Tightened financial compliance requirements and how AI can help

  • By Rachel Woolley

Australia has been in the global spotlight over the past year – and not in a good way. The banking royal commission exposed some serious flaws in Australia’s financial industry, and there have been several fines levied by the Australian Transaction Reports and Analysis Centre (AUSTRAC) for Anti-Money Laundering (AML) compliance breaches. 

But it’s not just local authorities putting Australian financial institutions under the microscope. 

International watchdog, the Financial Action Task Force (FATF), has also been keeping a close eye on Australia’s compliance with anti-money laundering and counter-terrorism funding legislations.

With all eyes on Australia, financial institutions are faced with enormous pressure to stay on top of the mounting compliance requirements. It’s no wonder, then, that there’s growing discussion interest in automation and other regtech solutions to help ease the burden. 

Rising financial penalties 

Until AUSTRAC levied a $700 million fine to a single bank for repeated contraventions of AML legislation, no Australian institution had ever received such a large fine. Nor were they expecting one, it seems. According to a recent report by Fenergo on global financial crime enforcement, Australian banks invest far less in compliance than their global peers. 

In recent years, the combined investment toward regulatory change by three of Australia’s biggest banks totalled AUS $1.73bn – a stark comparison to the estimated US$900 million to US$1.3bn that major international institutions spend individually. However, considering the current landscape and the increasing pressure on financial institutions to become more accountable, it’s likely we’ll see Australian banks investing more in compliance moving forward. 

The Financial Action Task Force 

Australia is also a member of intergovernmental bodies such as the Financial Action Task Force (FATF) – an international body which formed to combat money laundering and terrorism financing – and the Asia/Pacific Group on Money Laundering (APG), whose role is to monitor the adoption, implementation and enforcement of standards set out by FATF through a mutual evaluation process.

FATF has undertaken a series of evaluations of Australia, and recently published its third enhanced follow-up report on Australia in November 2018. Although FATF’s most recent report showed that Australia had made improvements, it still remains non- or partially compliant with 14 FATF Recommendations. As a result, Australia will remain in enhanced follow-up, requiring it to report back to the FATF on its continued progress. 

Automating compliance 

With AUSTRAC and FATF – not to mention news media and the general public – keeping a watchful eye on Australian banks, strict regulatory compliance is mandatory. However, keeping up with the increasing anti-money laundering (AML), know your customer (KYC) and counter terrorism funding (CTF) legislation and requirements is an onerous task, putting a large strain on valuable resources. This is where automation solutions, particularly artificial intelligence (AI), can be most valuable. 

Financial institutions will benefit from AI because of the way it can mine huge volumes of data, automatically flagging risk-relevant facts faster than humanly possible, saving valuable time, effort and resources that can be refocused on higher client-value, or higher risk tasks. When used throughout the onboarding process and continuing relationship, AI can identify illicit client relationships, beneficiaries and links to criminal or terrorist activity, mitigating the risk of AML regulation breaches. 

What’s more, AI technology can assist with tracking regulatory change implications around the world and identify gaps in customer information stored by the financial institution. It can then distribute KYC alerts to the bank, prompting them to perform regulatory outreach to customers to collect the outstanding information. All in all, AI can create automation opportunities across large parts of client life cycle management (CLM) in areas that are currently very labour-intensive, time-consuming and error-prone.

The takeout

There’s no escaping the growing need for regulatory compliance in Australia. With financial regulators putting AML and KYC procedures under the microscope, the time has come for banks to make a change. And while keeping on top of regulatory requirements can pose a significant challenge, new technologies such as AI can help streamline processes and help ease the burden. But one thing remains clear, whether done manually or through the implementation of new technologies, there will no longer be any leniency for Australian institutions found to be in breach of AML, KYC and CTF obligations. 

Rachel Woolley is a global AML manager at Fenergo