RegTech for KYC & AML : What are the use cases to improve AML Compliance

Mobile money fraud

The detrimental effects that financial crime may have on businesses and their consumers are nothing new to the fintech sector. When it comes to money laundering, this is especially accurate.

Fintechs are attractive targets for money launderers since they only offer digital services, which they believe gives them more anonymity and makes it possible for them to perpetrate crimes undetected. Organisations must adhere to a number of anti-money laundering laws and regulations to guarantee that they are protected from illegal behaviour in order to combat this.

AML measures can increase security across these platforms, but implementing them across all of their services can be time-consuming. Regtech software, fortunately, gives risk and compliance professionals a powerful way to improve their AML operations. Let us explore how to use regtech for AML in the following sections:

  • why is regtech important?
  • What is regtech?
  • What is regtech in banking?
  • What are the use cases of regtech for AML compliance
  • why is regtech important for AML compliance?

A wide range of fintech compliance procedures are being implemented by regulating authorities throughout the world as financial services move into digital channels.

There are two basic justifications for adhering to AML guidelines. They first guard businesses and clients from attempts at money laundering. Second, most areas have laws requiring them, and breaking them may result in severe fines and other consequences.

Some businesses are unaware of the fact that improved AML procedures can reduce money laundering on their platform and save money overall. Companies may significantly limit the effect money laundering has on their business by reducing AML rules and using a regtech solution that sends notifications about pertinent legislation.

What is Regtech?

The ideal answer for AML compliance is regtech (short for regulatory technology), which is software created to optimise and enhance regulatory operations.

AML compliance may be expensive and time-consuming to manually manage. Teams can spend hours reading through legislation and keeping an eye on their fintech services for possible money laundering, diverting their focus from case management and enhancing their preventive tactics. Furthermore, shady activity may still go unnoticed.

The cost of AML compliance may be significantly decreased with the aid of the correct regtech solution thanks to rule-based workflows that enable firms to automate numerous AML operations. With greater accuracy and efficiency, teams can better prioritise their time and stay ahead of money laundering thanks to the use of automation and customised rules in regtech. To stay up, the majority of businesses will need to implement a risk and compliance solution; the question is when is the right time to do so.

What is Regtech in banking?

By utilising technical developments in data mining, artificial intelligence, blockchain, machine learning, automation, etc. , a regtech helps a bank, credit union, or other financial institution solve issues, improve procedures, and manage risks for regulatory compliance. Simply defined, regulatory technology, or regtech, aids regulators in using technological solutions to guarantee that businesses are abiding by standards.

Regtech products come in a range of forms and dimensions. Specific-rule solutions might concentrate on a specific area, whereas business solutions can give a real-time holistic perspective of compliance and risk.

Regtechs focus more on institutional responses than fintechs do on “consumer experience” and competition, and their efficiency and efficacy should serve shareholders and consumers equally with profit and protection.

What are the use cases of Regtech for AML compliance?

Regtech compliance solutions make it easier to comply with rules and safeguard fintechs. By providing improved control over AML compliance efforts and direction on best practises to follow, these solutions enable risk and compliance teams to better their AML strategy and all related workflows.

Several regtech use cases to enhance AML compliance are covered in this section.

Identity verification and authentication

The use of fake or stolen data to open a new account or log into another user’s account is one method used by financial criminals to conceal the laundering of money. These fraudsters can be stopped prior to their accessing services by using regtech and KYC solutions within a fintech’s onboarding orchestration.

By incorporating partners’ access to KYC data into their database, regtech software enables fintechs to automate identity verification. The information a new user gives may be compared with official papers from various partners using customised onboarding methods. The user will not be permitted access to the site if the information appears to be false or doesn’t totally match the KYC data. If not, they will be immediately permitted to utilise the fintech service.

This develops an automated system that stops identity theft and new account fraud, giving AML experts peace of mind that bad actors are being kept off the platform and enabling them to put more work into their AML initiatives.


Customer due diligence

Most fintechs that operate with sponsor banks must do customer due diligence (cdd), thus it’s critical to maintain the effectiveness of this procedure. When consumers open an account, this may be accomplished by employing identity verification and KYC information as a type of risk management.

The same regtech tools that are used to validate clients’ validity during onboarding may give compliance professionals access to a customer’s past transactions and financial behaviour, enabling them to continuously tick off items on their cdd checklist. Integrating KYC/KYB fpartners can even reveal information that may be concealed, such the ultimate beneficial owner (ubo) of a company customer.

The procedures for the cdd process may be automated, and the risk and compliance teams can develop unique criteria to identify the kinds of KYC data that are most suspect. They may therefore concentrate their efforts on watching over those particular consumers and thwart money launderers in their tracks by being warned when customers offer a certain level of risk for money laundering.

Transaction monitoring and screening

Transactional patterns of customers can be a good indicator of money laundering. But being unable to identify fraudulent transactions as they take place is a major challenge for AML specialists in the fintech industry.

Transaction monitoring tools that follow client behaviour and alert users to suspect conduct can quickly and effectively fix this problem. To find behavioural abnormalities, transaction behaviour may be compared to previous transaction data. These situations can then be escalated to a risk analyst for further study.

The time it takes to investigate and report suspicious conduct may be greatly decreased if risk and compliance teams are able to customise the criteria for how suspicious activity is detected and given priority for inquiry.

Teams have the confidence that unscrupulous actors won’t go unnoticed by using regtech to put up effective AML transaction monitoring rules, which lets them to concentrate more on updating their AML strategies and case management.


Case management and SAR filing

The difficulty in completing investigations and submitting suspicious activity reports (sars) on time has cost some fintechs (and their clients) money. Maintaining compliance necessitates keeping an eye out for unusual activities and reporting.

Fortunately, risk and compliance teams may take control of their case management and automated sar filing with the use of regtech solutions. Teams may quickly conclude investigations if questionable behaviour is highlighted for evaluation by examining visualisations and data in a single dashboard. Before being filed with fincen and goaml, sars are automatically generated utilising templates and pre-populated information.

By making sure they keep track of every case, fintechs may maintain compliance by using the appropriate AML case management software. Additionally, they complete research and file sars quicker, so they can keep up with deadlines and safeguard their customers.

Alert scoring and risk profiling

Being regularly bombarded with false positives might reduce productivity and make it challenging for investigators to concentrate on the important warnings. This is why having a solid AML risk assessment method is crucial.

Regtech uses alert scoring and risk profiling to maximise the effectiveness of a team’s plan. Teams can rate accounts and transactions using the automatic tool called alert scores based on possibly suspicious activities. Furthermore, risk profiles establish criteria for which clientele pose the greatest risk for money laundering. Together, these elements can rank scores and point investigators towards the clients and transactions that need their attention.

Teams can perform better by setting up a mechanism to prioritise warnings with high ratings by completing inquiries faster and ensuring efforts towards real threats.

Compliance management and auditing

Fintechs may benefit from regtech in a number of ways to keep on top of their compliance. This involves being aware of their progress with regard to compliance.

By investing in a compliance management solution, risk and compliance teams may simply identify which rules apply to their fintech firm and employ AML and KYC processes to comply with them. Teams may utilise a dashboard to assess their workflows for compliance and leverage technologies that are ready for compliance to assist them in implementing the basic requirements.

These solutions save teams time and effort that would otherwise be spent manually tracking their compliance activities while also providing them with the assurance that they are on track to maintaining compliance.

Conclusion: Regtech for AML  & KYC

Your risk and compliance team might investigate a regtech solution as a possibility for strengthening AML strategies now that you are aware of how regtech enhances AML regulations and compliance for fintechs. You’ll be equipped to tackle new fraud trends that pose a danger to your company if you have the correct infrastructure in place.

Although you can buy or create compliance software, it is usually best to buy a high-quality product made specifically for risk and compliance.

Try IDcentral’s AML screening & KYC Onboarding platform 

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