The Importance of a Robust AML Framework: Subrata Duari??

In the 4th edition of the JCR Journal, we speak to Subrata Duari, MA, MBA (Finance) about the importance of a robust AML framework.

Subrata has worked across Asset Management, Professional Services & Fintech, leading teams in the CASS, Financial Crime & Compliance space. All of Subrata's thoughts and opinions below are his own.

Why is a robust AML framework important to any FS firm?

Money Laundering is a fraudulent process that attempts to legitimise illegal money. Criminals employ various tools and techniques injecting illegal funds in the regular banking system. More importantly, they use financial institutions (FS) to succeed in their illicit proceeds. In this course of action, unfortunately, knowingly or unknowingly financial institutions become a partner in crime, which results in financial institutions facing severe consequences.

If a firm fails to protect itself from?financial?crimes, it may have to face consequences including financial?losses for the firm and customers, reputational damage & operational inefficiencies. Failure to comply with the regulatory requirements can also lead to Skilled Persons review (s166), severe penalties, restrictions on business or even cancelling the regulatory permission to conduct a business. Therefore, to run a profitable business successfully, you must have a robust AML framework in place.?

How has AML changed over the last few years?

The EU adopted its first anti-money laundering directive in 1990 and the UK launched its first AML directive in 1993, known as the 'Money Laundering Regulations 1993', coming into effect a year later. Since, the UK and EU have updated their AML regulation multiple times, the latest was in 2021 when the EU introduced the 6th AML directive (literally the sixth iteration of the 1990 directive) and the UK introduced the Money Laundering and Terrorist Financing (Amendment) Regulation. These updates expand on laws that have existed for 30+ years but the difference is, they focus more on the digital age and the risks that it brings, including international transfers, shell companies, and the threats posed by technologies and innovative finance like cryptocurrency, digital assets, digital payments, etc.

What is the biggest challenge within AML?

I?think?the biggest challenge?is the complex and innovative methods of money laundering that?are being used nowadays. It's like a game between virus and anti-virus, criminals have upgraded their skills to find new ways to commit a crime, it’s important we understand that and upgrade our AML framework. Another big challenge, in?my opinion, is the lack of a centralised database specifically for AML purposes where offenders can easily be identified by any FS firms. I am sure many will agree, if you run a KYC check for a customer with two different AML service providers, you may not get the same result. But why is that? Because, every provider has their own method and system to determine a 'potential?flag' using multiple databases and sources of information. Additionally, there is a clear inconsistency in the approach and expertise in the FS Firms across the industry. This needs to be addressed sooner rather than later.

What 3 things would you recommend focusing on when building an AML framework?

• Clearly define the risk appetite for the firm and cascade the same to the team
• Use technology to reduce the hard work and obtain the speed and accuracy in the process
• Establish a clear escalation and reporting line for relevant AML issues

Does AI have a part to play in AML?

Artificial Intelligence?(AI), will revolutionise the approach towards money laundering. It will bring a cost-effective solution with lightning speed and accuracy, the processes will become simpler, quicker and better. Needless to say, it will reduce a lot of manual work in the team. When you monitor a large number of clients and you have thousands of false positives, AI can easily sort them out in seconds. Many firms are already using some of the AI techniques?in there AML framework?such as natural language processing, network analytics and predictive analytics Some are still wary about its unchecked usage and utility, however, tech-based AML solution is the future.

What transferable skills work well for someone looking to start a career in the AML space?

In my opinion, a?vigilant?mindset is the key as you need to be one step ahead of?the criminals. Don't just go by your system or AML set up, use your intuition to try and understand the behaviour?of the customers, - that's where you are better than AI or Technology. Remember, money launderers are quite familiar with your AML setup and they know how to get away with it.

What is a useful exercise for AML leaders to test their AML framework?

To ensure effectiveness of an AML framework I would focus on the below points:

• Testing of the company's AML Policies and Procedures
• Customer Identification and risk assessment
• Transactional testing and evaluation
• Sanctions, PEP, RCA, SIP checks
• Evaluation of AML training
• Evaluation of automated monitoring systems and management information systems
• Testing both internal and external reporting and escalation process

A huge thank you to Subrata for his insight into AML??

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