A study on the opportunities and difficulties of emerging technology for AML and CTF has been released by the FATF. The study outlines the circumstances, rules, and procedures that must be in place in order to effectively employ these technologies to increase AML/CFT efficiency and effectiveness. The paper also looks at the potential barriers to the successful implementation of new technologies.
According to the paper, one of the biggest roadblocks to efficient AML/CFT implementation is a lack of awareness of ML/TF risks and attacks. Decision-making based on insufficient risk assessments might be incorrect and irrelevant, depending largely on human input and protective box-ticking approaches to risk instead of a fully risk-based approach.
The failure to effectively detect, analyze, and mitigate money laundering and terrorist financing risk, including the basic aspects of risk identification, is a barrier to AML/CFT effectiveness. This is the area where new technology may bring the most value.
Risk analysis can be more dynamic, offer network analysis, and operate at the client, organizational, territorial, and cross-border levels with the application of new technologies in the detection, evaluation, and management of ML and TF threats. However, the most effective use of these tools necessitates a legislative and administrative framework that allows for proper data pooling and sharing, as well as authorized access by supervisors and law enforcement.
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Regulatory and Operational Challenges
According to the data gathered for this study, consistent support from the FATF and competent national authorities is required for AML/CFT innovation. Rather than technology-neutral techniques, a few experts advocated for technology-active supervisors — supervisors ready to collaborate with technology developers. Despite their promise, respondents think that a lack of express support from responsible authorities and the FATF has reduced interest, investment, and trust in emerging technologies.
Adapting processes to new and sometimes unproven systems or technological solutions is the most common operational problem. The expense of new technologies, actors’ capacity to comprehend and educate employees to apply them, and the replacement of legacy systems with new tools were among the main concerns mentioned by respondents who participated in the review.
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Recommended Steps to Advance the Use of Technology in AML/CFT
The responsible use of new technologies, such as digital identity and cutting-edge transaction monitoring and control solutions (including cohesive data analysis), can help the public and private sectors enforce the FATF Standards effectively and risk-based while also promoting financial inclusion. The following principles build on the San Jose Principle, which was adopted by the FATF in 2017 and encourages good and responsible innovation. New AML/CFT technologies must be designed and deployed in a way that considers both dangers and possibilities while also ensuring that their usage is compliant with international data protection, privacy, and cybersecurity requirements.
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- To improve AML/CFT effectiveness, both the government and the business sector should work together to create an enabling environment for responsible innovation:
- Innovative solutions that make AML/CFT measures, such as risk assessments, CDD, and other regulations, easier to implement while also improving monitoring and examination.
- Best practices for upgrading or replacing old internal systems with new technology.
- Appropriate protection and features for new AML/CFT technologies, including process and outcome explainability and transparency, human supervision, privacy and data protection, robust cybersecurity, and conformity with worldwide, national, and technological standards and best practices.
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- When integrating new technology, ensure privacy and data security:
- When implementing new technology, make sure there is a valid legal basis for processing personal data.
- Comply with national and international legal frameworks when it comes to protecting personal information.
- Process data in accordance with national and international regulations for stated, defined, and legal reasons.
- Encourage the responsible development and use of novel privacy-preserving technologies that enable comprehensive AML/CFT data exchange and analysis while maintaining privacy.
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- Promote AML/CFT innovation that is designed to assist financial inclusion
- Reduce barriers to financial inclusion by developing and implementing new solutions
- Ensure responsible innovation in line with the FATF’s goal of promoting financial inclusion
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- Develop and convey dynamic, technology-neutral, outcomes-based policies and regulatory approaches to innovation that are consistent with the risk-based approach
- Consider the entire impact of new technologies, including the structural and organizational changes that come with them, as well as potential unintended consequences and overall impact on AML/CFT effectiveness and financial inclusion.
- As needed, issue and/or update clear policy statements, guidelines, use cases, best practices, or laws to educate and promote responsible use of emerging technology for AML/CFT.
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- Maintain informed supervision
- Develop knowledge in emerging technologies to allow for informed regulation and oversight of their usage, especially for AML/CFT compliance.
- Identify innovative tools for AML/CFT supervision and inspection that are explicit and well-defined.
- Recognize the risks and advantages of emerging technology, as well as risk-mitigation strategies that protect those benefits.
- Leverage technology to improve anti-money laundering and counter-terrorist financing oversight.
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- Encourage and facilitate collaboration
- Collaborate and cooperate with all necessary authorities, including data protection and privacy agencies, to provide a complete, coordinated approach to recognizing and resolving risks and advantages in the use of emerging technologies for AML/CFT.
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July 2021, published on Sanction Scanner
