The rapid adoption of digital technologies in banking and other financial services has brought about myriad modern conveniences and opportunities for businesses and customers alike. But this increased flexibility has also become a vulnerable gateway for financial crimes to set in and fester unchecked, from identity theft and credit card fraud to insidious acts of terrorist financing and money laundering.

Corporate disrepute, operational downtimes, data leaks, and monetary losses aren’t the only drawbacks financial institutions must encounter. Hefty penalties resulting from regulatory non-compliance also pose a potent threat to their existence.

In 2018, the Commonwealth Bank—Australia’s largest financial institution—made international headlines after receiving massive fines of $700 million for breaches of the country’s anti-money laundering (AML) and counter-terrorism financing (CTF) laws. The ABC News Australia highlighted that the bank’s flagrant and systemic negligence to report suspicious banking activities to the authorities resulted in unaccounted transactions worth millions of dollars in drug trafficking. The bank attributed the serious reporting failures of approximately 53,506 transactions to a seemingly innocuous but fatal coding error found in its “intelligent deposit machines”.

The high-profile case above not just serves as a cautionary tale on the importance of due diligence in sanctions compliance and financial crime prevention (FCP). It has also emphasized the need to build robust financial software to aid in the early detection and prevention of nefarious financial crimes, which have grown more sophisticated over the years.

Key focus areas

Being a step ahead of the perpetrators is key to mitigating financial fraud. Most high-stakes financial crimes are orchestrated by nebulous networks of syndicates running on a nearly decentralized infrastructure. Consequently, combating this issue requires financial institutions to bolster several key areas with concurrent application of cutting-edge technologies and prescient analytics.

  1. Sanctions risk assessment

    A sanctions risk assessment is often seen only as regulatory discretion–meaning it’s prescribed but not necessarily mandatory. However, having an effective risk assessment in place is incredibly crucial to help a firm identify and preclude sanctions exposure across variables (e.g., geography, demographics, industry, etc.), inform stakeholders of existing risk probability and criticality, and use past data as a springboard to improve the next sanctions compliance program.

    Digitizing the assessment model with a custom solution would take this process a step beyond by eliminating bottlenecks and enhancing efficiency. Demonstrably, risk assessment software enables companies to analyze massive aggregates of client data, transactions, and accounts in real time to create better regulatory compliance.

  2. Robust AML/CTF programs

    Money laundering and terrorism financing pose a grave threat to the integrity and operation of financial institutions. Due to their covert nature, policies to curb these illicit activities must aim to detect and stop any attempts of concealment and diversion of funds and resources from a host of underlying crimes. These include market manipulation, illegal trading, racketeering, institutional corruption, and tax evasion.

    In essence, tech-oriented AML and CTF efforts seek to automate data analytics in real-time across a broad range of transactions. This type of software also paints a detailed and precise image of customers’ profiles and financial behaviors and subsequently alerts the team at the first sign of anomalies.

  3. Client relationship management

    Screening is a fundamental component of every compliance control. Banks and financial services providers typically employ technology-enabled screening capabilities to conduct faster and more precise background checks on customers against regional and global watchlist databases, including adverse media coverage, wanted lists, sanctions, and politically-exposed persons (PEPs).

    Besides database screening, financial organizations can also institute risk-based KYC (Know-Your-Name) online checks to verify customers’ information, risk profiles, and behaviors—all compacted in data-rich dashboards and reports. This process not only ensures better adherence to regulatory outlines and recommendations but also minimizes false positives and creates a more personalized customer experience.

  4. Staff training and orientation

    Human touch is crucial in any due diligence process. A well-trained sanctions compliance team not just knows how to wield advanced tools to perform high-value functions. They can also make critical decisions across highly nuanced scenarios indiscernible by machines.

Technologies in sanctions compliance

To maintain a competitive edge on your sanctions compliance program, here are several technologies you should consider:

  1. Artificial intelligence (AI) & Machine learning

    The adoption of AI and machine learning in financial fraud mitigation is certainly nothing new. However, modern AI platforms have evolved so much since their inception that they can now perform various tasks beyond iterative data gathering. Risk appraisals based on infrastructural contexts (e.g., IP address and geolocation tag), as well as consumers’ behavioral patterns, have now allowed investigators to capture and sift through enormous troves of information from both linear and non-linear data points.

  2. RPA (Robotic Process Automation)

    At first glance, RPA and AI share many similarities when it comes to business process iteration and automation. After all, RPA belongs to the same umbrella family of artificial intelligence alongside machine learning and natural language processing. But this is where their likeness ends.

    AI carries built-in intelligence to organize decentralized information and develop its own contextual reasoning to execute tasks without human supervision. Conversely, RPA bots only process and structure their task automation based on data fed by human attendants.

    However, this limited functionality alongside its implied portability grants RPA vast access to assistive roles—taking on iterative tasks so that investigators can focus on time-critical assignments.

  3. Blockchain

    Blockchain has increasingly gained traction among businesses thanks to the decentralized security mechanism afforded to digital transactions. Like other distributed ledgers, blockchain stores information in a dispersed and immutable digital format, making it harder for unwanted parties to tamper with or corrupt the entire system. While there’s brewing skepticism regarding the legitimacy of this technology spearheaded by recent controversies surrounding NFTs, it still holds significant future potential as a securely encrypted—yet auditable—transaction method if armed with the right AML and KYC protocols.

  4. RegTech (regulatory technology)

    RegTech pertains to any innovative processes and techniques employed by financial institutions to bolster their regulatory governance. The recent advancements in this field—like the use of cloud computing framework—have been pivotal in creating a new paradigm for corporate risk management. Similarly, RegTech seeks to safeguard businesses’ reporting compliance by closely monitoring updates on new regulations, restrictions, and laws.

Why custom software development

As financial crimes have grown in intricacies, nuances, and volumes, you need an advanced system that functions beyond a mere alert mechanism. It must also possess intuitive capabilities to identify and thwart any potential breaches while staying apace with the ever-evolving scope of FCP procedures.

Investing in bespoke software solutions is arguably the most feasible and favorable option to answer these complex demands. Other benefits that you might reap from customizing your own software include:

  1. Increased dynamism and adaptability to changing industry trends—giving you better leverage and position in the industry.
  2. Better integration with the existing system and capabilities to fully cater to your unique needs.
  3. High scalability and flexibility so businesses can conveniently recalibrate and expand their current matrix of functionalities to improve performance or migrate to an entirely new system environment.
  4. Complete ownership and control of the software—resulting in faster deployment and maintenance as well as lower operational costs. In contrast, most off-the-shelf solutions run on subscription-based models with maintenance and upgrades entirely dependent on vendors.
  5. A broader scope of operations thanks to a more hands-on approach in software testing, quality assurance checks, and vulnerability assessments.

Asahi Technologies as your trusted partner

Today’s cashless economy not just heralds the technology boom in virtual transactions and payments. It also augurs the looming danger of leaving any finance mechanisms with little to no protection. Just like the flourishing opportunities granted to legitimate businesses, organized criminal activities have harnessed digitalization to maintain operations and acquire funds. Needless to say, installing the right software system where investigators and machines can work in tandem to spot and prevent scams, fraudulent transactions, and other financial crimes should be top of mind.

At Asahi Technologies, we have extensive experience working with clients from the non-profit, banking and finance sector—delivering incisive custom software solutions across different business areas, including fraud prevention and intuitive data automation.

Need help in creating a holistic FCP software solution? Send us your development inquiries below, and let’s discuss how you wish to protect your business against financial crimes and ensure its regulatory compliance.