Technology Innovation in AML Sanctions and KYC/Due Diligence: Reality vs. Aspirations

ICLG Sanctions 2020

Continuous improvement is paramount to ensuring the effectiveness of any financial crime compliance program. Financial institutions are always in search of solutions that will improve the effectiveness of their programs while minimizing the operational costs of maintaining them. In the U.S. alone, anti-money laundering (AML) compliance costs financial institutions an estimated $23.5 billion per yearEuropean banks are close behind, with $20 billion spent annually. In addition, fines for sanctions-related violations have swelled in the past decade, with over $13 billion levied against financial institutions by U.S. agencies, regulators, and law enforcement from 2012 to 2015. When considering innovation in financial crime compliance in the midst of this type of compliance and enforcement climate, the current discussion often focuses on three areas of technology: artificial intelligence, robotic process automation, and blockchain. Buoyed by regulator statements that encourage further exploration of these technologies, financial institutions, software companies, fintechs, and consulting firms are moving at a feverish pace to apply these innovative new technologies in the areas of AML, sanctions, and Know Your Customer (KYC)/due diligence.

In an extensive chapter for the International Comparative Legal Guides - Sanctions 2020 Edition, our Patrick McArdle, Adam Klauder, and Louis DeStefano explain that despite the attention that these technologies have received, none have developed to the point of replacing traditional forms of compliance. In adopting these technologies, financial institutions must first evaluate their current uses, changes to implementation/use, risk coverage, and aspirations for the future.

This article was first published in the ICLG Sanctions 2020 Edition.

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