The enduring struggle against scammers continues to evolve rapidly, with key frontline defences being ‘know your customer’ (KYC) and anti-money laundering (AML) initiatives. Yet the question remains whether these actions alone are sufficient.
Kieran Towey, who heads management consulting at KPMG, maintains that while KYC principles and transaction monitoring act as the chief fortresses against misconduct, combating modern financial transgressions requires the employment of innovative automation and artificial intelligence capabilities given the immense transactional volume and speed.
According to Towey, traditional KYC methodologies that assess risk at the customer onboarding stage and proceed with occasional evaluations through time, seeking to update client data to reassess potential threats, are no longer adequate. The future of the sector is in perpetual KYC, or near real-time continuous scrutiny of customer activities for risk assessment.
Companies are now resorting to technologies that monitor and gather data on customer’s internal and external activity, updating client profiles in real time to proactively handle risk. Towey asserts that this necessitates a continuous AI capacity that automates client data and risk updates, providing organisations with immediate intelligence on customer threats – an immeasurable weapon against illicit actors.
The implementation of new transaction monitoring solutions are enhancing both productivity and efficacy. With technology again stepping in, companies are relying on behavioural and network analytics to understand the context of their client and discern suspicious transactions.
Head of Regulatory Investigation at A&L Goodbody, Dario Dagostino and Head of Financial Regulation Advisory at the same firm, Patrick Brandt, emphasise that money laundering remains a prominent risk for payment and e-money service retailers, and other fintech companies. This involves a sequence of steps to sanitise criminal profits including the injection of funds into the system, disguising them via convoluted transactions and incorporating them into legitimate funds flow.
In a more contemporary perspective, regulatory systems are now prioritising other forms of fraudulent activity such as “authorised push payments”. These occur when customers complete authentic transactions, having been tricked by impersonation or other confidence scams.
Dagostino and Brandt highlight that forefront regulations are not only reviewing payment service providers but also third parties like virtual platforms. These platforms are manipulated by fraudulent individuals to deceive honest clients into making approved payments. This careful scrutiny is essential due to the expanding scale of financial misdeeds, including the theft of personal fiscal data through digital attacks, which are increasing at an alarming rate.
According to Jackie King, the executive director of Ibec Global, this problem needs immediate attention considering its magnitude. She reveals that financial criminal activities amount to a whopping €2 trillion per year, with 2% of the EU’s GDP constituting illegal assets circulating in the financial structure.
She further emphasises that money-laundering has become a major concern in Europe, with €200 billion involved in tainted Russian money that was funnelled through Danske Bank in the Baltics. This resulted in a hefty €2 billion fine levied on Danske by the US Treasury the previous year.
Yet, Europe is striving hard to curb this issue with the establishment of the EU Anti-Money Laundering Authority (AMLA), set to commence its operations next year. AMLA will not only oversee regulatory adherence among banks but will also guarantee that financial intelligence departments in national police forces work together effectively based on mutual targets.
King further observes that the new AML statute and directive serve as a unified regulation, reducing the potential weak spots for money-laundering actions. The AMLA has also been tasked to directly supervise the 40 most perilous banks in the EU, particularly those engaging in numerous international transactions.
King also draws attention to the fact that Europe has surpassed the United States to become the largest consumer of cocaine globally. This indicates a massive volume of illegal money that needs to be cleaned, urging banks to remain vigilant and employ the latest technology and AI to counteract money-laundering activities.
The Republic is diligently doing its bit by fostering global technology firms such as Daon and ID Pal, that contribute to spotting financial frauds and money laundering activities. “Ireland has recognition on the international platform as a provider of adept professional services and advanced technological solutions in areas such as Know Your Customer (KYC), customer due diligence and identity validation,” articulates King. “Such tools aid in heightening the awareness within banks regarding suspicions of money laundering, which can subsequently handed over to law enforcement. Furthermore, the tech-advanced ID verification solutions utilised by banks and fintechs pave way for a smoother and remote customer account opening process, besides precluding offences like money muling.”
The solutions introduced by providers in the State play an indispensable role in the evading and detection of illegal activities like human trafficking, environmental crime, drug smuggling, and contemporary slavery acts as well, she highlights.
She firmly asserts that, “Organised crime is certainly here to stay and thus, lies a chance for Ireland to further bolster its image as a hub of first-rate solutions for financial crime – the go-to place for banks, fintechs, and law enforcement agencies.”