U.S. AML Posture Tightening But Gaps Remain: Open, Connected Data Can Help Ease Challenges

The AML Act (“the Act”) enacted in January 2021 includes several measures to help financial institutions (FI) not only better understand their risks but also better mitigate their risks. However, gaps remain that raise important questions for FIs. In particular, quite a few entity types, including certain pooled investment vehicles, are exempted from reporting information to the Act’s newly created registry. Will FIs still need to manage that risk? How will they do so without data from the registry? With risk management as a broad target, how can FIs effectively manage risk while balancing efficiency and costs? What data and technology can help ease challenges?

Since at least 2018 with the Customer Due Diligence Rule, U.S. authorities have tightened AML regulations and emphasized the need for more effective risk management. In 2020, we saw the U.S. Treasury’s National Illicit Finance Strategy establish a roadmap to modernize the U.S. counter-illicit finance regime and the Wolfsberg Group encourage countries to focus on achieving effective outcomes. That same year, FinCEN’s Advanced Notice of Proposed Rulemaking (ANPRM) foreshadowed potential regulatory changes meant to facilitate the ability of FIs to leverage new technologies and risk management techniques to focus on providing more useful information to U.S. authorities.

Many FIs are turning to technology and data to fill gaps. Public data sources exist that offer all the core components of ultimate beneficial ownership (UBO) and control data, albeit in complex and non-obvious forms. Technology that automates the collection and synthesization of this data can not only fill some of the data gaps left by the current regulatory requirements, but it also can unlock significant value and increase effectiveness while balancing costs and process efficiencies.

Embarking on a new technology journey can be a significant lift – involving cross-functional and interdisciplinary teams along with stakeholder buy-in and support from senior leadership – which can and should have significant impact. Proper planning is critical and one key consideration for most FIs is scalability and sustainability. But the people impact is also important. The right technology can help your teams better share information and collaborate, improve the customer experience, and even unlock revenue-generating opportunities.

Regulator Watch: For more information on Regtech for AML, see the recently released paper from the Hong Kong Monetary Authority.