In early 2017, the FCA commissioned a survey and report on emerging technologies with the potential for enhancing financial firms’ work to detect and prevent money laundering, and for helping make the UK a hostile environment for criminals’ money.
The report has now been published. Research for the report included over 40 interviews with regulated firms, technology providers and other bodies. The report sets out views on topics such as:
- what are the key functions of new and emerging technologies related to AML compliance and how they might aid to compliance activities;
- what challenges firms face in introducing new technologies;
- what good practice examples and lessons learned are available for firms considering new compliance technologies; and
- what steps could the FCA take to encourage more innovation in this space.
In summary, the report finds that many new technologies are perceived as having potential in anti-money laundering (AML) compliance, with regulated firms slowly trailing a wide variety of innovative solutions both to manage their financial crime risk and to reduce operational overheads. For example:
- for on-boarding and maintenance, many firms had considered or trialled new technologies, with utility technologies perceived as the most popular;
- for client screening, firms were particularly focussed on using analytics techniques and machine learning to increase the accuracy of their screening rate to diminish the impact of false positives;
- transaction monitoring was the area where new technologies were broadly considered to have the most potential – particularly in using data analytics, machine learning and natural language processing (NLP) to enable firms to spot suspicious transactions and assess their risk in real time; and
- new technologies were also considered to have the potential to make a positive impact on reporting and management information – particularly through the use of data visualisation techniques to allow firms to gain insights into their customer base and better manage their AML operations.
Of the various technologies considered during the review across the AML lifecycle, the most highly regarded by respondents were those related to data analytics, machine learning and NLP all of which were considered to have potential for transforming almost every part of the AML compliance lifecycle.
In terms of new technologies and AML compliance, the report concludes that:
- new and emerging technologies have the potential to deliver both significant cost reductions in operational areas as well as significant enhancement of money laundering / terrorist financing / fraud prevention;
- adoption of these new technologies generally remains slow, with economic, regulatory and operational challenges cited as the reason. Many of these are unique to individual technologies, but with common concerns such as data privacy and data quality regularly identified;
- some technologies have stronger support than others. Respondents were almost universally excited by machine learning and NLP, but divided on blockchain-based approaches;
- many of the most promising use cases of technology depend on collaboration between regulated firms, such as agreeing standardised approaches to transaction monitoring. The overarching view is that this is unlikely to happen in the short to medium term without regulator intervention.
View FCA report on new technologies and AML compliance, 2 August 2017