Role of technology in combating financial crime

Nishanth Nottath (Chair, Digital Working Group)

The UAE AML/CFT Partnership Forum established a Digital Working Group to explore the role of technology in combating financial crime. Led by me, Nishanth Nottath, the group aimed to engage industry experts in discussions on leveraging breakthrough technologies to address challenges posed by evolving financial ecosystems.

The Digital Working Group, established in Q3 2022, comprises eight industry practitioners and has since expanded its engagement to include around 45 regional and global experts. The group’s primary objective was to produce a White Paper focused on advancements in Anti Financial Crime (AFC) technologies for fighting financial crime.

The financial services industry has experienced significant disruption due to technology, leading to faster transactions and increased fragmentation, which poses challenges to transparency. With breakthroughs in processing speeds (GPUs), increasing availability of Cloud ecosystem, we are witnessing unprecedented pace in adoption of tech, advanced analytics and models in the AFC arena. However, advancements in Generative AI and Large Language Models (LLMs) have opened new avenues for enhancing anti-financial crime (AFC) efforts. Leading global companies are investing billions in the next frontiers of technology – Quantum computing and Artificial General Intelligence (AGI). it is critical that AFC practitioners keep a close tab on emerging tech as these will have a direct impact on their work. Criminals are always on the look-out for better ways to obfuscate their trails of crime. We should remain at the forefront, and the mission will only be successful if we remain up to-date and master these technologies.

The shift towards ‘Compliance in design’ is emphasized, advocating for preventive controls to scale products and services securely amidst the rapid expansion of digital financial offerings. This transformation requires a shift in both mindset and skill-set among AFC professionals to build future-ready compliance programs.

The Executive Summary discusses the significant changes in the financial sector over the past 50 years, attributing globalisation and technological innovation with facilitating illicit financial flows. Despite substantial investments in compliance, only a fraction of these flows are detected, necessitating a more efficient approach.

Key areas of focus outlined in the White Paper include:

• KYC, CDD, Onboarding: The KYC process is one of the more essential elements of the compliance process, and it plays a vital role in the relationship between an organisation and its customers. There is a need to streamline the KYC process, move towards digital transformation, and improve accuracy to enhance efficiency and customer satisfaction.
• Transaction Monitoring and Surveillance: Transaction monitoring and surveillance processes, critical for identifying and preventing financial crimes, are challenged by the diversification of financial services and emerging payment methods. Traditional monitoring processes struggle to keep pace with dynamic financial transactions, calling for updated systems and standards to counter emerging risks effectively.
• Screening: This section explores the complexities of name screening, emphasising the importance of considering variations in spelling and transliterations. Name and transaction screening remain fundamental in AFC frameworks, requiring continuous vigilance and technological adaptation to mitigate risks.
• Large Language Models (LLMs): LLMs are highlighted as powerful tools in KYC and screening processes, necessitating a balance between automation and human expertise. However, integrating Generative Artificial Intelligence (gen AI) introduces ethical and operational considerations, underlining the importance of balancing automation and human expertise.
• Model Risk Management / Data: The Model Risk Management Framework (MRMF) becomes a crucial tool in identifying, assessing and managing these risks. The report highlights the critical components of a robust MRMF, emphasising the importance of collaboration between compliance professionals and independent model review teams. Financial institutions rely heavily on models for decision-making, necessitating robust risk management frameworks to address evolving regulatory landscapes.
• Core Models (EWRA / FCRA, CRRM): Enterprise-wide risk assessments (EWRA) are critical in combating money laundering and terrorist financing, despite challenges in technological development compared to other areas like KYC. The section describes the slower pace of technological development in EWRA compared to other areas like KYC and transaction monitoring. It explores opportunities for progress, particularly in automating data collection, creating interactive reporting dashboards, and leveraging blockchain for transparent recordkeeping.
• Virtual Assets: This chapter discusses the inherent challenge of synchronising technological development with regulatory evolution. While virtual assets hold promise for financial crime detection, experts point out the lag in regulatory oversight. The integration of blockchain analytics with traditional financial crime technology is explored, emphasizing the need for synchronized technological and regulatory advancements.

The report concludes with insights from industry experts, highlighting the importance of multi-skilled AFC professionals well-versed in emerging technologies to navigate evolving financial crime landscapes effectively. The convergence of technology and anti-financial crime is at a critical juncture, and a comprehensive and adaptive approach is needed to navigate a quickly evolving landscape. “A FC professional of the future (I would say that it is a need of today) needs to be well versed with emerging / emerged technologies that are driving change and disruption to seasoned systems and processes as technology is evolving rapidly, introducing greater opportunities but also greater risks.

In summary, the White Paper provides a comprehensive analysis of the intersection between technology and anti-financial crime efforts, emphasizing the need for innovative approaches to combat financial criminals in an increasingly digital environment.

These are exciting, once in a generation time for AFC professionals to forge ahead and be at the forefront of fighting financial crime, aided by cutting edge technology. I wish all the readers every success in this journey to make the world a safer place.