisdictions to require financial institutions to monitor, investigate, and report suspicious transactions to the financial intelligence unit in their respective country.
In the UK, certain acts against terrorism and crime impose counter-financing of terrorism obligations on banks and financial institutions, which also include customer due diligence, transaction monitoring and reporting obligations. According to UK’s acts, financial institutions must put appropriate AML controls in place to detect money laundering activities.
Other countries, especially the ones with a high crime rate including money laundering, have also put the needed acts in place to make sure the combat against money laundering is effective. Since then, AML compliance is being carried out by many financial institutions that assist companies. Rapid digitalization has also presented itself in AML compliance in the form of AML software, which are way more effective than manual methods of AML compliance.
Types of AML Software
Different types of Anti-Money Laundering (AML) software exist to address various AML compliance needs:
- AML Screening: This software is used to identify and highlight individuals or entities that are on sanctions lists, politically exposed person (PEP) lists, or other watchlists. It generally contains a database of individuals and entities identified as high-risk for money laundering or other financial crimes. The software then compares new customer or transaction data to this database and alerts the user if a match is found.
- AML Transaction Monitoring: This software is used to identify and flag suspicious transactions that may be indicative of money laundering or other financial crimes. It generally includes a set of rules or algorithms that analyze transaction data and identify patterns or anomalies that may indicate money laundering. For instance, a transaction monitoring system may flag a series of small transactions that are made over a short period of time, as it could be indicative of structuring.
- KYC-KYB: This process is used to verify the identity of customers and businesses. The software generally includes tools that assist organizations in collecting and verifying customer information, such as name, address, date of birth, and government-issued identification. This information is then used to identify and flag high-risk customers or transactions.
- Risk Assessment: This software is used to evaluate the overall risk of money laundering or other financial crimes for an organization. It generally includes tools that help organizations identify and assess the potential money laundering risks associated with different types of customers, products, services, and transactions. Based on this assessment, the software will provide recommendations for how to mitigate these risks, such as implementing additional AML controls or conducting enhanced due diligence.
It's important to note that all these types of AML software are interrelated and are usually integrated into a single system. This can provide a more comprehensive view of a customer's activities, and help organizations identify and respond to money laundering risks more effectively.
How does an AML Software Work?
An Anti-Money Laundering (AML) software scans and maintains a database of involved countries to identify clients who have been placed on a regulatory body's "blacklist." Additionally, it keeps track of transactions to analyze suspicious activity and generates a Suspicious Activity Report (SAR) that may be used to follow suspicious transactions, identify the parties involved, and pinpoint their whereabouts. By tracking reports sent to financial authorities, the software also assists institutions in following the day-to-day requirements of AML compliance, enabling them to remain watchful and aware of emerging hazards. Moreover, AML software successfully tracks a huge number of transactions, eliminating the time-consuming and error-prone manual scanning methods.
The Benefits of Using an AML Software
Today's digital era has seen a substantial growth in online transactions, which has led to a rise in money laundering activities. Therefore, it is more important than ever to stop such criminal activities. The number of transactions that AML technology systems need to monitor rises along with the growth of cashless payments and electronic payment instruments.
The customer experience is significantly impacted by the time-consuming and error-prone manual scanning of this data that has to be maintained. In the digital environment we live in, it can also be damaging if your rivals are employing AML software. Transaction monitoring becomes essential for businesses in this situation since manual scanning may not be as reliable or effective as software-based scanning. Multiple data sources may be scanned using AML software, guaranteeing optimum efficiency and precise insights.
Regulators anticipate that suspicious activity reports will be used to proactively identify and submit evidence of questionable transactions (SAR). Transaction monitoring can assist businesses in presenting proof of the program's effectiveness to auditors, regulators, and other stakeholders. Transaction monitoring is crucial to the AML system, according to the Financial Action Task Force on Money Laundering's guidelines. Regulators need proof that AML compliance measures are successful and expect financial services businesses to monitor all transactions using a software solution.
Are AML Software Necessary?
AML compliance software market provides a great benefit to financial institutions by automating many manual processes and streamlining decision making. An advanced integrated system can make the work of compliance officers more efficient by reducing the need for manual work. Without the use of an AML compliance software, compliance professionals must manually prepare reports, which can lead to errors and added pressure.
One of the key challenges is managing cases, which requires detailed and complete documentation and filing. This can be further complicated if management is not centralized, requiring compliance professionals to use multiple tables and programs. These reports are critical as they must be submitted to authorities in a timely manner to prevent sanctions and maintain the institution's credibility. To ensure compliance officers use their time effectively, it is important to have a centralized platform that integrates all AML compliance processes, including reporting and case management.
Sanction Scanner is an AML compliance solution trusted by over 300 clients worldwide. With its state-of-the-art products such as Transaction Monitoring, Transaction Screening, Customer Risk Assessment, and AML Name Screening, it offers a comprehensive solution to help organizations comply with AML regulations. Experience the ease and efficiency of compliance with Sanction Scanner. Contact us or request a demo today.