Regulators to Financial Institutions: New Technology Creates Better BSA/AML Compliance

In her December 3rd, 2018 remarks to the ABA/ABA Financial Crimes Enforcement Conference, U.S. Treasury Department undersecretary Sigal Mandelker emphasized the importance of adopting new technological advances for the detection of illicit financial activity. “Private sector innovation, including new ways of using existing tools or by adopting new technologies, can be an important element in safeguarding the financial system against an evolving array of threats,” Ms. Mandelker said. This nudge by regulators towards adopting new technology coincides with increased activity and innovation in the private sector surrounding AML compliance.

The statement went on to assure banks that deficiencies discovered by newer and superior technology would not necessarily be met with supervisory action and that pilot programs for new technology should not subject the banks to further scrutiny. “The statement also recognizes the value of trial and error. It notes that innovative pilot programs in and of themselves should not subject banks to supervisory criticism, even if the pilot programs ultimately prove unsuccessful. Likewise, pilot programs that expose gaps in an AML compliance program will not necessarily result in supervisory action with respect to that program.”

AI and automation are two of the largest areas of technological advances in AML. AI is no longer confined to academic research institutions, but is creating major changes across many industries today. AML is no exception to this trend with firms like Jumio introducing products that use machine learning to improve detection accuracy. These models consistently and dramatically outperform conventional rule based systems and are inevitably set to become the industry best practices in risk-based detection.

Further, applications of automation technology are helping to alleviate routine tasks that slow down the investigation process and enable faster and more accurate decision making. Workflow automation takes many of the repetitive, tedious, and error prone elements of the investigation process and performs them quickly and accurately. Basic automation applications include pulling together disparate data sources, auto filling information, and dealing with duplicates and false positives. By removing these tasks (and many others), workflow automation allows analysts to spend their time doing the most valuable work: assessing risk.

The December 3rd statement is a noteworthy acknowledgement by regulators of the value and necessity for banks to adopt new technology and engage with the innovative private sector. The Treasury has effectively put the burden on the financial institutions to develop and implement plans to engage with new technology and use it to improve their compliance outcomes. Those that do not choose to invest in their compliance technology will soon see their programs fall behind those of their peers and face heightened regulatory scrutiny and action.

U.S. Department of the Treasury Press Release

WSJ Article

ACAMS Article


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