Marisol Lopez Mellado
Senior Director, Industry Practice Lead, Financial Crime Compliance & Third-Party Risk Management at Moody’s
THIS is a time of rapid progress in the constant fight against money laundering, the financing of terrorism, and other forms of financial crime.
Advancing technology and access to data analytics are strengthening organizations’ defences, bringing advantages including increased efficiency, lower costs, more business – and less likelihood of fines for breaching regulations. To achieve the maximum benefits, however, a clear regulatory framework promoting standardisation is needed, under a risk-based approach which takes into account issues such as privacy and access to data.
As the threats, technologies and processes are constantly evolving, it is essential for regulators to focus on outcomes and to work closely with industries to ensure flexible and appropriate methodologies.
EU strengthens regulations
The European Commission asked the EU’s European Banking Authority (EBA) to advise on important aspects of the bloc’s new anti-money laundering and countering the financing of terrorism (AML/CFT) framework and its new Anti-Money Laundering Authority (AMLA), to ensure the AMLA operates efficiently and effectively as soon as it is established.
The EBA’s recently published Regulatory Technical Standards will contribute significantly to harmonisation in the EU. Here are some key points:
- Common ML/TF Risk Assessment Methodology: The EBA has now responded to the European Commission’s Call for Advice regarding a common risk assessment methodology for AML/CFT supervisors. This methodology sets common data collection processes across the EU, establishing a standard approach for financial institutions and providing a unified regulatory framework.
- Commitment to Maximum Harmonization: The EBA’s principles include a commitment to maximum harmonisation across authorities, member states, and sectors. This involves building on existing EBA standards and aligning with global AML/CFT benchmarks.
- Proportionate, Risk-Based Approach: The EBA has developed a proportionate, risk-based approach that ensures technological neutrality.
Industry bodies across the EU and UK are working towards greater standardisation and increased transparency on access and data sharing to increase efficiency in the fight against financial crime.
Moody’s is pleased to provide input and support, which includes contributing as a Member of the Data and Technology for Compliance (DT4C) Alliance – the EU’s leading advocacy organisation for data and technology service providers, championing transparency and innovation in financial crime prevention. In the UK, Moody’s does similar work through membership of The Centre for Finance, Innovation and Technology (CFIT).
Living in harmony
One advantage of more standard, harmonised regulatory frameworks in the EU and beyond is that they help financial institutions and others to improve entity verification, onboarding, and the monitoring of customers and supply-chain partners. Harmonised objectives make it easier to automate otherwise time-consuming manual checks and deploy processes and tools to identify and mitigate risks more quickly and cost-effectively.
Real-time data integration tools and automated solutions are key to increasing the speed and efficiency of risk management and compliance processes, while controlling costs. Such technology can consolidate risk profiles into a single, unified source, going beyond AML/CFT to also assess factors such as sanctions exposure and indicators of forced labour.
Automation reaps rewards
Automation helps businesses respond to risks in real-time rather than relying on potentially slower and more expensive manual processes. This is especially important when time-sensitive decisions need to be made. Swift action can help identify threats, respond to problems before they disrupt operations, and help to attract customers. Surveys show financial institutions have lost many clients because of slow and inefficient onboarding processes. Automation is clearly an advantage for organisations such as banks, where onboarding a client typically requires the completion of between 100 and 250 data fields.
The foundation of all these measures is high-quality data, without which even the best tools and procedures will fall short. By integrating high-quality datasets, businesses can quickly and accurately evaluate potential and existing clients and supply-chain partners, enabling faster and better-informed decisions to meet risk and compliance standards. Such unified systems also allow businesses to adapt faster to changes in regulatory requirements.
Advances in generative artificial intelligence (GenAI) can further strengthen defences through risk assessment – making it easier to compile onboarding details and drill into a wide range of information to identify threats or positive indicators that might otherwise be missed.
Continuous challenges – and rewards
Compliance checks should not be a one-time box-ticking exercise. Well-managed organisations with unified compliance systems linked to good datasets will regularly monitor clients and partners for changes in status that might indicate new levels of risk requiring a response.
Data points that should be monitored for changes after onboarding may include registered addresses, names of owners and directors, legal names, the nature of business, ID and tax numbers, adverse media reports, and appearances on sanctions lists and lists of politically exposed persons. When changes occur, automated alerts can be generated, driving quicker responses.
Further progress is within reach, helped by events such as this year’s European Anti-Financial Crime Summit in Dublin, which brought together EU and UK regulators, policymakers, industry leaders and law enforcement chiefs this month, and was attended by Moody’s. Dialogue between all parties is welcome if it leads to more regulations that are fit-for-purpose and future-proof with greater transparency and clear goals. Successful advances in Europe may encourage a similar approach in other regions, making the potential benefits greater still.
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