AI

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4 min read

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June 16, 2022

AML & KYC Revolution Brought On By Artificial Intelligence

Want to know how AI has revolutionized AML & KYC? Organizations can save a lot of time & money by using AI to perform KYC & AML compliance. Click here for full info!

Artificial intelligence (AI) can entirely revolutionize the way banks perform Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. Further, for anti-money laundering purposes, artificial intelligence in banking can simplify the process of identifying high-risk clients by mining large volumes of data to find risk-relevant facts.

KYC and AML compliance can be time-consuming for financial institutions. Fortunately, artificial intelligence can automate KYC and AML by scanning millions of transactions at light speed to identify invalid activity. 

What is money laundering?

Money laundering is an act of concealing illicit money obtained through unlawful means by disguising it to appear as though it was earned legally. 

Money laundering is facilitated through offshore companies or even friendly lawyers, etc. It's a highly risk-free and easy way to get away with defrauding people and keeping your money hidden from prying eyes. 

It's not uncommon for criminals to attempt to bribe law enforcement officials to ensure that they won't appear on paper while being investigated for committing a crime.

Money Laundering consists of three steps, including:

  1. Placement: In this step, the illegal money is entered into the financial system.
  2. Layering: Here, the source of the money is hidden through a series of transactions and bookkeeping tricks.
  3. Integration: The money is withdrawn from a legitimate source and is returned to the criminal.

What is CTF in money laundering?

Financing an organization that performs terrorist activities is a grave offense. Counter-Terrorism Financing (CTF) regulations and laws are created to eliminate terrorist financing. CTF laws are designed to stop the flow of money to organizations that have been designated financial supporters of terrorism and their operations.

AML regulations

Banks have obligations related to customer due diligence, reporting suspicious activities, and regulating interactions with sanctioned individuals. These obligations are in place to ensure that the banks follow all necessary regulations to avoid situations where criminals or terrorist groups could use them for money laundering purposes or funding terrorism. 

All financial institutions are supposed to comply with the international and national rules to ensure CTF and AML compliance. The Financial Action Task Force (FATF) is a global regulator and an intergovernmental organization established to ensure AML compliance. 

What is artificial intelligence (AI), and how is it revolutionizing AML and KYC?

Artificial intelligence uses computers and machines to mimic the cognitive processes of a human being. This is done by giving these machines access to large amounts of data, which they use to help them make better decisions and solve problems related to that data set.

Digital transformation is compelling enterprises to incorporate KYC and AML solutions to minimize risks and allow seamless customer identification procedures. Additionally, new frictionless remote onboarding technologies and KYC/AML solutions have made it possible for businesses to establish a balance between secured business compliance requirements while still making the client's experience convenient.

AI in finance

AI also plays a vital role in businesses as it helps move them forward in the right direction by bringing new technology into the operations. AI can free up personnel by reducing the number of people needed to do a particular job and freeing up that person's time. It also can improve security in the business. 

According to Forbes, seventy percent of financial firms have started using AI to make decisions about lending money and investing, which will undoubtedly help the business grow.

Artificial intelligence in the financial industry encompasses everything from chatbot assistants to fraud detection and automation. Financial institutions can adopt AI to streamline tedious processes and improve customer experience by providing access to accounts 24/7 and offering financial advisory services.

5 ways AI has Bought a Revolution in AML and KYC compliance

  1. Enhanced due diligence (EDD)

AI-assisted Enhanced Due Diligence is a more extensive investigation of customer records and can be performed in conjunction with Customer Due Diligence. EDD expands your knowledge of the customer’s identity by gathering data on their transactions and activities, including looking at their official documents and personally interviewing them. 

  1. Transaction monitoring

Financial institutions can harness artificial intelligence to control billions of transactions that are automated. Through AI and machine learning, banks can get solutions for their critical operational workload, which may typically cause high levels of false-positive alerts.

  1. AML screening and investigation

AI is helping businesses manage alerts in a better way. While they are a significant part of the AML compliance process, it is clear that the production of alerts is not enough to support an effective investigation process. What is required is more accurate data harnessing technology through integration and creative approaches that can produce a graphical representation of the legal entity structure.

  1. Enhanced client onboarding 

Client onboarding is becoming increasingly complex, with financial institutions spending excessive time and money manually processing checks. Self-supervised AI-assisted KYC solutions eliminate manual checks, improving the customer onboarding experience while cutting costs.  

  1. Managed regulatory compliance

Artificial Intelligence (AI) can keep up with changing regulations by recognizing patterns in large amounts of text. Natural Language Processing (NLP) can analyze documents and extract critical information such as the client's identity, products, and processes that are affected by a change or whatever else may have been modified.

  1. Ultimate beneficial ownership

Artificial Intelligence can rapidly read huge quantities of data, along with unstructured text, which can help compliance teams assemble comprehensive, precise, and auditable risk profiles on individuals and businesses in minutes. The ability to pursue a risk-based procedure to compliance helps compliance teams draw accurate conclusions about the companies and people they are reviewing for potential violations.

Banks and other financial bodies can use AI solutions to revolutionize customer experience while at the same time increasing the accuracy of their compliance processes. We hope you enjoyed reading this article. If you would like to learn more about how HyperVerge AI solutions can be used in your organization, check us out here.

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