Remittance and AML innovation: four top challenges for 2022

The anti-money laundering (AML) picture for remittance and cross-border payments firms is complex. As a result, the temptation not to innovate is high. However, proactive organisations know that innovation is essential to long-term success – and this applies to compliance as much as product or marketing.

To make them easier to overcome, we advise compliance professionals to break innovation obstacles into parts. Our conversations with compliance teams in remittance and cross-border payment firms revealed four categories of challenges.

  1. Managing AML/counter-terrorism financing (CTF) risk with legacy technology

As guidance issued by many regulators indicates, fraud and financial crime typologies are becoming more complex in many areas - such as ransomware attacks. 

Manually delivered regulatory and financial crime risk management regimes struggle to identify many of these threats, capture the correct data to act quickly, mitigate losses and avoid regulatory breaches. 

Take transaction monitoring as an example. Traditional systems rely on a static analysis of predetermined risk factors. Updating these systems with new algorithms can help generate more complex risk assessment frameworks. However even with these improvements, achieving a real-time approach may not be possible.

  1. Navigating the evolving regulatory landscape

Regulatory demands can increase cost and time pressures for international payments. Between two and five per cent of global B2B cross-border payments are subject to additional investigations. Regulators are pressuring firms to contain their misconduct risks, coordinating their efforts across multiple jurisdictions. 

Even with increased coordination between enforcement bodies, the degree of regulatory change risks further arbitrage. For example, regulators can take different views on what is acceptable when screening transactions. A system alert arising from a calibration issue may not be a problem for some regulators, but others would have firms review all alerts regardless of the cause. This makes an agile, dynamic compliance tech stack more critical than ever. 

  1. Managing partnerships and regulations

Firms must ensure they enforce regulatory requirements across partner relationships. We’re often told of the need to provide regulatory reporting to multiple banking partners across different regulatory regimes. Compliance teams must also ensure that partnership agreements don’t compromise any service delivery guarantees they give customers. Delivering innovative cross-border payments will require advanced technologies and data reporting to provide the foundations for a well-integrated cross-border solution.

  1. Accommodating crypto and CBDCs

As consumers and criminals focus on digital currencies, regulators will divert their attention to areas such as custodian wallets and virtual assets. Evaluating how best to meet Know Your Customer (KYC) requirements in these areas is a particular focus. 

One area which could have particular significance from a regulatory perspective is Central Bank Digital Currencies (CBDCs). Wider adoption of CBDCs would lead to questions around privacy and regulation, given the risks posed by anonymized virtual asset networks. Firms should keep up with statements, consultations, and draft legislative proposals issued by policymakers in their jurisdictions and act accordingly.  

Next steps

To help remittance and cross-border payment firms navigate the shifting AML landscape, we’ve published an in-depth research report, which can be downloaded for free here.

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