Financial operations are changing radically along with financial technologies. On the other hand, compliance management must be considered during this development process. We are discussing the future of financial crime compliance.
The increase in the number of news related to financial crimes and new regulations distress compliance professionals and affects the future of financial crime compliance. This issue triggers the improvement and modernization of methods to fight financial crimes.
How Do The Developments in FinTech Affect Compliance Operations?
Financial institutions invest heavily in FinTech solutions to provide better user experiences and protect competitiveness. Digitalization in finance paves the way for new transaction methods and channels. On the other hand, these new methods and channels provide new opportunities for financial crimes. The new digital channels enable fast and easy transaction channels for customers. Therefore, the number of transactions that must be controlled increases accordingly. Additionally, commerce through cryptocurrencies emerges new methods for financial crimes due to the difficulties of tracking the cryptocurrency transaction flows. Hence, it is crucial to invest in the systems to fight financial crimes as well as FinTech investments.
Traditional compliance methods are insufficient to control these new digital channels. Traditional methods slow transactions down during the monitoring and it causes a negative experience for customers who adopt velocity. Besides, focusing on only a single transaction to detect financial crimes is insufficient due to the complex structure of crime methods. Therefore, fast but effective solutions must be preferred to provide compliance management.
Its risk and compliance management must be considered whilst investing in a new FinTech solution. Since the new channels bring new data, they must also be included in compliance processes as fast and properly as possible.
Difficulties in AML and CFT Compliance Management
Fast and easy money transfer abroad owing to technological developments causes pressures and new responsibilities over AML and CFT compliance management. For example, smurfing, which is a prevalent money laundering method, money laundering through inactive companies or fronts, or laundering through alleged associations get easier since criminals have an opportunity to hide between too many transactions from diverse channels. Besides, money laundering through cryptocurrencies is a widespread method because of anonymity and making transactions more challenging to track. In this context, it takes too long to investigate suspicious transactions or persons through the traditional methods, but illicit activities should be reported as soon as possible under today’s conditions. Hence, the modern compliance technology must be implemented considering these two critical requirements:
Integration of new data that comes from new sources without a delay.
New digital channels bring new data flows out. It is crucial to include these new data in compliance management. Therefore, the new technology for compliance management must have the ability to bring all structured and unstructured data from different sources together and make them ready for analysis.
Detecting suspicious activities and connections by applying advanced network visualization.
We have already known the essentialness of network visualization in to fight against financial crimes. Money is always laundered through indirect methods to hide. Besides, as we mentioned, hiding is easier due to the digitalization of operations. Hence, uncovering the suspicious transactions and connections between complex networks is only possible with comprehensive network analysis.
Data and Strategy-Driven Financial Criminals
The methods and strategies of financial criminals are developing along with financial technologies. They are more data and strategy-driven, and agile. They are aware of the weak points of companies and take advantage of them. Hence, these weak points return to the institution as fines and sanctions. The only way to make the criminals ineffective is to build a technology that does not have any deficiency while detecting suspicious activities and mitigating false positives. This issue is especially critical for regulation technologies.
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