Here’s why it’s time for your bank to move on from your first-generation AML detection system

Financial crime is a trillion-dollar industry, and contrary to the popular belief that it’s a relatively victimless crime, it actually affects millions of lives on a daily basis. Despite remaining largely unseen, the proceeds from illicit activities such as child labor, drug running, prostitution, and human traffickinggo on to fund other equally heinous crimes, includingterrorist financing, bribery, and corruption.
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Making matters worse is the fact that criminals grow in sophistication at about the same rate as—or much faster than—the technology used to prevent their illegal activities. The United Nations Office on Drugs and Crime estimates that around 800 billion to 2 trillion US dollars, or about 2 to 5 percent of the global GDP, is laundered through legitimate banking systems annually. Only a very small percentage of these criminal funds—less than 1 percent of it, specifically—is accurately detected, frozen, and seized by law enforcement. The outlook is similarly bleak: experts from the World Economic Forum expect that the percentage will be just as low in six years as it is now.

Most of the world’s money flows through financial institutions like banks, who must exercise diligence to prevent themselves from becoming a party to money laundering and other crimes. However, many banks continue to insist on making use of outdated systems to detect these activities and perform AML reporting, rendering them significantly more vulnerable. Here’s why your bank should consider upgrading to a more modern anti-money laundering solution today:

Legacy anti-money laundering detection systems are simply less effective against financial crime.

Despite having spent over USD180 billion on anti-money laundering compliance as a whole, the global financial industry continues to lag behind financial crime, as evidenced by the most recent statistics. Many banks still do not meet the minimum requirements set by regulatory bodies when it comes to anti-money laundering detection, investigation, and reporting, and therefore have been subjected to fines and sanctions totaling up to 36 billion US dollars in the last 10 years alone.

It’s safe to say that the landscape of crime is constantly evolving, and most banks are stuck playing catch-up when they should ideally be more than a few steps ahead. The biggest weakness of a first-generation AML detection system is the fact that it is a product of a different era, and was designed to respond to threats of that era, not ones that present themselves now. The rules have changed. They are always changing, and legacy AML detection systems have trouble keeping up.

Maintaining a first-generation AML detection system is costly.

One of the biggest reasons why a financial institution might be hesitant to adopt a modern AML solution is the cost. When you already have something in place and it still functions reasonably well, it can be easy to think that you’ll save more money by simply patching up your existing system, allowing you to put the rest of your compliance budget towards other needs. What you may not realize is that this stopgap solution may be costing you morein the long run.

First-generation AML detection systems have to work harder, in a sense, to keep up with ever-changing regulatory requirements and standards. They’re less ready to respond to changes, and it costs money to make them ready. These costs can add up. There’s also the distinct possibility that, in the future, the AML detection your bank is using right now simply won’t be able to accommodate any new regulatory changes. Its original vendor may cease support for it at any time, and finding people who know how to maintain it will become more difficult. When that time comes, your financial institution won’t have much of a choice but to perform a complete overhaul, anyway.

Most legacy AML detection systems require human intervention.

Compliance teams that make use of first-generation AML detection systems are limited by the tools available to them. In many cases, a legacy system can even be a major hindrance that could be actively keeping these specialized staff members from performing their actual responsibilities.Because they’re too busy covering the inefficiencies of the system they’re stuck using, they become unable to execute other tasks that might be more value-adding to their organization. This doesn’t just create more cost for your bank—you’ll have to hire more people to perform the same tasks—it can also result in frustration and burnout that can make employees less effective at their jobs, or worse, cause them to seek opportunities elsewhere.

First-generation AML compliance systems do not satisfy more aggressive regulatory requirements.

AML requirements are decidedly not new, but regulatory bodies are becoming more aggressive in both coming up with new standards and implementing them. They are now also taking a closer look at the systems and processes that financial institutions use in their AML monitoring and compliance efforts, as well as how well they are kept up to date and maintained.

Stricter requirements and higher standards for compliance are likely here to stay, and legacy AML detection systems may soon no longer be able to keep up with the complexities of adhering to these. A modern and scalable AML solution is the best way to continue satisfying these more stringent compliance regulations, now and in the future.