How AML Requirements Are Changing for Finance

Posted by Kelvin Chandran on 10/4/18, 9:45 AM
Kelvin Chandran
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How AML Requirements Are Changing for Traditional Finance

Money laundering continues to be a pervasive crime throughout the world. Over the past few decades, criminals have managed to find ways to work around AML requirements. However, this is quickly changing as new AML policies and financial technologies are beginning to strengthen enforcement capabilities.

In this blog, we will look at the statistics surrounding money laundering, new AML requirements, and how FinTech is changing finance.

How Extensive Is Modern Money Laundering

According to the United Nations, the estimated amount of money laundered globally in one year is 2 to 5% of global GDP, or $800 billion to $2 trillion in current US dollars. While estimates do vary greatly on the exact extent that money laundering plays in the global economy, it is clear that it exists in even the least corrupt nations. For example, $1.35 billion in proceeds from fraud and illegal drugs is laundered annually through ordinary New Zealand businesses.

Money laundering has been difficult to tackle for quite a few reasons. For instance, according to a 2014 survey conducted by KPMG, 88% of organisations felt that keeping up with regulatory changes was one of the most significant challenges to their operations. In addition, the costs of AML compliance are continuing to increase as new regulations have been introduced in recent years. According to a report released by AlixPartners in December 2017, 100% of surveyees expected their compliance costs to increase within a 12-month timeframe. 44% of those surveyed expected costs to increase by more than 50%.

New AML Policies and Trends For New Zealand

New Zealand is one of many countries working diligently to reduce the prevalence of money laundering and terrorism financing. The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 introduces a “Phase 2” in order to bolster New Zealand's existing AML/CFT laws. In sum, Phase 2 covers more businesses. This includes real estate agents and conveyancers, many lawyers and accountants, some businesses that deal in expensive goods, and the betting industry (sports and racing).

The legislation also includes changes that affect businesses already covered under the original law introduced back in 2013. Examples include banks, casinos and a range of financial service providers.

In terms of compliance deadlines for Phase 2, some have already begun to take effect. Dates range from July 1, 2018 to August 1, 2019 and vary depending on the type of business.

Benefits and Applications of FinTech

So what do these changes mean for AML compliance? For starters, it means that traditional industries that haven’t necessarily had to be strict on AML in the past due to limited or non-existent legislation will have to do so moving forward. It also means that innovations are necessary to ensure that traditional finance is able to meet the challenges of compliance without significantly impacting profitability.

Even though it may seem that compliance costs will skyrocket in the coming years as a direct result of new legislation, this doesn’t have to be the case. This is because, as the adoption of new AML laws increases in New Zealand and the rest of the world, we are also beginning to realise the benefits of modern FinTech (financial technology).

There are several examples in which governments and traditional financial institutions worked together to implement FinTech applications. For example, in May 2016, the United Kingdom’s Financial Conduct Authority (FCA) created a regulatory sandbox where FinTech companies could test innovative products, services, business models and delivery mechanisms. In October 2016, the United States Office of the Controller of the Currency (OCC) announced that it would begin to grant limited purpose bank charters to FinTech companies.

These cases show a movement towards the integration of FinTech into traditional financial systems; however, they only represent the beginning of FinTech’s potential real-world applications. Technologies like blockchain open up new possibilities to make compliance processes in the present and future much more efficient and cost-effective.

Traditional Finance Meets FinTech

AML compliance in traditional finance is still highly individualistic in nature. In the past, each financial institution has had to deploy its own customised solution. In 2018 and beyond, blockchain and other innovative FinTech solutions can lead to greater standardisation that automates the process of meeting AML requirements while also meeting the requirements of data sovereignty laws.

SingleSource’s blockchain solution demonstrates exactly how FinTech is changing finance. We are not only improving the future of AML compliance but also other areas like fraud detection, credit risk scoring, and much more.

If you would like to read more details about our blockchain capabilities and applications, download our whitepaper.

Download the full whitepaper here

Topics: AML, RegTech

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