Using Technology to Reduce Money Laundering Risks in Asset Management

Blog / AML Solutions for Asset Management

Rapid digitalization proved itself to be both useful and harmful, especially when it comes to the Internet. Currently, we can say that the World Wide Web is an endless skyscraper that houses many offices for companies, banks, etc. This situation helped to make our everyday transactions easier. However, it also comes with many risks. In contrast to a simple real-life bank transaction, there are many mediators online in such transactions: your internet provider, the browser itself, and several programs that act as trackers... The list goes on and on. While these mediators prove themselves useful, we cannot deny that the threat of unwanted results increases with each mediator.

Of course, that does not mean that technology will always do us harm. There are ways we can use to reduce certain risks. The field of asset management effectively makes use of these ways. To combat money laundering risks, they count on AML compliance software to locate and neutralize the risk. In this text, we will take a look at how AML compliance software can be used against such risks.

Anti-Money Laundering Software helps to ensure that financial institutions meet the legal requirements.

Why Does Asset Management Require AML Compliance?

Asset management is a field of the trade industry that has billions of dollars in circulation. At the end of 2021, its total worth was 250.12 billion dollars, which continues to rise. Being a field with such growth has brought asset management under the spotlight of illegal activities. Frauds are being tried in the asset management field continuously. One of the most prominent types of these fraud types is money laundering.

As a reaction to this situation, the authorities have found AML compliance rules much needed for the asset management field. The AML program that is imposed on asset managers has four pillars in itself: 

  • Policies, procedures, and controls of the program,
  • An AML Compliance Officer who would be in charge of the program, 
  • Ongoing employee training for the program,
  • Independent testing of the program.

These pillars aim to deal with major implementation challenges of an AML program, such as:

  • Ensuring oversight and governance,
  • Developing risk assessment,
  • Monitoring suspicious activity and reporting them,
  • Training of the AML personnel,
  • Outsourcing of AML program activities.

The requirements that the authorities impose may vary since there are separate establishments for different countries. For example, in the US, there is the Financial Crimes Enforcement Network (FinCEN); in Germany, there is the Federal Financial Supervisory Authority (BaFin)

The Benefits of an AML Compliance Software for Asset Management

The biggest benefit that AML Compliance software provides is making sure that the required compliance for all laws and regulations are being met.

Also, AML Compliance software helps a company secure its profit in case of a money laundering attempt. As such, it is very helpful for an asset manager. The ways of detecting and combating money laundering attempts are being continuously perfected by many AML Compliance software providers. Moreover, the sense of growing security that AML Compliance software provides attracts clients in great numbers.

Asset management organizations are subject to regulatory procedures; embodying customer onboarding strategy is essential.

Such software may have the feature of Transaction Screening Service in them. This service ensures that transactions are made safely and securely, both in countries and internationally. One of the applications seen as having the greatest potential for the adoption of cutting-edge and innovative technology was transaction monitoring and filtering. There is a commonly held belief that there may be benefits given that compliance in this field is currently mostly technology-driven.

Transaction Screening Service comes in handy, especially for SWIFT payments, which require high levels of security. It is also a legal requirement for businesses that have AML obligations.

Recent Technologies to Support Compliance

Artificial Intelligence (AI)

Over the past years, AI has aided many developers in different fields. The usage of AI can be seen in AML Compliance software as well. Some of the AI-aided methods in AML Compliance are:

Machine Learning (ML)

As an analytical technology, machine learning has been developed against various financial crimes. While it is not a recent technology, its usage in AML is recent. It especially comes in handy while reducing the number of false positives and has been used with AI to develop more effective solutions.

Natural Language Processing (NLP)

Between developing technologies, NLP has one of the biggest potentials when it comes to digitalizing activities. Automating such activities, ensures a reduction in operational costs and an increase in the consistency of decisions. Using NLP technologies is effective in dealing with both false positives and frauds of all types.

Another area with potential NLP applications is client screening, where standard matching systems have traditionally had trouble matching names with varying spellings, formats, or scripts. Adopting NLP technology may make it possible to lessen false positives and improve fraud and money laundering detection.

Further Ways of Securing Your Profit

Incorporating technology into your system may be advantageous, yet more than registering and installing software is required. After this process, you should keep in touch with the developer to learn about the updates, maintenance, or any assistance you need.

Of course, continuing to make risk assessments and ensuring model tuning are also needed. While risk assessments would help you to get routine and accurate information, model tuning would flesh out data quality issues.   

An AML program with successful compliance and which is executable would save you from the pain that illegal activities cause. Sanction Scanner is eager to help you with the headache of an unsuccessful AML Compliance program. 

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