Anti-money laundering (AML) for financial services firms is evolving as they broaden their usage of the behavior detection at the heart of AML and begin to consolidate AML and anti-fraud platforms. Firms may also see their governments refine AML and related policies as a result of the latest recommendations of a standards body urging countries to re-assess terrorist funding risks.
Market research firm Celent says it has been a longtime advocate of the “enterprise compliance” approach of combining AML and anti-fraud systems. “But until the last few years there were few real life examples to point to,” says Neil Katkov, a senior vice president, Asia for Celent, in a prepared statement. Katkov is co-author of the report, “Evaluating the Enterprise-Wide Compliance Vendors: Solutions for Anti-Money Laundering and Anti-Fraud.”
Another Celent analyst and the other author of the report Arin Ray says that while best-of-breed is still a viable approach, “more financial institutions are now aiming to realize efficiencies through implementing one standardized platform for AML and anti-fraud.” This is likely the main driver for the $504 million that banks and firms are expected to spend on AML this year, says Celent. The money-tracing software has gained ground within institutions as they have redoubled their efforts to fight fraud. This has caused firms to take a holistic approach as they seize upon the benefits of combining AML and anti-fraud systems.
But, in order for AML, anti-fraud and anti-terrorist funding systems to work, they need effective global standards supported by legitimate governments, which is why many of them turn to the Financial Action Task Force (FATF). Set up in 1989, the FATF is an inter-governmental body that drives standards for effective legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the international financial system.
Earlier this month, the FATF issued new recommendations to “strengthen the requirements for higher risk situations, and to allow countries to take a more focused approach in areas where high risks remain or implementation could be enhanced,” according to its new report. “Countries should first identify, assess and understand the risks of money laundering and terrorist finance that they face, and then adopt appropriate measures to mitigate the risk.”
The risk-based approach allows countries to use a more flexible set of measures to target their resources and apply preventive measures that are “commensurate to the nature of risks, in order to focus their efforts in the most effective way,” according to the report.
FATF will urge countries to implement these recommendations in their national systems, which may cause some countries and regions to step up their AML/anti-terrorist funding strategies. Over the years, FAFT has gotten the support of more than 180 countries and works closely with “FATF-Style Regional Bodies (FSRBs),” and other overseers such as the International Monetary Fund, the World Bank and the United Nations.
For institutions and firms, FATF wants them to assess and keep in mind the money laundering and terrorist financing risks of many of their activities. “In the case of financial institutions, such a risk assessment should take place prior to the launch of the new products, business practices or the use of new or developing technologies. They should take appropriate measures to manage and mitigate those risks,” according to the report.
It’s still too early to know how firms and governments will react to the new consolidation and FATF recommendations. Some firms may welcome the risk-based approach and may find it easier to manage via unified platforms. For some countries, the recommendations may not mean radical changes. But for those regimes and firms with lax anti-terrorist funding policies, systems consolidation and FATF’s push could lead to necessary disruptions.
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