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The impact of new AML regulations on the banking industry

BLOG POST SEPT 4, 2023 | 5 MIN

SEPT 4, 2023 | 5 MIN

WRITTEN BY MetaMap

New AML regulations are causing changes impacting compliance processes and increasing costs. You should adapt quickly, but how?

WRITTEN BY MetaMap

As the banking industry continues to evolve, so will regulations. Anti-Money Laundering (AML) laws, in particular, have undergone significant changes in recent years, with the goal of combating financial crimes such as money laundering and terrorist financing.

But what exactly do these new regulations mean for banks and financial institutions worldwide?

In this blog post, we’ll explore the impact of some of the new AML regulations on the banking industry and the steps your business can take to stay safe and compliant.

The impact on the banking industry‍

Money laundering has become a major concern for the banking industry in recent years, with the rise of globalization and the increasing sophistication of criminal organizations.

According to The United Nations Office on Drugs and Crime (UNODC), the money Laundry problem represents 2 to 5% of the world’s GDP, which is equal to $800 billion – $2 trillion, laundered annually.

The impact of money laundering on the banking industry is significant and far-reaching. In addition to the financial losses banks incur due to laundered funds that might reach the institutions, they also face reputational damage and legal consequences.

In terms of financial losses, a Basel Institute on Governance report estimates that banks lose approximately 1% of their total annual revenues due to money laundering. This equates to billions of dollars in losses each year, only in the US market.

For example, in 2012, HSBC agreed to pay $1.9 billion to settle allegations of money laundering. Similarly, in 2014, JPMorgan Chase agreed to pay $2 billion to settle similar charges.

To combat these illicit activities, governments worldwide have implemented and strengthened new anti-money laundering (AML) regulations over the years.

This reality requires financial and non-financial institutions to continuously implement policies, procedures, and controls to detect and report suspicious activity.

But unlike other periods, we have observed two situations.

1.How these regulators have more and better digital tools to monitor the intricate national and international KYC / AML regulations.

2. This new scope has helped government institutions fight against illegal activities. However, it has also meant an entry barrier for many companies that need help accessing affordable tools that could help them fully comply and achieve their scale-up objectives.

New and strengthened regulations

In recent years, there has been an increase in the number and scope of AML regulations as governments and regulatory bodies seek to strengthen their efforts to tackle financial crime and money laundering, as they have become more sophisticated and complex.

In this regard, new AML regulators have equipped themselves with better digital tools to monitor the intricate national and international monetary scenario.

One of the key ways in which regulators are using technology is through the use of data analytics. This includes using advanced technologies like Machine Learning and AI technology to analyze, in seconds, large amounts of data from various sources, such as bank transactions and customer information.

Regulators are also using digital tools to improve international cooperation and information sharing. For example, according to Deloitte, regulators now use blockchain technology to share information globally with other financial institutions and regulators.

These new technologies allow regulators to quickly identify and track illegal funds as they move across borders and law structures.

There is no doubt that regulators are helping to create a safer and more stable environment for the financial and monetary system for all of us.

However, the truth is that these actions have also made it difficult for many companies inside and outside the financial world to be 100% compliant at all times. We know that these complications are also affecting companies and users alike.

We know companies are now facing issues such as:

The speed with which new trends in regulations change has placed great weight on the legal teams of the banking industry.
Logistics issues, since companies must comply at every time with national and international regulations.
Technological issues since they should be as close as possible to the use of new technologies (AI, ML) within your company.

The compliance cost

The second item is the cost of compliance; these new AML regulations carry a significant cost required to comply with the rules and the potential consequences of non-compliance.

Financial institutions must invest in technology, training, and personnel to ensure that they meet regulatory requirements. This can be a significant burden, especially for smaller organizations with fewer resources than larger banks.

Financial institutions expect AML compliance costs to continue rising just in the UK.

The banking sector estimates total spending to reach +$37 billion by 2023.
Smaller firms average $230 million annually, while large institutions spend around $370 million.

The increased burden of monitoring and reporting can also lead to higher operational costs for financial institutions, as they may need to allocate more resources to this task.

In addition, regulators may require financial institutions to report a larger volume of suspicious activity, which can be resource-intensive and may increase the risk of false positives.

This situation of an increasingly complicated network of national and international regulations, the strengthening of pressure from regulators, and the increases in the cost of compliance have meant that small companies are spending less on compliance in general. Is this your case?

Consequently, the financial and banking industry recognizes that the costs of KYC/AML compliance regulations are increasingly disproportionate to companies’ size and risk level. This is particularly relevant in the current economic context.

What to do?

By this point, you will have already discovered and remembered some of the challenges this new era will bring to your industry or sector.

But let’s stop here and talk no more about the problems but about some of the solutions.

So here they’re:

Balancing the cost of compliance with business objectives: Financial and banking institutions must carefully offset the costs of compliance with their business objectives, as the resources required for compliance may divert resources away from other projects and initiatives.
Ensuring the effectiveness of AML controls: Financial institutions must ensure that their AML controls effectively detect and report.
Ensuring data privacy: Financial institutions must ensure that they comply with data privacy regulations when collecting and processing customer data for AML purposes.
Lean on technology: Companies can avoid the expense of specialized compliance tools by utilizing new technologies such as AI and Machine Learning to validate and collect user data in a safe and compliant manner. This approach allows companies to maintain compliance at a cost-effective price point.

Lean on an ally, the ultimate next step:

The current digital world is generating the need for the banking industry self-regulate in an accessible and affordable manner. In addition, you want your solutions to avoid causing unexpected monetary or logistical compliance costs. In the end, what you want is to be able to concentrate 100% on developing new products and markets.

By partnering with a reliable and experienced ally, your business can efficiently navigate the complex and ever-evolving landscape of KYC/AML compliance. This includes ensuring compliance with all the necessary steps, such as proper data validation and collection, to protect your business from potential risks and penalties. As a result, you can confidently and effectively meet all compliance requirements with the right partner.

What else to look for?

Scalable cost according to the business needs
Data privacy assured
Effectiveness of AML controls assured
Top-of-the-art technologies such (as AI and Machine Learning)

Here is a set of 5 questions you should ask an Identity Verification Provider to determine which identity solution is the right one for you.

If your business finds a partner that meets all these 4 points, then your concerns about the impacts of compliance will be water under the bridge for 2023.

Lean on MetaMap: This is where MetaMap comes in as the perfect ally for your bank or financial institution.

With a presence in over 50 countries, 600+ companies trusting us with their AML and KYC compliance processes, and the use of AI and Machine Learning technology to quickly validate user identities, we are market leaders and confident in our ability to help you unlock untapped potential.

Our product quickly and efficiently verifies your users’ identities, providing a quick and easy solution for protecting your business. Our validation process is fast, easy to integrate, and can be tailored to meet the unique needs of your growing company. Take a glimpse at our product and see for yourself.

With MetaMap, you will have everything in a single tool thanks to our following merits:

Location Intelligence: Through GPS technology and IP verification, you will be able to know the exact location of your user and limit access to your business by geographic zones.
Biometric Verification: With this merit, you’ll not only be able to verify that your user’s face matches their identity documents but also compare it with government data sources.
Document verification: Implement a robust document verification process to ensure that all documents uploaded by users are genuine and unaltered. Additionally, use watchlist screening to verify that none of the users are on any global sanctions or blacklists. This helps maintain the integrity of your business and comply with regulations.
More than +25 fully customizable merits to meet your business needs.

So, what are you waiting for to join the hundreds of companies that trust MetaMap to prevent digital fraud? Get a free trial of our product now!