In this blog, we will explore the intricate landscape of regulations as it applies to cryptocurrencies, the critical issue of sanctions compliance in the cryptocurrency space, and how KYC2020’s DecisionIQ, with the power of AI and collaborative intelligence, is transforming the way regulated entities benefit from these advancements while maintaining the importance of auditability and transparency over opaque solutions and systems.

The Crypto Conundrum: Money Laundering and Terrorist Financing

As the cryptocurrency industry becomes more ubiquitous in the financial systems, it faces similar challenges to traditional financial systems in combating money laundering and terrorist financing. Terrorists and criminal organizations seek to exploit the pseudonymous nature of cryptocurrencies to disguise the illicit origins or destination of their funds. By doing so, they are attempting to evade law enforcement to fund further criminal activities, while leaving a trail of damage in their wake.

Anti-Money Laundering (AML)/Counter Terrorist Financing (CTF) measures have been in place in traditional finance for some time now to help detect, deter, and in some cases prevent financial crimes from happening. While it is estimated that only 5-10% of ML/TF is actually detected, regulators worldwide have issued comprehensive guidelines and directives to at least try to make a dent. The rapid growth of the crypto industry has outpaced these efforts and is creating opportunities for criminals to exploit the regulatory gaps while they play catchup. The complexity of crypto, as it relates to AML/CTF regulations, has made it challenging for cryptocurrency exchanges to comply with new and ever-expanding regulations.

The Rising Tide of Regulatory Obligations

Many custodial and non-custodial Virtual Asset Services Providers (VASPs) are subject to Know Your Customer (KYC) obligations. Among the primary aspects of dealing with cryptocurrency is to put in place transaction monitoring, adherence to the Travel Rule, and screening for sanctions, PEP and Adverse Media on persons and entities who are involved in those transactions. Failure to perform these and other functions that are required by AML/CTF regulations exposes these businesses to significant reputational risk, civil penalties and criminal charges that could lead to prison.

The FATF and the Future of Crypto Regulation

The Financial Action Task Force (FATF) provided clarity related to AML/CTF regulations in its “Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers”. It makes recommendations on how countries, regulators, and virtual asset service providers should manage ML/TF risks related to dealing in cryptocurrencies. This guidance promotes a risk-based approach, similar to that of traditional regulated entities including those that would be most affected like financial institutions and MSBs. It is the member countries’ responsibility  to implement the recommendations to ensure that there are safeguards against widespread abuse in the use of cryptocurrencies in ML/TF related crimes.

KYC for Crypto Companies

A strong AML/CTF compliance program, rooted in a risk-based approach, is essential to align with the FATF recommendation and country-specific regulations. Customer screening and monitoring, understanding the customer’s financial activities and source of funds/wealth, assessing risk and compliance with the Travel Rule, are all key aspects in preventing, detecting and deterring ML/TF offences in financial systems. The role of a qualified compliance officer is pivotal in maintaining the integrity of a cryptocurrency exchange’s compliance efforts. Any lapses in compliance could result in severe fines and penalties, underscoring the importance of rigorous compliance in cryptocurrency exchanges.

To onboard and engage with high-risk customers, businesses must implement Customer Due Diligence (CDD) procedures as of their AML compliance regime. CDD procedures include screening against watchlists including sanctions, regulatory, criminal, and negative news. For businesses that deal with crypto transactions, this is not enough.

OFAC has expanded its purview by incorporating digital currency addresses into the SDN List, aiming to notify the public about specific digital currency identifiers linked to blocked individuals. Originally, the incorporation of cryptocurrency addresses into these due diligence processes was observed during the Silk Road crackdown and in the context of Darknet markets like Hydra and AlphaBay, as well as mixer services such as TornadoCash and Blender. More recently, we’ve seen the inclusion of Digital Currency Addresses related to the terrorist group Hamas in OFAC’s SDN and other watchlists.

Following this development, it is imperative that businesses implement rigorous screening processes for digital currency addresses. This is necessary to guarantee that they do not engage in transactions or trade involving digital currency identifiers associated with a blocked person.

In Conclusion: Screening for Cryptocurrency addresses with DecisionIQ

The importance of robust compliance solutions that include cryptocurrency address screening for sanctions and other related ML/TF exposure has never been greater. KYC2020, with its innovative DecisionIQ, all-in-one Sanctions, PEP & Adverse Media Screening platform, is aimed at transforming the way VASPs, DeFi, and blockchain innovators meet their regulatory obligations.

Businesses need more than just a compliance screening tool; they need a partner that understands the nuances of cryptocurrency compliance as it relates to sanctions.

DecisionIQ combines the power of AI and collaborative intelligence to significantly reduce false positives, provide transparency in the results, and ultimately demonstrate to the regulator or examiner that all steps have been taken to reduce the risk of dealing with a person or entity on a sanctions list. DecisionIQ ensures that every screening decision is recorded and auditable, similar to the blockchain concept of transparency through “proof of work”, or in our case, what we call a “proof of decision”.

KYC2020’s AI-driven technology with collaborative intelligence empowers those dealing with cryptocurrencies to maintain a rigorous compliance program without compromising on quality or incurring unnecessary costs.

“A compelling part of the technology is that it provides a proof of decision for every screening decision. Unlike other ‘black-box’ AI solutions, KYC2020 approach is similar to the blockchain concept of transparency via ‘proof of work.'” – Coinchange

Click here to read the full Coinchange Case Study and discover how DecisionIQ transformed their screening efforts related to compliance by reducing the cost and manual effort in dealing with false positives and bad data.

Verifiable Auditability: DecisionIQ’s “Proof of Decision” approach aligns with blockchain principles of transparency. It provides a verifiable audit trail for every screening decision and reviewer action. Unlike other ‘black-box’ AI solutions, DecisionIQ ensures clarity and transparency through its ‘proof of work.’

Reduce False Positives: False positives can be a significant challenge in compliance. DecisionIQ uses high quality and structured data and a screening decision system with auto-clearing capabilities to deliver one of the lowest false positive rates in the industry, saving your business time and resources while ensuring that legitimate customers are not held up in unnecessary reviews.

Faster Onboarding: Speed is of the essence in the crypto world. DecisionIQ’s rapid screening processes ensure faster onboarding, allowing regulated entities to provide a seamless experience to their customers.

Rapid Review and Clearing System: KYC2020’s Rapid Review and Clearing System (aka RABBIT) is the solution to the slowdown caused by case management systems that are not ‘human factored’ for large volume reviews. RABBIT is equipped with built-in functions for visualizing and processing information on a large scale, making it a more efficient and effective bulk review process over the traditional methods deployed by many others.

Watchdog‘s Automated Clearing Technology: We further improved DecisionIQ’s capability to handle edge cases in AI that result in false positives. Watchdog’s tech stack is designed around Collaborative Intelligence (CI), and it includes a hit pattern recognition system, Contextual AI to predict gender and nationality of names, and a proprietary name relevancy scoring system that is more effective and intuitive than fuzzy scoring. This additional intelligence is used as part of a rule-based system to lower the rate of false positives caused by borderline cases that humans can detect better than AI. Watchdog is also supported by a clear proof of work for verifiable auditability.

DecisionIQ offers a range of features designed to meet the unique needs of the crypto industry, ensuring compliance is not a burden but a competitive advantage. With DecisionIQ, crypto companies can focus on what they do best – innovating and providing value to their customers – while leaving the complexities of compliance in capable hands.

Remember, you don’t have to compromise on quality and compliance while lowering costs. DecisionIQ is here to make AML compliance a seamless and efficient journey. Stay ahead in the crypto compliance landscape with KYC2020.­­­

One of the distinctive challenges in this region is the complexity of name screening in Arabic script. Transliterating Arabic names into Latin characters presents specific challenges with significant implications for AML compliance.

This blog delves into the world of AML compliance in the Middle East, discussing the challenges of transliterating Arabic names, navigating the regulatory landscape, and highlighting the key authorities shaping AML requirements in the region. We’ll also emphasize the critical role of precision in AML compliance, particularly when it comes to Arabic language screening.

Understanding AML Regulations in MENA

Significance of the Middle East

MENA covers 6% of the world’s population and contributes to 4.5% of the global economy through 21 diverse countries, it holds a complex regulatory landscape for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF).

Some of the key regulators are:

UAE – CBUAE

The Central Bank of the UAE (CBUAE) is the central financial regulator. It oversees, develops, and maintains the UAE’s financial system. The Regulatory Development Division within its Banking and Insurance Supervision Department sets AML/CFT policies.

Qatar – QFCRA

Qatar’s financial sector is regulated by the Qatar Financial Centre Regulatory Authority (QFCRA). Established in 2002, it authorizes and regulates financial services, with a dedicated AML/CFT unit. The QFCRA also actively engages with international standard-setting bodies.

Saudi Arabia – Ministry of Anti-Money Laundering, SAFIU & SAMA

Saudi Arabia takes a coordinated approach to tackle money laundering. The Ministry of Anti-Money Laundering, the Saudi Arabian Monetary Agency (SAMA), and the Saudi Arabian Financial Intelligence Unit (SAFIU). The Permanent Committee for Anti-Money Laundering, coordinates AML efforts at the SAMA head office in Riyadh.

Oman – CBO & CMA

Oman has two primary regulatory authorities. The Central Bank of Oman (CBO) oversees and licenses financial institutions, implementing AML/CFT regulations. The Capital Markets Authority (CMA) supervises Oman’s capital market and insurance sectors.

Egypt – Egyptian FIU

Egypt’s AML/CFT landscape is managed by the Egyptian Financial Intelligence Unit (FIU). It analyzes suspicious transaction reports and ensures compliance. Egypt also commits to combating financial crimes through the National Committee for Combating Money Laundering and Terrorism Financing (NCMLTF).

Jordan – Central Bank of Jordan

The Central Bank of Jordan leads AML/CFT efforts. It regulates and supervises financial institutions, participating in international initiatives against financial crimes.

Lebanon – BDL

Lebanon’s Banque du Liban (BDL) is responsible for AML/CFT oversight, ensuring the stability and integrity of Lebanon’s financial system.

Comprehensive AML Requirements

AML requirements in the Middle East align with international standards, the MENAFATF adopts and implements the FATF 40 Recommendations in the region in a way that does not conflict with the cultural values, constitutional frameworks and legal systems in the member countries. They encompass key areas like Customer Due Diligence (CDD), Transaction Monitoring, Suspicious Activity Reporting, Record Keeping, Employee Training, PEP and Adverse Media screening, Sanctions Compliance, and a risk-based approach.

The Challenges of Arabic Language Screening for AML

In the multifaceted Middle East and North Africa region, where ancient civilizations meet modern finance, an intriguing challenge emerges for Anti-Money Laundering (AML) screening: the diversity of scripts. Regulatory bodies often maintain watchlists with names in Latin scripts, while Middle Eastern banks may have names recorded in Arabic script. This linguistic divergence poses unique challenges for AML screening providers.

Transliteration Complexities

Transliterating Arabic names into Latin script becomes imperative due to the distinctive Arabic script, which features sounds markedly different from English. Currently, there’s no universally accepted standard for this transliteration, leading to variations in spelling that screening providers must navigate. Let’s delve into some transliteration scenarios:

1. The Elusive “ق”: Arabic’s “ق” represents a unique “k”-sound, pronounced deep in the throat. In Latin script, it’s typically transliterated as either “k” or “q,” adding a layer of ambiguity.
2. The Enigmatic ‘ayin: Arabic’s ‘ayin, represented by the letter ع, introduces another challenge. The sound often gets marked with an apostrophe or omitted in English transliterations, generating diverse spellings.
3. Pronunciation vs. Script: Arabic names occasionally defy their written forms. This discrepancy results in multiple Latin transliterations, further compounded by the presence or absence of hyphens.
4. Dialectal Variations: Arabic’s letter “ج” is pronounced differently in Egypt (“g” as in “good”) and elsewhere in the Middle East (“j” as in “jungle”). This linguistic diversity necessitates multiple spelling choices.
5. Segmentation Variants: A single Arabic name can be segmented differently, leading to variants like ” Ghasem Soleymani,” ” Qasmi Sulayman,” or ” Qasem Salimani,” all referring to the same name.
6. Transliteration Discrepancies: Different languages employ distinct rules for transliterating Arabic letters. For instance, English transliterates “ش” as “sh,” while French opts for “ch.” The challenge arises when English documents containing French transliterations intersect, resulting in multiple name variations.

Beyond Transliteration: AML Screening Complexities

Transliteration challenges extend beyond merely matching names in Latin characters. AML screening entails even greater complexities:

• Diverse Naming Conventions: Arabic naming conventions aren’t universally standardized. Varying cultural influences and historical practices contribute to a rich tapestry of naming styles.
• Cultural Diversity: Arabic culture has transcended geographical boundaries, leading to diverse naming traditions across different regions.
• Religious Variability: Arabic names aren’t exclusively linked to Islam; they span various religions, including Arab Christians.
• Traditional Naming Conventions: Some individuals adhere to deeply traditional naming conventions, which may contrast with contemporary culture.

Navigating this linguistic landscape requires not only precise transliteration but also a deep understanding of the cultural nuances surrounding Arabic names. For AML screening providers, it’s a multifaceted journey through the diverse world of script, sound, and meaning in the MENA region.

The Importance of Arabic Name Screening

The significance of understanding Arabic names cannot be overstated. The Middle East is a region where the diversity and intricacies of names pose a unique challenge. Effective screening requires not only a grasp of the complexities of Arabic names but also an appreciation of their paramount importance.

Imagine this scenario: Middle Eastern banks maintain databases replete with names written in Arabic script. Regulated entities, private institutions, and regulatory bodies across the globe, including OFAC (Office of Foreign Assets Control), the UAE Local Terrorist list, the EU Consolidated list, Iraq AML & CFT Office Individuals and Entities, UNSC Consolidated list, and many others, publish lists that feature names in Arabic script, often in advanced formats.

It’s a testament to the global nature of finance and the need for precise AML screening.

Arabic names encompass various components, each laden with significance: the Ism (forename), Kunya (paedonymic), Laqab (surname), Nasab (patronymic), and Nisbah (geographical or clan indicator). Notably, not all Arabic names follow fixed conventions, and Arabic culture transcends geographical and religious boundaries, further complicating the landscape.

To illustrate the challenge, let’s consider “Ali Saed bin Ali al-Houri.” This name comprises the Ism, Nasab, and Nisbah, with each element holding a specific meaning and cultural resonance. Similarly, “abu Hamza al-Masri” combines the Kunya and Nisbah, with “Masri” signifying Egyptian heritage.

Understanding Arabic names is not just a matter of linguistic curiosity; it’s the key to precise AML screening. It enables financial institutions, regulatory bodies, and businesses to differentiate between individuals, eliminate false positives, and adhere to stringent AML regulations with cultural sensitivity. It’s a critical facet of the global effort to combat financial crime and uphold the integrity of the financial system.

KYC2020’s Enhanced Arabic Language Screening

With an increasing number of customers in the Middle East, KYC2020 is committed to meeting the unique challenges posed by the Arabic language. In a region where precision in Anti-Money Laundering AML and counter-terrorism financing CTF screening is of utmost importance, our product team is rising to the occasion.

KYC2020 has responded with an advanced screening engine featuring a customized scoring system for Arabic names. This enhancement excels at detecting diacritics within Arabic script, elevating precision in name matching and identification of unique name parts. It’s a solution designed specifically for demanding lists, including the advanced formats of OFAC’s Specially Designated Nationals list, UAE Local Terrorist list, EU Consolidated list, Iraq AML & CFT Office Individuals and Entities, UNSC Consolidated list, private blacklists uploaded by users and more.

The Arabic language varies across regions and cultures. Latin and Arabic scripts are distinctly different, demanding a customized approach. KYC2020’s scoring engine is meticulously designed to account for these regional nuances. It’s fueled by cutting-edge Natural Language Processing (NLP) techniques and doesn’t just normalize names; it optimizes them. This includes removing diacritics, eliminating unnecessary elements, and enhancing accuracy.

We employ a range of advanced techniques to ensure the accuracy and reliability of our Arabic language screening. This includes a meticulous normalization process that addresses specific intricacies of the Arabic script. Our normalization procedures encompass:

1. Normalization of Hamza with Alef Seat to a Bare Alef: In Arabic script, the Hamza with Alef Seat is a unique character. We normalize this character to a plain Alef to ensure consistent and accurate matching.
2. Normalization of Teh Marbuta to Heh: Arabic script features the Teh Marbuta, a character representing a specific form of the letter Heh. We normalize Teh Marbuta to Heh to ensure uniformity in our database.
3. Normalization of Dotless Yeh (Alef Maksura) to Yeh: The Dotless Yeh, also known as Alef Maksura, is another distinct character in Arabic. We normalize this character to Yeh to facilitate accurate matching and recognition.
4. Removal of Arabic Diacritics (the Harakat): Arabic diacritics, known as Harakat, are marks that indicate vowel sounds and pronunciation. Removing these diacritics helps streamline the screening process and enhance matching precision.
5. Removal of Tatweel (Stretching Character): Tatweel is a character used to elongate certain letters in Arabic script. We remove this character to avoid discrepancies in matching due to variations in character length.

By implementing these normalization techniques, we ensure that Arabic names are accurately represented and matched within our screening engine. This meticulous approach minimizes the chances of false positives or missed matches, contributing to the overall effectiveness of our AML screening solution.

Our customized scoring engine comprehensively addresses phonetic similarities, spelling variations, titles, and honorifics, as well as issues like missing spaces and hyphens, nicknames, and out-of-order components. In essence, it’s a holistic solution that leaves no room for error.

Transliteration between Arabic and Latin scripts is a minefield of potential errors. KYC2020’s engine tackles this using linguistic, orthographic, and phonological algorithms, it minimizes transliteration errors, ensuring that no true positive goes unnoticed. Beyond that, it’s adept at mitigating common errors that often lead to missed matches, such as misspellings, phonetic misunderstandings, and nicknames.

Our commitment to comprehensive screening extends beyond the Arabic language. We’ve obliterated language barriers, regardless of the script. Names in Arabic script or any other non-Roman script are seamlessly processed. Here’s how it works: we translate and transliterate names into Roman characters, normalize them, and integrate them into our persona database. This advanced feature not only facilitates precise searches in the original script but also enables fuzzy searches on Roman name inputs, guaranteeing comprehensive and accurate results across diverse linguistic inputs.

As credit unions continue to grapple with a growing mountain of costly and complex financial regulations as well as an evolving digital ecosystem, they have been ramping up their investment in regulatory technology (RegTech) solutions.

Determining which AML compliance solutions make the most sense for a specific credit union, however, can be a challenge. Over the next four years, the global RegTech industry is expected to reach $16 billion. While there are many established players already in the market, this growth is in large part driven by a rising wave of new RegTech innovators. These companies are harnessing advanced technologies to address a wide range of issues in addition to AML compliance, such as data and network security, user experience, the increasing demand for faster digital transactions, affordability and ease of integration.

RegTech has become mission critical among credit unions seeking support in their AML/CFT compliance efforts. Earlier in this series, we examined the ways in which modern Credit Unions need to rethink their approach to AML/CFT compliance as well as the unique challenges they will face in the process. The distinct path awaiting Credit Unions towards an accurate, cost-effective, and nimble AML compliance regime requires that they look beyond many of the established vendors.

Credit unions do not operate in the same way as banks do. They have their own unique structure, mission, and set of needs. RegTech platforms that prioritize affordability, accuracy, customization, support, and ease of use are better suited to these financial institutions.

Heading into the future, partnerships with RegTech vendors can help to make credit unions more adaptable and competitive in a changing financial services landscape. Many small and mid-sized credit unions today face two options: either adapt to changes in regulation, technology, and financial market trends or be absorbed by a bigger financial institution. Though the Covid-19 pandemic initially slowed down M&A activity among credit unions, all signs indicate that M&As will increase in 2021.

Having smart, customized AML compliance solutions in place is a necessary growth strategy for today’s credit unions. In fact, it could end up being one of the most significant factors in the fundamental viability of the credit union model going forward.

In this final article of our series on AML compliance among credit unions, we will look at three core RegTech solutions that are putting these financial institutions back on the financial services playing field.

3 Smart AML Compliance Solutions for Today’s Credit Unions

A solid AML/CFT credit union compliance program will depend on some combination of three core services:

Moving from Big Data to Smart Data

AML compliance begins with screening clients as part of customer due diligence (CDD). A good sanction, PEP, and adverse media screening program begins with great watchlist data.

Most AML compliance data vendors build and promote BIG DATA. However, when it comes to a given database, bigger isn’t necessarily better. The problem with big data is that it is often full of junk and bloated with duplicates. This unnecessary, incomplete, or unwanted information creates added work for AML compliance staff who must manually reconcile and clear the excessive false positives. Financial institutions typically end up over-engineering their screening systems to deal with junk data to strike a balance between an “acceptable” number of false positives with their efforts to avoid missing true positives.

The beginning of modern KYC and sanctions screenings still starts with sanctions lists, but now extends to other watchlist data, including PEP (politically exposed persons), RCA (relatives and close associates of politicians), HIO, Regulatory Authority, Negative News, and more. These lists are constantly evolving, while sanctions are becoming more complex and the number of regulatory bodies are growing. For credit unions working with limited resources, this big and constantly changing data pool must be augmented and transformed by SMART data systems prior to consumption for screening. SMART DATA leads to INTELLIGENT SCREENING. Solving the data problem is the most effective way to enhance a credit union’s AML compliance program.

For this reason, KYC2020 developed VisionIQ, the most comprehensive, advanced, and affordable watchlist database on the market with access to over 1000 watchlists and over 10,000 automatically updated news sources from more than 200 countries. The VisionIQ data advantage is not just that the data is comprehensive so that a credit union never misses a relevant true positive, but that we spend a great deal of time to make it SMART so that our clients are not dealing with endless false positives.

For a credit union to be served the right data to suit their risk profile, VisionIQ is powered by advanced technologies, such as artificial intelligence (AI) and natural language processing (NLP).

Data is structured and organized to make it easy to selectively group watchlists for different risk profiles and screening criteria. Data is de-duplicated and cross-linked across watchlists to better resolve the data into personas. Data, especially PEP and RCA data, is further augmented by name and entity recognition in relevant adverse media. Personas are also tagged with aliases, common name variants and misspellings to reduce fuzzy search errors and false positives. Plus, we have added machine learning (ML) to the mix which makes the data, and by extension the AI-based compliance system smarter over time.

Best of all, we have priced VisionIQ with smaller financial institutions in mind. Data does not have to be so expensive, and credit unions do not have to compromise quality for good data.

Smart Sanction Screening Solutions

Sanction screening is an integral part of KYC and AML/CFT compliance. Sanction screening systems are designed to protect financial institutions from high-risk customers and help to ensure the integrity of the financial services sector. But it does not stop with just sanction screening. Today, financial institutions must screen for PEP, criminal, and even negative news.

Aside from the risk of regulatory fines, credit unions must think about their reputation. Nothing will ruin a credit union’s reputation faster than being tied to a rogue member or an employee who has generated negative publicity. Where a financial crime was committed, the financial institution’s ties may be made public, creating a reputational crisis. The credit union may be deemed guilty by association, with members questioning the integrity of the credit union itself even if it has done nothing wrong.

For example, corruption among public employees, such as politicians, government officials and their associates is on the rise. As part of their customer due diligence obligations, banks and financial institutions must establish and report whether their clients are Politically Exposed Persons (PEP) and at risk of being involved in financial crimes, like money laundering, or are associated with a predicate offense as reported in the news.

A great KYC sanction screening solution for CDD begins with an exhaustive watchlists and negative news database. However, even the best compilation of data and news sources is useless without an intelligent search and scoring engine that works to minimize False Positives, while helping to ensure that True Positives are discovered.

KYC2020 SmartScan is the best in class sanction, PEP and negative news screening and scoring service that integrates automation, AI and NLP for big and small credit unions alike with flexible price plans to suite any budget.

SmartScan gives credit unions the smarts and sophistication of an enterprise sanction screening solution while avoiding all the cost and complexity. It is available as SaaS solution or OnPrem deployment. Plus, we have developed an extensive API Library for easy integration with in-house systems and workflows.

From Screening to Decisioning

Despite all the advances in technology, sanction screening still requires a significant amount of manual intervention that can dramatically slow down and disrupt the customer verification and on-boarding processes. There are generally four main hurdles to overcome:

1. False Positives. The best systems still yield 5-7% false positives that must be cleared manually by a compliance officer.
2. Record keeping. Compliance best practices require the storing and organizing of auditable documentation for minimum of 5 years. The administrative effort and resources needed to fulfill this requirement are high, costly, and can lead to expensive inaccuracies.
3. Long On-boarding Times. Sanction screening plagued by over-engineered systems, depends even more on manual interventions that are not only slower, but prone to mistakes and discrepancies. This results in a slow customer verification and on-boarding process.
4. Ongoing Monitoring. Constantly changing data means regular and recurring screening of customers. Depending on your risk-based approach, this could mean quarterly, weekly, or even daily screening. A poor screening system invariably leads to an inaccurate and ineffective batch monitoring program.

Traditional sanction screening solutions are designed to filter a set of watchlists. The search results are then manually exported for review. To stay relevant and competitive, credit unions must move from screening tools built around integrated manual workflows to stand-alone decisioning systems that automatically clear false positives to yield actionable screening decisions. All this in near real-time, with a human readable and audit friendly decision proof-of-work file, and without requiring manual effort.

Manual-centric AML compliance systems are by nature reactive. When processes are dependent on manually clearing a mountain of false positives and routinely tie up a large amount of resources, credit union leaders can feel like they are never in control.

On the other hand, a smart, automated sanction screening decisioning system can render 95% of all verification decisions automatically within a 60-second response time and a low decision error rate. For records that require manual screening, they can be sent within minutes to compliance officers, who should have all the info they need to take immediate action.

With DecisionIQ, we put credit union AML compliance teams back in the driver’s seat. We take a risk-based approach coupled with the best watchlist data and latest technologies in search, scoring, AI, NLP, and decision systems. Automated clearing dramatically speeds up on-boarding while reducing wasteful manual work. Each decision is accompanied by a rational proof-of-work file that is securely stored. All case management and AML officer reviews can be done electronically, and best of all, our highly intelligent monitoring system actively tracks watchlist data changes, automatically re-scans impacted customer records, and only send an alert when appropriate. This means no more manual redundant reprocessing of customer batch files in the name of ongoing monitoring!

No Need to Go it Alone

Credit unions do not have to figure out the best AML compliance system on their own, nor should they resort to requiring staff to multi-task between their regular roles and AML/CFT compliance efforts. Our qualified CAMS and VSkills certified specialists have experience working with credit unions and can help with a range of compliance needs, from revamping an AML system or tailoring our products to fit established workflows.

In Closing…

Smart data and automated decisioning promise to be a fundamental part of AML compliance among all financial institutions in the future. Credit unions, however, require smart AML compliance solutions that suit their unique structure, workflow, transactional needs and budget. Such systems are more than just a way for credit unions to stay AML compliant. They are necessary growth strategy that can keep them competitive in the years ahead.

Want to learn more about how KYC2020 solutions can help your financial institution? Contact us here or send us an email at sales@kyc2020.com.

KYC2020 is also not alone in the world of RegTech innovation. To find out more about other 2021 innovators, check out the RegTech100 list.

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Why You Need a CAMLO

Many countries around the world have adopted the Financial Action Task Force (FATF) recommendations which requires a CAMLO be designated. For example, in implementing the Bank Secrecy Act (BSA), the United States government appointed various regulators and oversight groups like FinCen, FINRA, and the SEC. These groups ensure that identified entities, including most FinTech, comply with all AML regulations. FINRA is an example of a Self-Regulatory Organization (SRO) that ensures all dealer-brokers implement an Anti-Money Laundering Compliance Program. This program requires that the AML Compliance Officer (ie. CAMLO) oversee the program and provide a point of contact between the organization and FINRA. Other requirements of an AML Compliance Program under FINRA Rule 3310 include:

• Written approval of the program by senior management
• Reasonable assurance of detection and reporting any suspicious activity
• Achieve reasonable compliance with all AML regulations with a risk based customer identification program
• Provide regular independent testing
• Continuous training for all relevant employees and customers

So, to achieve full compliance your organization is required to designate one of the members of your organization as your CAMLO.

The Roles and Responsibilities of a CAMLO

Essentially, your CAMLO is responsible for ensuring your Fintech startup efficiently complies with all AML regulations. This takes the form of managing risks, advising on business strategies, training relevant employees, staying up to date on changing regulations, and finding cost saving methods to achieve compliance.

Your CAMLO helps your organization determine your acceptable level of risk when it comes to complying with AML regulations. Once your risk levels are determined, they create an AML Compliance Program according to your acceptable risk. While an effective compliance program is required, what constitutes “effective” is left up to interpretation leaving room to match the program to your organization.

A CAMLO also advises on your business strategies to ensure your methods of growth still allows for AML compliance. Taking their recommendations and utilizing them keeps your risks of violating any regulations to a minimum. This also ties into training relevant employees. Keeping those in charge of business strategy up to date on how your organization maintains AML compliance enables them to make better decisions on how to grow your business.

The complexity of AML regulations cannot be understated. As they constantly shift to keep up with new technologies and demands, your CAMLO must understand how they continue to evolve. Some of these shifting rules could lead to ways you can save on your compliance costs. Your CAMLO can identify these regulations and alter your AML Compliance Program accordingly.

Legal & Financial Accountability

Prior to designating yourself or one of the members of your organization as a CAMLO, they need to understand the risks they are taking. If your startup is found to be in violation of AML regulations whomever you designate as your CAMLO can be held personally responsible. For example, MoneyGram’s AML Compliance Officer paid a $250,000 penalty for failing to comply with regulations in New York State. These violations included failure to terminate their relationship with fraudulent organizations and failure to implement organizational policies to terminate relationships with high risk organizations.

In just February of 2018 two other cases like this penalized the compliance officer of the US Bank and Rabobank. The liability of a CAMLO significantly changed after Wells Fargo’s officer was found in violation in November of 2017. Prior to this case, most violations were directed at the organization instead of the individual. This new wave of charging individuals instead of organizations alleviates some responsibility. However, it makes it more difficult for Fintech startups to designate themselves as their organization’s CAMLO without taking on unnecessary risks. So, if you are considering designating yourself as your startup’s CAMLO, you must be sure you fully understand how to achieve full compliance to minimize your personal risk. You may wish to consider ensuring your E&O insurance covers this type of risk.

Alternative Options to Ensure Compliance and Minimize Risk

There are several cost-effective options to ensure full compliance with AML regulations and avoid taking unnecessary risks. These options can include:

• Employing a part-time expert and designating them as your CAMLO
• Hiring a consultant to review and advise you on maintaining your compliance program
• Create a culture of training and learning to ensure your entire organization helps maintain AML compliance

Employing a part-time expert provides a simple way to avoid personal risks of violating AML regulations. They will most likely request that your E&O cover them in any lapses your organization has failed to implement. They can fully understand your organization and goals to create programs that ensure compliance. While this is likely the most expensive method of designating a CAMLO, it minimizes your personal and organizational risks.

Hiring a consultant does not provide you with a CAMLO, however it does minimize the risks associated with designating yourself as your organization’s compliance officer. They can create your compliance program and advise you on how to implement the program. The consultant can also train your employees on keeping your startup fully compliant. Keeping this culture of training and learning helps your employees stay up to date on changing regulations long after the consultant has finished their work.  Here are 5 Key Aspects to Finding the Right CAMLO when you to to hire a consultant.

Conclusion

While becoming the Chief AML Compliance Officer for your fintech startup is possible, it requires extensive work, preparation, and ongoing maintenance to keep yourself qualified and your firm from being fined for a violation. KYC2020 offers a quiz to help you assess your basic knowledge of AML compliance regulations by your business type. Take the quiz and find out whether you should even consider putting on the CAMLO hat and take on the additional liability.

KYC2020 also supports a network of certified independent AML specialists that can advise you on effective options to maintain compliance. They look into your organization and how you operate to provide cost-effective plans your organization can follow. At first glance AML compliance may seem like a burden to getting your fintech startup off the ground, however it does not have to be complicated or costly with the help of KYC2020.