By CARLO BOFFA, EU Correspondent
Financial institutions must overhaul their governance and operating models to address the evolving financial crime risks posed by geopolitical instability, cryptocurrencies and new payment methods, according to Elizabeth McCaul.
McCaul, a former member of the European Central Bank’s Supervisory Board who recently became chair of the board at AML technology provider Reform Technologies, said firms can no longer rely on governance frameworks designed for a more static financial services landscape.
“The starting point for any institution is its governance framework and whether it is built on a strong enough foundation to manage the risks the institution faces,” she said during a webinar hosted by AML Intelligence.
“That is an essential piece, and it has to change in today’s environment because we’re no longer operating in a static financial services landscape.”
She argued that governance frameworks must place a much greater emphasis on technology, with both financial institutions and supervisors becoming more “technologically fluent”.
“It doesn’t mean you need a computer science degree in every cubicle or on every board, but technology fluency has to become part of the operating model,” McCaul said.
While many institutions have invested millions of euros in enhancing their financial crime controls, she warned that they often struggle to demonstrate that those systems can keep pace with rapid technological change and increasingly sophisticated criminal threats.
Digital twins
McCaul highlighted the potential of digital twin technology as a way for firms to modernise their anti-money laundering (AML) capabilities without replacing existing systems.
Reform Technologies’ flagship Digital Twin creates a digital replica of a bank’s legacy AML infrastructure, allowing institutions to simulate, validate and optimise their transaction monitoring frameworks before deploying changes into production.
McCaul said the technology enables firms to retain their existing systems while adding an overlay to test new detection methods.
“You can put this overlay in place and then test different typologies and different patterns,” she said.
“You can mirror the activity of the existing system and then use natural language processing, agentic AI and generative AI to identify behavioural changes in customer activity across payment systems.”
She also criticised the performance of many legacy AML systems still in use across the industry, saying they generate excessive false positives and consume valuable investigative resources.
“I am very aware of the amount of time that is completely wasted using the tools that are here,” McCaul said. “They matter, and we should be proud of what has been developed, but it’s genuinely not enough.”
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