Detecting, deterring and destroying money laundering can benefit from AI, but traditional rules-based AML laws may be complicating effective adoption.
Can AI strengthen efforts to thwart money-laundering? Some 73% of banks in Singapore believed so, but many remained unsure how to operationalize the advanced technology to that end.
How about much older rules-based technology for anti-money-laundering efforts? According to the same banks polled, 86% said they still believed in the ability of these AML systems, while 36% cited significant struggles modifying them.
Said Timothy Choon, the Asia Pacific Financial Crimes Leader for FICO, the organizer of the survey: “Rules-based compliance systems continue to be the workhorse for banks in the Asia Pacific region (APAC) for fighting financial crime. However, some early adopters are starting to embrace the new world of AI and realize that the decade-old rules-based systems can’t keep up with sophisticated threats on their own.”
Choon said the secret sauce is operationalizing advanced AI technology and making it work side-by-side with the rules-based systems. In that regard, 20% of the respondents in the survey picked this as their principal obstacle in meeting financial crime risk mitigation targets.
The survey was conducted online in May 2020 with 256 senior executives from banks across 11 countries on behalf of FICO by an independent research company across Australia, Hong Kong, Indonesia, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. Key challenges for existing AML compliance solutions regionally were cited by respondents:
- the ability to meet new types of compliance risks in channels and products.
- the capacity to provide an end-to-end integrated compliance solution.
- the facility to update quickly to changes in regulation.
Across APAC, larger multinational banks were more likely to use a vendor solution for AML, while the use of an in-house system was more common with domestic banks.
Financial-crime strategy trends
One of the leading indicators driving change in financial crime strategy is customer experience. Over two-in-five respondents ranked this as their top considerations, with 17% of APAC banks citing it as the primary factor behind their current and future approach.
“We can see that addressing the competing needs of regulatory compliance and customer experience remains a balancing act for most institutions. Banks are challenged by the need for more information to deal with high rates of alerts from ineffective systems, while not vexing customers with incessant due diligence questions,” Choon said.
Additional considerations ranked second and third by banks included: reputation damage and direct financial losses. When it came to financial crime challenges, almost half of respondents cited the speed of responding to new threats, while a third believed achieving accurate detection remained a significant test.
Committed to AML investments
The report indicated that a significant majority of banks (93%) across APAC were likely to continue their technology spend on either upgrading or enhancing their compliance systems. However, in the key regional financial centers of Singapore and Hong Kong, only two-thirds of respondents indicated that their banks were likely to start new investments in compliance technology.
In Singapore, 95% of banks said they will continue to invest in compliance in the year ahead and 23% planned to significantly increase this investment in 2021. Overall levels of investment in compliance technology by banks in APAC are expected to rise in 2021. Some respondents (49%) said budgets will increase, with an additional 34% expecting a significant increase.
Foreign banks were more inclined towards new spend compared with their domestic counterparts. Indonesia, Australia, Thailand and the Philippines were the markets that would invest the most in 2021.
Choon continued: “There is an increased willingness to perceive compliance and fraud as a common financial crime risk—a fraudster is more likely to launder money, and vice versa. This convergence is a global trend. Banks in the US and UK are well on their way to fully-integrating their compliance and fraud functions, bringing together teams, leaders and technologies. We believe banks in APAC are looking to these markets to see what will work, with plans to follow quickly in the next 24-36 months.”