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FATF reports on technology & AML: what we’ve learned (and what we’re missing)

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The last 18 months have marked a turning point in the field of technology and anti-money laundering (AML). This shift is only partly due to the Covid pandemic; global and regional bodies are also playing an increasingly important role. With the potential of regulatory technology (RegTech) to improve AML outcomes widely recognised, the agenda is now moving towards landscape analysis and case studies. 

Hot on the heels of a report on the use of RegTech in the EU by the European Banking Authority, the Financial Action Task Force (FATF) has launched two new reports specifically looking at the use of technology for anti-money laundering purposes. 

While the first is a broad overview of the opportunities and challenges of technology in the field of AML, the second is a stocktake of the uses of technology in pooling data for AML. Both are in line with the consistent prioritization of technology as a strategic initiative under the ongoing German presidency of the FATF.  

Among the highlights of these new reports are: 

  • An overview of the most relevant technologies being applied to anti-money laundering in different jurisdictions. If you’re not sure about the difference between Natural Language Processing and Machine Learning, as well as how they relate to AML risk, this is a good place to start. 
  • A clear-eyed assessment of the challenges in technology and anti-money laundering. From the need for regulatory clarity, through concerns about data privacy, to issues of data quality in financial institutions, the FATF does not shy away from calling out areas for improvement. 
  • Concrete suggestions for strengthening the enabling environment for the use of technology. These include diverse areas ranging from cyber security and explainability of processes to financial inclusion and cross-governmental cooperation. 

Of particular value are the case studies spread throughout the reports (featuring our own Elucidate FinCrime Index - EFI), illustrating how supervisors and banks are implementing technologies in practice. 

Looking beyond these reports, two areas that would be highly relevant for future research and policy guidance from standard-setters stand out: 

  • Further analysis of how technology connects to the broader anti-money laundering effectiveness agenda: The FATF “Opportunities and Challenges” report emphasises that technology’s greatest potential value is in helping to deal with money laundering risk. At the same time, many of the examples and case studies focus primarily on technical processes and outputs, without making the link to higher level AML/CFT effectiveness indicators. 

To what extent is technology helping supervisors and financial institutions achieve their strategic objectives? In light of the growing awareness of the low global success rate in tackling financial crime, more detailed analysis in this area would be of great value to a range of actors in the AML field. 

  • Expanding the use of technology towards business-wide AML risk assessments: Much of the current analysis around tech in anti-money laundering centres on customer due diligence and transaction monitoring. As recommended by international guidance and measured through the EFI, an effective business-wide approach to managing risk should also cover geographic risk, products and channels, and governance risk, among others. 

Risk assessment is the foundation of effective financial crime risk management, and is an area where significant gains can be achieved through technology. With financial institutions and supervisors increasingly looking for comprehensive AML risk management solutions, specific guidance for both technology companies and end users will be needed. 

Last but not least, the open process through which these reports were developed is very welcome, including a survey and the opportunity to participate in FATF-organised roundtables earlier this year. We look forward to contributing to the next steps at this critical stage in the establishment of industry-wide standards and practices. 

Elucidate team
Elucidate team
https://www.linkedin.com/company/elucidate-gmbh/

Posts written by diverse members of the Elucidate team.

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