While Ukrainian war sanctions have dominated the debate about how banks should tighten KYC-systems, there is a parallel major overhaul of the European Anti-Money Laundering and Combating of Financing Terrorist (AML/CFT) rules underway in 2023. This further
adds to the strain on the compliance systems of financial institutions operating across Europe.
And yet the 6th iteration of the European AML/CFT rulebook promises to simplify AML compliance even as it also intends to significantly strengthen protections. A key part of the proposals is the formation of a single AML authority for all EU countries which
on paper should mean greater consistency in how the rules are applied. This would include clarification of the outlawing of all cash payments of more than 10,000 euros.
There is a clear determination to close down major loopholes too. Digital currencies, which have been misused by criminals to hide illegal transactions, will be brought under the EU AML/CFT regulations. Crypto asset service providers will be required to
apply stronger KYC rules and do stricter due diligence of customers who undertake crypto transactions of more than 1000 euros.
Altogether these and other aspects of the new regulations promise major positive change which should pick up pace this year. The Swedes who hold the European presidency currently want to advance a single rule book and finalise plans for the new supranational
AML authority. The deadline for the new rules to be fully operational is 2024.
However, anyone expecting AML to be a settled issue in Europe will be disappointed. Transposing past AML directives into national laws has tended to be a slow, patchy process that the European Commission has previously rebuked member states for slackness
or errors in transposing the rules into national laws. There have been rules breaches in some countries too, underlining how compliance is becoming more difficult. Even headline regulations like the 10,000 euro payment limit can be varied, creating potential
confusion. The ingenuity of financial criminals will see the need for new measures and checks to be introduced even as the ink has dried on EU AML/CFT regulations.
So how should banks respond? As always (and even more so with the strong cross winds of new sanctions linked to the Ukrainian war), there will be a reliance on systems that are built for change. As they digest the implications of the new AML/CFT rules and
how these might be applied nationally, banks and other institutions need to have technology solutions that free them to be able to quickly adapt to sudden shifts, and be resilient to future changes.
What kind of system can accommodate how EU AML/CFT rules keep on evolving and come with new complexities and risks? When there is pressure to comply rapidly with new rules, banks need highly configurable systems working in the background that do not require
coding or coding abilities to make changes sometimes at relatively short notice.
To be able to cover everything from operational tweaks to broader digital transformations you need intelligent workflows that can be built out on a collaborative, low-code platform. AI-powered decisioning can drive higher levels of automated processing or
intelligent guided processes, with the ability to build in machine learning to further drive process improvements. You also need the ability to easily change and track those changes with full auditability in order to provide a truly excellent change management
capability. Process mining capability can also provide insights into where there are bottlenecks in a process, or areas to further improve customer service
Efforts by regulators and financial institutions to gain the upper hand against money laundering and terrorist financing are impressive but will require some smart technology decisions and rethinking of processes to ensure their determination to stamp out
financial crimes doesn’t fall short.