Cutting the costs of AML Compliance

In 2020 the total global spendings on regulatory compliance reached approximately $215B. As the compliance regulations evolve, these costs are increasing considerably with each year, constituting a heavy financial burden on banks, EMI’s, and other financial and non-financial institutions involved in financial transactions and payments.

With the introduction of Instant Payments policies and practices in the US and EU territories, the costs of compliance are expected to skyrocket due to the Real Time sanctions screening requirements.

The major challenges in adhering to the regulatory rules are:

  • Insufficient capabilities in developing and identifying customer risk profiles.
  • Difficulties to identify UBOs (Ultimate beneficial owners) and PEPs (Politically exposed persons).
  • Difficulties in carrying out sanctions screening, with emphasis on real time screening.
  • Increased risk and variety of sanctions-related violations.
  • Increased friction in onboarding, transactions, and payments processing due to multiple false alerts and false positives that hold the processes back.

To make the list simple, the organizations that are subject to AML compliance regulations need to make sure their technological/operational capabilities include (among other things):

  • Real Time Sanctions Screening
  • User profiling
  • KYC for onboarding
  • Alerts Resolution
  • ID of UBOs and PEPs
  • Regulatory Reporting

Researches on financial institutions’ spendings on compliance in 2020-2022 show that banks spend approximately three quarters of their financial crime compliance budget on people and only one quarter on technology. However, even the biggest compliance teams are not able to provide an adequate answer to the Instant Payment requirements. No amount of people can manually resolve hundreds and thousands of alerts instantaneously (under 7-8 seconds) – each manual alert resolution takes about 8 minutes. This means that with the current average alert rate of over 30%, approximately one third of payments won’t be instant.  

So, even with the increased tremendous operational costs, the friction will grow, while the Instant payment requirements won’t be met.

As Fintech Futures indicates:

“the financial services sector’s response to financial crime compliance is significantly more labour-intensive than technology-driven, suggesting significant gains in both efficiency and cost effectiveness are readily achievable, through greater use of data and technology, for example to:

      • Increase capacity – process greater volumes of customer onboarding checks
      • Increase efficiency – perform existing checks in less time
      • Reduce costs – lower cost per check and reduced false positives
      • Significantly free up staff time to spend on higher value-add compliance activities.”

In other words, by investing in an advanced technological solution, banks, payment providers, EMIs and others will, in overall, spend less on compliance while ensuring better efficiency of operations and greater returns on investments.

Fincom’s Advanced Full-Scale AML Suite for Real Time sanctions screening provides just that:

  • Real Time sanctions screening against sanctions lists, watchlists, PEP, internal lists, etc.
  • Effective & Efficient – accurate name matching with high phonetic proximity, ensuring reliable, accurate, and efficient screening. No missed hits. Significant reduction of false positives.
  • Screening names in 44 different languages in original scripts (alphabets). Resolving spelling variations, transliterations, including unstructured names.
  • Unprecedented reduction in alert rates: <3.6% (vs. current ~30%)
  • Smart alert-suppression mechanism (automatic alert disposition) – resolves alerts automatically, reduces false positives, and mitigates operational burden.
  • Automations, including (among other things): automated alert disposition, persistence mechanisms, ongoing sanctions monitoring, automatic lists synchronization, updated changes (delta) to sanction lists, and more.
  • Accurate user profiling.
  • Analytics and Reporting.

For full functionality and features overview, visit the Product Page.

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