The Anti-Money Laundering Act is a tough act for banks

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The passage of the Anti-Money Laundering Act 2020 (AMLA 2020) in January was a warning for bankers. The most significant addition to US financial crime regulation since the PATRIOT Act became law nearly 20 years ago, the AMLA 2020 brings heightened regulatory and enforcement scrutiny.

Banks must take action now to evaluate whether their current programs are up to the stricter rules.

The AMLA 2020 aims to thwart criminals such as drug traffickers, terrorists, and others who use the banking system to launder dirty money. The law requires the US government to set national anti-money laundering (AML) and counter-terror financing (CFT) priorities. It expands the power of the Financial Crimes Enforcement Network (FinCEN) and grants regulators and law enforcement agencies more authority to fight financial crime. It increases congressional oversight of the Department of Justice and the Department of Treasury, including FinCEN. In the process, the AMLA 2020 creates hundreds of new requirements.

An important deadline is coming up fast. By July 1, 2021, the Treasury secretary must publish the US national AML/CFT priorities for US regulatory and enforcement agencies. Regulators will then examine how financial institutions have adapted their AML/CFT programs to align with US national priorities.

High on their list will be evaluating how your bank has updated its AML/CFT risk assessment policies and procedures. They will want to know if the national priorities present risk to your financial institution. How is that risk identified at your bank? How are you tracking, managing, and mitigating it? Without these answers, your bank's approach to AML/CFT risk assessment will be insufficient, which could lead to hefty fines and financial losses for your institution.

To prepare for these new requirements, banks should take three steps now:

Reevaluate the way you rate customer risk and conduct due diligence

With national AML/CFT priorities established, banks must review and update their policies and procedures for customer risk rating and enhanced due diligence (EDD).

The national priorities will identify customers, products, services, and locations that the Treasury considers high risk. Financial institutions must determine if their current policies, procedures, and processes for high-risk customer identification, EDD, and ongoing monitoring address what the Treasury deems most important.

Update transaction monitoring detection systems

Banks have long complained that regulators focus on quantity rather than quality in suspicious activity reports (SARs). Banks have also lamented that FinCEN does not provide enough feedback in their SAR filings.

Congress has been listening. The AMLA 2020 instructs FinCEN to publish a biannual Sharing of Threat Pattern and Trend Information report providing the financial crime techniques or typologies that law enforcement believes pose the biggest threat.

AML officers should have processes in place to quickly incorporate report findings to improve their transaction monitoring programs. This may include adding new monitoring scenarios or updating existing ones to ensure your bank can detect suspicious activity the government declares most risky.

Upgrade software and incorporate advanced digital technologies

The AMLA 2020 pushes financial institutions to modernize their operations. Using decade-old software that buries investigators under mountains of false-positive alerts is no longer acceptable.

As a result, AML/CFT officers need to look at new detection and reporting software. Ideally, banks should evaluate software that incorporates artificial intelligence (AI) and machine learning to help them identify financial crime more accurately and efficiently while improving customer experience and reducing reputational risk. For some institutions, this may mean installing new transaction monitoring and case management applications. Others may need to consider software hosted in the cloud, also known as software as a service, which can reduce implementation time, expenses, and ongoing maintenance costs.

AML/CFT officers should also explore how robotic process automation (RPA) and data analytics bring improvements to everyday AML/CFT work. RPA automates much of the time-consuming data gathering investigators endure. Better data analysis reveals inefficient processes, measures individual investigator performance, and identifies transactions and customer behavior that improves detection scenarios.

When evaluating new detection and reporting software, it's important to remember that the cloud provides the foundation for true digital transformation. Cloud technology helps companies deliver exceptional and innovative customer and employee experiences at speed and scale, backed by AI, analytics, and automation. Building a strong cloud foundation now will pay off long into the future.

In Genpact's report, Banking in the Age of Instinct, we predicted that societies would increasingly demand that banks take an active and ethics-driven role within communities and a stand on the issues that matter to them the most. Validating that prediction, the AMLA 2020 brings increased expectations from Congress and the public that financial institutions do more to detect, prevent, and report financial crime.

It's in every financial institution's interest to assess, strengthen and modernize its anti-money laundering and counter-terror financing programs. You'll be doing yourselves – and society – a big favor.

This article was authored by Manish Chopra, global risk and analytics leader, Genpact and was originally published in American Banker and PaymentsSource.

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