For more than 30 years, the Financial Action Task Force (FATF) has been the global standard by which many countries have wholeheartedly adopted the measure to combat Money Laundering and Terrorist Financing(ML/TF). Since the FATF first started in the late 1980’s, many countries have come a long way in adopting FATF regulations and limiting the spread of ML/TF. While the primary G37 members have strict adherences and enforcement to the FATF 40 “Recommendations”, other members follow the guidelines with more leniency. When FATF was first founded,  there were only 7 pages of the 40 “Recommendations”. A mere 7 pages!  On the other hand, there are now a staggering 127 pages printed In the recently published June 2019 version of the “Recommendations”. Let that sink in.

Similarly, the original version only mentioned “policies” once, while in the latest version these policies are mentioned 30 times. This means that new “policies” were added almost 10 times per decade, resulting in about 42 new pages per decade.  This progression is not lost on most Compliance Officers, nor is it unexpected whenever regulations come into play.  So, when one may I ask, “Why is an AML Policy so important?” The answer to the question comes down to, its required by law!

Seriously though, WHY! Apart from the legal aspect there are many more important reasons why AML policy is becoming so crucial.  To be able to combat ML/TF risk, one needs to understand the risk which can come from all types of criminal individuals and organizations.  From the lone wolf to the entrepreneurial criminal enterprises, criminals launder trillions of dollars in drugs, human trafficking, bribery and the like according to a UN study in 2011. The FATF states “The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious. Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.”

For some companies it can be complicated to build and maintain an AML Policy. AML regulations are constantly being updated as seen by the FATF example over a 30+ year period. In addition, some of these businesses operate in more than one jurisdiction, and often there is more than one regulator. If you think you have what it takes to build your own AML Policy, take our CAMLO quiz and see if you have what it takes.

If not, our team at KYC2020 has set out to create a tool to help with the development and support of an AML policy.  It was built with templating in mind to have a base to start with and then customize for each entities specific lines of business.  The first version was focused on FINRA regulated entities in the US.  Now we have two more in production for Money Service Businesses (MSB) and Dealers in Virtual Currencies (DIVC) in Canada and the US. The AML Policy template mechanism is structured to allow for flexible sections and content to be tailored to the specific activities of the Regulated Entities (REs).

Once a template is chosen, the RE works through the various sections answering the questions related to the particular component of a standard AML Policy, while customizing the components and sections specifically related to their business.  Once done, the RE can request to have a certified CAMS (or equivalent) person review it and provide additional feedback or suggestions on updates and changes.

When the RE is satisfied with the results, the AML Policy can be frozen, and version control kicks in.

As with FATF and their 40+ recommendations, it is the same idea with the RE’s AML Policy.  It will be a living breathing document that expands and changes over time.   The constant transformation of the document is a good thing, it demonstrates that the REs AML regime is maturing over time to deal with new risk, regulations, and changes to the business to fight ML/TF.

Want to find out more about our AML Policy tool?  Click here and sign up for this and all the other offerings at KYC2020.

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.

• Financial Industry Regulatory Authority (FINRA)
• Financial Crimes Enforcement Network (FinCEN)
• Federal Financial Institutions Examination Council (FFIEC)

Financial Industry Regulatory Authority (FINRA)

FINRA is a private corporation in the United States that acts as a self-regulatory authority. It became the successor of the National Association of Securities Dealers in 2007 shortly after the SEC approved its formation. Since then, FINRA grew to over 3,400 employees working primarily out of Washington, D.C. and New York, NY with 20 other regional offices throughout the United States.

FINRA’s overall responsibilities revolve around regulating member brokerage firms and exchange markets, one part of which is ensuring AML compliance. With these responsibilities, the 3,400 employees oversee approximately 4,250 brokerage firms, 154,000 branch offices, and 625,000 registered representatives. As a part of these responsibilities, FINRA holds periodic regulatory exams for all member firms they oversee. These reviews help FINRA determine where they see room for improvement within these institutions for more streamlined compliance.

Despite being a private corporation, the Securities and Exchange Commission granted FINRA approval to discipline registered representatives and member firms. They also license individuals, admit firms to the industry, and create the rules that govern their behavior. In 2018 alone, FINRA levied approximately $61 million in fines and another $25 million in restitutions. This makes them one of the primary organizations you will have to deal with to achieve AML compliance if you are dealing in securities. They set the rules and regulate them, so be sure to pay attention to everything they do.

Financial Crimes Enforcement Network (FinCEN)

FinCEN was formed in 1990 with the goal of combating domestic and international money laundering, terrorist financing, and other financial crimes. They’re a bureau of the United States Department of Treasury that analyzes information about financial transactions. They are one of 147 Financial Intelligence Units (FIUs) that make up the Egmont Group of Financial Intelligence Units. FinCEN’s director summed up their mission through a statement in 2013 as, “safeguard the financial system from illicit use, combat money laundering and promote national security.” They accomplish this mission through following any financial trails that might lead to a case of money laundering, terrorist financing, or other financial crimes.

One of FinCEN’s primary responsibilities revolve around data collection and data use. They created the FinCEN Query which allows other Financial Intelligence Units to search the mass amounts of data FinCEN collects on all financial transactions. The search engine operates similar to Google making it easy for any of the Financial Intelligence Units to find any information they need. They also create four yearly reports:

• Suspicious Activity Report
• Currency Transaction Report
• The Designation of Exempt Person
• Registered Money Service Business

These reports contain their findings on various threats and indicators facing the United States when it comes to combating money laundering, terrorist finance, and financial crime

Through the use of the extensive data they collect on financial transaction, they conduct investigations into at risk individuals and organizations. This puts anyone not following AML regulations at risk of an expensive investigation that could halt your business entirely. So, to avoid a nasty letter from FinCEN, make sure you follow all financial requirements and regulations to ensure you do not participate in money laundering, terrorist financing, or any other financial crimes.

Federal Financial Institutions Examination Council (FFIEC)

The FFIEC was established in 1979 through the Financial Institutions Regulatory and Interest Rate Control Act of 1978. They are composed of five banking regulators that create uniform guidelines and standards that every financial institution must follow. The five banking regulators that make up the FFIEC include:

• Federal Reserve Board of Governors
• Federal Deposit Insurance Corporation
• National Credit Union Administration
• Office of the Comptroller of the Currency
• Consumer Financial Protection Bureau

In recent times, one of the top priorities of the FFIEC became protecting financial institutions from cyber-attacks. They achieve this through creating guidelines and standards for cyber security that every financial institution must follow. As part of their effort to help financial institutions combat cyber-attacks, they released the Cybersecurity Assessment Tool. Regulators of the FFIEC use the results of this tool as part of their examination into any financial institution.

Another helpful resource the FFIEC released to simplify compliance with the Bank Secrecy Act and Anti-Money Laundering is their BSA/AML info base. Within this infobase you can find guidelines to help you achieve AML compliance, examination manuals, and a range of other resources to help you maintain compliance. Since their overall goal surrounds helping financial institutions combat financial crimes, they aim to teach appropriate standards you should follow to maintain compliance. You can also use this database to see exactly what the FFIEC looks for during compliance examinations of your organization. This helps ensure you pass your examination when that time inevitably comes. You should look to the FFIEC to help you create procedures and maintain compliance with all BSA and AML regulations.

Do You Need Help Achieving and Maintaining AML Compliance?

These organizations are only the tip of the iceberg when it comes to navigating the complexities of AML Compliance. There is the OFAC which regulates all foreign assets, the OCC, FDIC, FRB, CFPB, and then various state level oversight agencies. These organizations play an important role in ensuring you remain compliant with all AML regulations.

If you need help navigating the complexities of AML compliance, contact KYC2020 for a consultation today. They offer software tools to help you manage all aspects of AML compliance and streamline your AML Compliance Program to ensure efficiency. KYC2020 also supports a network of qualified CAMS certified AML Compliance Specialists to help answer any of your questions and guide you through the process of achieving AML compliance. AML compliance does not have to be costly or complicated, so let KYC2020 help you decide your next steps to achieving and maintaining AML compliance in a cost effective and efficient way.

Spreadsheets for Everything

While an RA is the foundation for a good risk-based AML Regime, it is often marginalized by many non-bank financial firms.  It is done in a superficial manner, using tools that are convenient and free, but ill-suited for the job. Spreadsheets are generally the tool of choice to input, track, and manage the annual risk assessment compliance requirement. As one can imagine, this approach is rather ineffective. It lacks proper controls, is prone to human-errors, difficult to audit, share, or track revision history. Moreover, as banks enhance their KYC regimes, they require annually updated formal AML Risk Assessment documentation.  The inherent limitations of spreadsheets for RA reporting and management is obvious.

Alternatives to Spreadsheets

So then, what are the alternatives to spreadsheets? The challenge once again for most SMEs and FinTech innovators is Cost, Availability, Competence, and Convenience. In our search for alternatives, we could not find a competent RA tool that met our basic requirements, was available at low-cost, was easy to get started, and convenient to use.

When we introduced our FREE Watchlist Curator Tool, we made the following statement:

“At KYC2020, we could have invested in writing a blog and talked about why “over-screening” is an expensive problem…  Instead, we decided to have our CAMS AML specialists build a tool to help you identify what Sanction, PEP, and watchlists you should be screening based on your company’s risk profile. And we decided to make our watchlist builder available free of charge.”

KYC2020 Free AML Risk Assessment Tool

For our AML Risk Assessment Tool, we decided not to be so lazy. We not only built a tool that we could make available for FREE, but also forced our CAMLO, Joseph Iuso, CAMS, to write a Blog on the What, Why, and How’s of an AML Risk Assessment. Between the information and wisdom of Joseph’s blog and the competence and convenience of our RA tool, I believe we have got you covered. Of course, we have the standard disclaimers, and you should already know that a tool cannot replace the advice of your in-house Compliance Officer.

Get started by clicking below.

KYC2020 AML Risk Assessment Tool benefits heavily from the Federal Financial Institutions Examination Council’s (FFIEC) Risk Assessment guidelines, as well as the Conference of State Bank Supervisors (CSBS) BSA/AML Self Assessment tool.  The tool considers five (5) main categories to arrive at an aggregate risk score for your business. These are: 1) Products and Services, 2) Customers, 3) Geography, 4) Operations, and 5) Agents. For each category, you have the opportunity to specify the High, Medium, and Low Risk definitions inherent to the business. For the inherent risk definitions you then specify your controls and mitigation measures to arrive at the residual risk; the risk that still remains after application of your counter-measures. This residual risk is then scored and aggregated across all categories to complete your risk assessment.

Who said it would be Easy

Sounds complicated? That’s because it is. Even for AML specialists working on a low-risk profile business, this is a minimum 2+ hour investment of time. It is for this reason the tool has the ability to save work and complete the assessment over multiple sessions. With a little bit of study, watching our Get Started Video, and rolling up your sleeves you can get through with your risk assessment on your own and for FREE!

Need Help with your RA?

For those who need a little bit of help completing, we offer some reasonably priced paid options to speed up your risk assessment process and follow best practices. These include, access to business specific templates that can be customized to speed up the assessment, different consulting packages to help prepare, review, and/or audit your Risk Assessment by our CAMS or VSKILLS certified AML specialist.

Once again, there is no catch. The tool is no obligation and we do not take any payment information. We do hope you might take the time to see what awesome and affordable AML compliance solutions we offer, from Global Watchlist Data to Sanction Screening to AML compliance consulting services. Chat with us online now, email us, or just use the tool. Our aim is to help you reduce the cost and friction of AML compliance.

AML Training Program and Strong Internal Controls

AML compliance cannot be confined to a single department. It is an organization-wide process. If you want to have a proper AML Compliance program in place, then you must carry out training sessions with all of your employees. Make sure they are aware of good AML practices and also play an active role in implementing them. A lot of suspect organizations and individuals will look legitimate to your system and pass security checks, setting up ‘checkpoints’ in the form of diligent employees can prevent this.

Independent Audits

Besides the inclusion of AML policies and procedures within the company, you must also be open to independent audits. These are conducted by qualified teams and can help identify any inconsistencies in the company’s financial records. Audits tend to feel invasive, but they are in everyone’s best interests. They also help make sure that your system of internal controls is working.

Open Communication

Communication is one of the requirements of AML Compliance. You must try and propagate a culture where your employees can approach the senior management and the appointed compliance officer regarding anti-money laundering.  The resulting trust and transparency will encourage the employees to take AML practices more seriously. It will also help identify any existing drawbacks in your current AML compliance program.

Use Technology

This is extremely important. AML compliance does not come cheap. There are significant costs attached to it, which is why a number of small businesses may fail to implement sound AML practices in their company. Technological solutions can help you out in this regard. These not only make it easier to follow AML guidelines, but they also reduce compliance issues. In case any discrepancies are detected, these solutions also enable you to respond quickly and resolve the situation. Let’s take a look at some of the tools you can consider using:

Global Watch Lists and Screening Solutions:

One of the most useful digital solutions for AML compliance is accessing a global watch list. This helps you access a database carrying more than 900 international watch lists. Using this can help speed up your screening process.

There are also screening solutions available that are designed to minimize the chances of false positives. You can look for an option that suits your budget. The best digital solutions providers will offer you flexible packages.

Screening Decisions and Risk Assessment Tools

Carrying out a manual risk assessment and then taking a decision can be extremely time-consuming. Fortunately, you can use software that can take a decision on your behalf. This will ensure that you remain compliant while also speed things up.

The Final Word

AML compliance is not easy, but it is not impossible either. All you really need to do is strike a balance between an organization-wide commitment and seeking aid from technology. If you’re looking for strong AML compliance tools, we suggest you contact the team at KYC2020.

The chance of becoming an unwitting conduit for a money laundering scheme is becoming greater for small and medium-sized enterprises (SMEs) recently. Criminals are adopting more sophisticated means of circumventing the traditional defenses against money laundering. SMEs can become easy targets if they don’t keep up their guard. At the same time, regulatory requirements have gotten tighter and the consequences for failing to comply have become more harsh.

Companies with in-house solutions are at increased liability when it comes to these regulations. So how can you minimize your liability and improve your AML regime? Outsourcing your AML compliance solution is one idea. This method is cost efficient and works to mitigate company liability. But outsourcing isn’t without its risks. Sharing confidential data with a third-party can be risky, if you aren’t careful.

Here are a few things to consider before your organization makes the plunge into third-party compliance solutions.

Improvements in AML Policies and Infrastructure

Traditional enterprise AML compliance solutions require a lot of investment and ongoing manpower to run effectively. These systems were not developed for SMEs and as such, and can be difficult for small companies for small companies to source the resources to run them. In-house AML compliance regimes need to be maintained. For smaller companies, this can be a huge disruption. Outsourcing your AML compliance alleviates these potential stressors by taking the onus off of the company and putting it in the hands of experienced professionals. A team that can handle:

• Reviewing your existing AML controls
• Preparing and helping with the implementation of a robust AML compliance program
• Preparing your organization for audits

Access to CAMLO Services

Every organization should have a chief AML officer (CAMLO) to head its AML compliance program. These individuals receive regular training on anti-money laundering practices. They also stay up-to-date with money laundering trends and use this information to align the existing AML regime of an organization with changing laws and regulations. However, acquiring the services of a chief AML officer is considered a luxury that most SMEs cannot afford. If you’re considering outsourcing your AML compliance, check that the service provider offers you the equivalent of a CAMLO. The addition of a CAMLO can improve the quality of your AML compliance program and help you meet global compliance standards.

Access to Technology

Some AML compliance firms make use of technological solutions that help automate AML procedures. This can prove to be extremely cost-effective for small organizations that that use/employ manual methods. These tools also help improve the accuracy and speed of AML-related screening and decision-making. You can process new clients much faster and stick to the pre-requisites of your AML regime without inconveniencing a client.

To Sum It Up

Some organizations cannot outsource their compliance activities due to the nature of their operations. For others, outsourcing is definitely an alternative. However, it’s important that you understand the security risks of outsourcing your AML compliance. Opting for a reputable company with positive reviews is one way to avoid a breach of security.

KYC2020 isn’t just an AML Software solutions provider. Our team of CAMS and VSkills certified AML specialists can help you with your consulting and outsourcing needs. We have experience working with, and understand, the unique needs of SMEs, virtual currency operators, ICOs, Charities, and MSBs. Learn more about our consulting services by clicking here.

The Problem

When I was asked by my newly hired social media and marketing associate to start a blog and share my insights and ‘thought leadership’ on the topic of AML Compliance and how costly high-friction systems designed for banks over 20-30 years ago are killing financial innovators and FinTech, my natural response was, No thank you. I don’t want to be just ‘another bloke with a Blog.’ But there was a problem, KYC2020 was ranking poorly in Google searches and something needed to be done. And content marketing, I am told, is a good place to start.

“To be or Not to Be,” That is Not the Question.

Social Media Marketing is something I have actively rejected for too long and for too many reasons, both rational and irrational. But conscientious objection is no longer an option.

Now as I sit here listening to Pink Floyd, I am contemplating just exactly how I participate without having a ‘ghost’ do it for me.  So then… what do I want to be?

After all you already have,

“Thirteen channels of shit on the TV to choose from.” –The Wall.

Reconciling the Past

I suppose I should start with reconciling my long-held suspicion of social media platforms.

Did it have its beginning with engineering and Georgia Tech? Or was it at University of Chicago GSB?  No, I believe it is my 20 years in capital markets and FX trading where I institutionalized my contempt for “purpose-driven” social networking and influence peddling into a philosophy.

There is this famous Wall street saying for traders that goes, “Those who Know, don’t Say. Those who Say, Don’t Know.” Trading is a zero-sum game where the motivations for information sharing and social exchange are questioned without question. Thought inception is the greatest fear.

Lessons Learned

KYC2020 is a company of technologists that got started as often engineers foolishly start– to solve a problem. Sales is usually the afterthought, especially when the means to fund new product development are available and founders are product people.

At KYC2020 the problem we wanted to solve was why sanction screening and AML compliance was so costly and cumbersome for FinTech and Money Service innovators. For three (3) years we focused on product development and largely shunned sales and marketing. It was costly, and we did not have the in-house talent. It was a distraction from our primary goal—to create next-generation RegTech services.

With one of my first technology companies, TEKchand, we had a similar problem of limited resources in 2002 to accomplish both product development and marketing goals.  We solved the problem by partnering with managed services providers and went with a white-label distribution model. We avoided a dedicated sales and marketing function all together. The revenue give-up from a re-seller model was roughly equal to the cost of building out the sales/marketing function.

It turned out to be the right business strategy in a slow moving, highly protective industry where brand awareness and marketing only invited threats and unfair business practices from the old guard with considerable bargaining power. But it is certainly not the right strategy for RegTech and FinTech, two of the fastest growing areas in business that are doing so much social good.  Most notably, bring banking to the unbanked, micro-lending to the poorest parts of the world, low cost money remittance to migrant workers for families at home, and much more.  They are disrupting the disrupters, and social media is a powerful enabler.

Social exchange, experience sharing, and thought leadership help entrepreneurs identify and safely navigate the roadblocks and pitfalls that can slow down innovation. Possibly more importantly, social media platforms can be used to call out and start a dialogue on the unfair business practices and barriers to entry put in place by the entrenched players, practices that cause friction and prevent modernization.

I am thinking WAZE here. I wish I had been more vocal about our ATM software technology business.  ATM vendors should have been called out on their business practices.  But that’s a topic for another day.  What matters is that I’ve learned my lesson. With KYC2020, it’s my full intention to use my platform to its greatest effect. If we take WAZE as an example, the power for good with this exchange of social capital is immense. But that power isn’t always used by people with good intentions.

The Dark Side of the Moon

Though social media marketing can result in a great deal of good and innovation, there are many people that seek to abuse that power. Entire websites and social media accounts established for the singular purpose of amassing impressions, and foot traffic, and clicks. It doesn’t matter if the content shares new ideas. It’s about taking that social power and turning it into tangible capital, then leveraging it to sell something. With most people in the industry clamoring to amass that capital and sell their products, new insights can become the unfortunate casualty of the machine.

So then… what is YOUR motivation, Mr. Bahri? You might be asking.

I don’t know Ringo! let me borrow a line from Jules Verne, Pulp Fiction, “I’m trying.  I am trying real hard to be the Shepherd.”  And “If my answer frightens you, then you should cease asking scary questions.”

Goodbye Blue Skies.  I am leaving you Today.

My disdain of social media for business and marketing is a behavior entrenched in me for over 25 years. It’s difficult to unwind that thread. So, I figured start slowly. I’m fortunate to be in a position in life, as a founder, investor, and business owner to speak freely. And I know you are fortunate enough to already have plenty of thought leaders who can dissect the same topic, offer the same perspective, and sell you a roadmap to success.

I want to be different. To speak from failures, be controversial, and question why we are on the road instead of trying to sell you the roadmap. To question the problem instead of trying to sell the solution. But I am not here without a purpose, I too have a product that I believe in, and the urge to sell is strong. But I will keep my motivations in check.

With all that in mind, I am going to start with cartoons.  At least with a cartoon, it’s not a blog! You may not understand what i am saying, like or agree with it. You may question my motive, intelligence, or insight, but at least I won’t be wasting much of your time.

But if the thought does resonate, it can start a dialogue, and it won’t be Just Another Blog on The Wall.

Historically, SMEs have been at a disadvantage when it comes to Anti Money Laundering (AML) compliance solutions. Often times SMEs don’t have the infrastructure to do effective sanction screening. And for the companies that can accommodate the traditional process, it still may move too slowly for it to be truly efficient for their purposes. After all, when you sign up for a service online the expectation is to move through the process as quickly as possible. SMEs, particularly emerging payment innovators, need an AML compliance process that can match the speed of their businesses. As new markets emerge these emerging payment innovators grow more influential and thus come under greater scrutiny from regulatory bodies. As that pressure mounts, SMEs must strengthen their AML compliance regimes. They need the right tools for the job.

Why not Just use the Existing Tools?

Large financial institutions, particularly large banks, aren’t strangers to the process of KYC and AML compliance. They are the largest influencers on the third-party AML compliance solution marketplace. The tools to tackle these issues have existed for a while now so why can’t SMEs just repurpose these systems for their own usage?

These tools are built for major financial institutions with whole departments dedicated to operating these programs. They need an abundance of staff and cash to run and it’s simply overkill for most SMEs. It’s like using a sledgehammer where a thumbtack would do. Ostensibly they do the same thing but the sledge hammer requires a lot more energy to operate and creates a huge margin of error. While large banks can afford the labor to use these systems, they simply aren’t feasible options for smaller companies. Moreover, the level of scrutiny most SMEs require isn’t on the same level as massive financial institutions.

Picking the Right Tool for the Job

Let’s put it this way. If you screen every sanctions list in existence, you’ve done everything possible to stay compliant with AML sanctions screening regulations. It’s more labor intensive but every imaginable base is covered. Major banks need this type of functionality. They risk massive repercussions if they make a mistake as wrong doers are constantly trying to take advantage of them. SMEs don’t have the same risk factors. They don’t need the same level of scrutiny as large financial institutions. This is where a ‘risk based’ approach comes in.

That is to say, a solution that matches the level of risk a SME takes on. Businesses conducting low risk transactions, don’t need to cover every base imaginable. Using strategic analysis, they choose to screen, not just the right number of lists but, instead, the lists that are mostly likely to yield results. This approach assures that level of labor required stays within the bounds of what is necessary for an SME to conduct their business responsibly.

AML Screening for the Next Generation

In order to keep up with the evolving markets and rising amounts of financial crime, SMEs need a new approach to sanctions screening. Decisioning systems are built with online businesses in mind. They are intelligent, self learning programs which can render 95% of all verification decisions automatically, within a 60-second time frame. They are easy to integrate into transaction workflow processes which are fast, effective, and self-perpetuating.

This approach lowers the frequency of false positives. Regardless, even the most highly tuned systems will have false positives to process and require a trained expert to handle. The fact of the matter is that human oversight is required in these processes but who has time for that when the marketplace is moving so quickly? Well, there’s a solution for that too. But we’ve talked a lot about problems at this point so let’s jump into the solution, DecisionIQ.

KYC2020 offers an easy, inexpensive way for SMEs to access and incorporate an appropriate level of screening for their purposes. DecisionIQ is a service built to be affordable, accurate, and transparent. If you want more information, check out our white paper.

Use Cases Included:

• CIBC presenting a use case for AI/ML for streaming the onboarding process to near 89% that of human capabilities.
• KYC2020 use case on how using its DecisionIQ reduced the overall burden of reviewing false positives from 8 hours down to 30 minutes.
• AML professionals reported that AI/ML from AML had many applications in non-compliance functions including training, marketing, sales, and improved customer service.
• That all solutions are not a 100% replacement of human functions, rather, and an enhancement to extend beyond human insights.

There seemed to be a consensus among attendees that adaption of AI/ML tools will continue to move slowly. When asked about some of their reasons they said:

• A limited understanding of AI/ML application in the context of AML compliance programs.
• The idea that AI/ML is a “black-box” that isn’t easy to understand for executives, regulators, and compliance officers.
• The scrutiny of AML compliance programs by regulators to be able to demonstrate an understanding of what the AI/ML is doing to come up with the results.
• The actual cost savings and/or efficiency benefits brought on by using AI/ML.

To the last point, a recent report by PwC indicates that “While many favour the use of technology in combating fraud and/or economic crime, 37% of respondents believes that it produces too many alerts or false positives. This can lead to customer friction – a growing challenge for organizations as they seek to strike the right balance.” This balance is the key to delivering on the promise that AI and ML will reduce alerts and false positives.

Surmounting the False Positive Problem

While designing DesicionIQ, KYC2020 encountered similar challenges. We needed to determine what constituted the “right balance.” That meant we had to cast a wide net while KYC searching to insure we caught the maximum amount of hits. We needed to create AI/ML models that emulated the process a person would go through to clear the false positives. The difference being on a significantly larger scale than a human would be capable of reviewing. And in a matter of seconds.

But making a screening decision isn’t the only thing that matters here. Our CAMS(tm) certified AML specialists made sure that our system’s decision process are easily auditable in the same way you’d audit a human’s. To accomplish that, DecisionIQ provides all of its decision processes in a clear, readable “Proof of Work (POW)” format. The files are securely stored and easily accessible by compliance staff, auditors, or anyone else.

A Penny Poorer, a Pound Richer

Next-generation solutions that use AI/ML systems deliver overall cost savings and a more effective compliance regime. It can be challenging to convince management that that the initial investment is worth the spend. Yet, that thinking creates situations where a company is a penny richer and a pound poorer in the end. Advances in AI/ML will allow compliance professionals to make greater strides and reduce overall spending for management teams.

Over the years, we have seen the regulatory landscape of list screening expand from the usual sanctions lists to:

• Foreign (Politically Exposed Persons)
• Domestic PEPs
• Heads of International Organizations (HIOs)
• Relatives & Close Associates (RCAs)
• most recently adverse media

These lists and sources will only continue to expand. Consider the recent inclusion of digital currencies, such as Bitcoin or Ethereum into address into the OFAC as a searchable field. Pretty soon we will see other G38 members of the FATF do the same. There is no doubt this trend will continue to be a focal point for regulators to ensure regulated entities include more and more sources.

Regulators continue to push forward to the notion that more tools are needed to tackle these issues. A recent joint publication from the Fed Reserve, FDIC, FinCEN and the National Credit Union Association states that the joint agencies are committed to supporting “innovative efforts in combating money laundering, terrorist financing and other illicit financial activity.” This is a strong statement encouraging all those governed by the BSA that the use of AI and ML learning is an acceptable approach to “enhancing the effectiveness and efficiencies” of the financial sector the point where Fincen is willing to consider “exceptive relief under 31 CFR 1010.970 to facilitate the testing and potential use of new technologies and other innovations”.

Here in Canada, the Financial Stability Board (FSB) has also recognized in a 2017 report that AI and ML is playing a critical role in driving “to increase productivity and simultaneously reduce costs and risks, while complying with regulations”.

The Take Away

AI and ML capabilities have been steadily increasing over the last few years and to ignore them much longer would be at an organizations peril. It will not only affect its bottom line, but will most likely cost more due to the shear amount of data, alerts, and false positives that are increasing every day. It’s time to take a leap forward in AML compliance and start investigating the use of AI and ML to drive efficiencies and meaningful results.