AML digital transformation roadmap: How to get to automated best practices

By John Leahy Senior Product Manager
January 26th 2022

As we discussed in our previous blog, automating AML controls is the only way to properly combat money laundering risks and ensure firms can meet their regulatory responsibilities. But undertaking that digital transformation – to get firms from where they are (often reliant on fragmented technologies and complex manual steps) to where they need to be (working off integrated systems and automated processes) – is no easy feat.

Digital transformation best practices

Moving from a manual to a digital, automated AML environment takes change in four key areas.

1) Process

A successful digital transformation requires firms to assess and often redefine their AML processes to fit with an automated workflow. Maintaining the legacy workflows that had been used to complete tasks manually won’t work. The goal should be to eliminate manual steps and move to a self-service model for activities such as investor onboarding and trade placement.

Adapting your ongoing client due diligence processes is similarly vital. Manually checking for any changes in name, address, updates to bank details, etc. is time consuming and risks oversights and mistakes. Software can automatically flag any change in circumstance or suspicious transactions when they happen and prompt a review of the account. Freeing staff from laborious manual processes also allows firms to redirect their resources to more value-adding compliance activities.

To be effective, automated processes must be scalable and easily customisable to keep pace with regulatory changes. A configurable set-up that allows system administrators/users to tune rules on the fly allows firms to stay abreast of AML/KYC developments without requiring constant vendor involvement.

2) Technology

The coronavirus pandemic has accelerated digital transformation across the industry, heightening demand for device-agnostic, web-based software. Moving from on-premise to cloud-based AML solutions is often cheaper, and introduces greater working flexibility and resilience by giving staff access to the applications they need anywhere and at any time.

People working from home and using their own devices creates a technology risk though. Organisations worry about a lack of oversight and potential exposure of sensitive data. Firms will need controls to mitigate such risks.

Digital transformation projects also bring build-versus-buy technology questions to the forefront. In-house systems offer the prospect of greater control and bespoke development. But they often eat up huge resources and suffer from delays.

Vendor systems tend to be quicker and easier to implement, and deliver built-in scalability. Plus dedicated AML vendors have extensive experience of the regulatory environment and will likely employ best-in-class technology.

3) Data

Where data is housed is key to effective anti-money laundering.

Data warehousing is institutions’ holy grail. Investor-related data is often siloed across multiple systems, and may be formatted and stored in different ways across different divisions and jurisdictions. That risks errors, process bottlenecks, and a lack of investor and beneficial owner transparency.

The goal is a central repository of golden source data that can feed consistent information to all parts of the business. Applications sit on top, and query and call the cleansed data they need on demand.

Moving databases into the cloud can help, allowing for a centralised data store with unlimited scalability that can be accessed from anywhere. But location remains a consideration.

Luxembourg laws, for instance, require client data to be held in the country. A private cloud – with the server based in that jurisdiction to house the relevant data – offers one solution.

Another is to employ a hybrid model, where the database is kept in a physical server on site, with the application layer deployed in a public or private cloud. Applications can then retrieve the data and display it to the user without storing it.

4) Culture

AML-related activities once conducted face-to-face, such as account opening, are moving online. Creating the digital infrastructure to support this shift demands buy-in from key stakeholders across the enterprise. Yet organisations are often slow to change, and some parties may be resistant to the transformations needed. Managing these stakeholders and bringing them along is key.

Keeping system implementations agile is similarly vital. Business demands, workflow requirements and regulatory rules may all diverge from the initial project scope. An iterative development approach enables firms to use data and feedback from user pilots to guide the next steps and reach achievable goals. Software that gives users the flexibility to make changes on the fly can also help firms’ meet their evolving AML and KYC responsibilities.

The time has come

Automated AML capabilities have become a must-have. With money laundering schemes becoming ever more sophisticated and regulatory actions stepping up a gear, firms can no longer rely on fragmented, outdated tools. Getting from haphazard manual processes to a robust, automated environment may be a challenge. But it has never been more important.

Read More on KURE

About Deep Pool

Deep Pool is the #1 investor servicing and compliance solutions supplier, providing cutting-edge software and consulting services to the world’s leading fund administrators and asset managers. Our flexible solution suite, developed by an experienced team of accountants, business analysts and software engineers, supports offshore and onshore hedge funds, partnerships, private equity vehicles, retail funds and regulated financial firms. Deep Pool is a global organisation with offices in Dublin, Ireland, the United States, the Cayman Islands and Slovakia. For more information, visit: www.deep-pool.com.

John Leahy
John has been with the Deep Pool Group since 2012. He drives product development, vision, strategy, and execution across a cross-functional team, serving 3 Fintech/Regtech products. John holds a Postgraduate Diploma in Product Management from Technological University Dublin.