The bank, under the leadership of President and Chairman Bilal Sabah Hussein, has maintained a cash collateral ratio of 110% for all cash-backed Letters of Guarantee (LGs), thereby ensuring sufficient liquidity to meet financial obligations and minimise the risk of default on counter-guarantees. The feat has been achieved through partnerships with reputable international banks, resulting in TBI earning a [BBB-] rating or higher from major agencies like Fitch. In 2024, TBI earned approximately USD 11 million in revenue from Letters of Guarantee.

To maintain operational integrity, TBI has taken various measures, including strengthening its auditing processes, particularly in relation to LGs, through the Anti-Money Laundering and Counter-Terrorism Financing Department. This department conducts strict due diligence on all involved parties and verifies the sources of funds, ensuring full compliance with applicable laws and regulations enforced by the bank’s Compliance Department.

In recognition of these reforms and their contributions to uplifting the Iraqi economy, TBI was awarded “Best Trade Bank – Iraq 2024” and “Best Capitalised Bank – Iraq 2024″ at the recently concluded International Finance Awards. This prestigious recognition further highlights the bank’s continued commitment to supporting Iraq’s economy and promoting sustainable growth.

Trade Bank of Iraq has also adopted advanced internal financial audits to meet banking standards, apart from optimising its ratio of uncovered LGs in line with Fitch’s standards. TBI facilitated approximately USD 15 billion in outward foreign remittances by 2024, while inward foreign remittances totalled around USD 3 billion. The bank also generated approximately USD 40 million in revenues from Letters of Credit (LCs) in 2024. The LC department plays a vital role in financing international trade, supporting imports and exports, apart from offering products to individual and corporate clients to meet their financial needs.

In support of Iraq’s economic development, TBI’s management has executed several sovereign guarantee agreements on behalf of the Iraqi government. These agreements aim to support industrial projects that boost economic growth and create job opportunities for youth. A key initiative in this effort includes a loan financing agreement with the Japan International Cooperation Agency (JICA) for approximately USD 200 million. Additionally, TBI signed a memorandum of cooperation with Germany’s Euler Hermes, the Export Credit Agency (ECA). These agreements are designed to help Iraqi companies meet international standards, improve the quality of Iraqi industries, and facilitate access to global financing.

TBI remains dedicated to expanding and enhancing its operations in line with international anti-money laundering and counter-terrorism financing standards. The bank is also committed to maintaining global banking compliance, improving financial performance, and boosting profitability to further support Iraq’s national economy. Additionally, TBI is actively involved in various social initiatives that support different community segments and consistently provides support to Iraqi government institutions.

The post TBI implements strategy to boost Iraq’s financial stability appeared first on International Finance.

Richard Teng stated that he wants to maintain Binance as the “user-focused, user-first organisation” that contributed to its success in an interview with AFP while in Paris for a conference on the cryptocurrency industry.

However, he did add that Binance must also prioritise compliance and that more industry regulation would give participants in the market more clarity.

“We want to make sure that compliance is, also, a competitive advantage” for Binance, Richard Teng said.

He said that Binance had invested hundreds of millions of dollars in compliance and was closely collaborating with authorities, establishing a global board of directors with three independent directors at their request, among other things.

“Our board of directors will become our stewards guiding us in terms of direction to go, making sure that we adopt the best practices,” Richard Teng said.

Binance was founded in 2017 and quickly gained market share in the cryptocurrency trading space, making its CEO and founder Changpeng Zhao a billionaire.

When the cryptocurrency markets crashed and authorities started looking into the legitimacy of Binance’s operations, the company—which operates cryptocurrency exchanges and offers other services globally—suffered a serious setback.

The unstable sector saw a boom in 2021, and a variety of sophisticated products and celebrity endorsements helped it reach a valuation of more than USD 3 trillion in 2022.

But after a string of scandals, which included the main rival exchange of Binance collapsing in November 2022 and the indictment of multiple industry executives, investors withdrew their money from cryptocurrency, and public confidence evaporated.

Changpeng Zhao admitted to breaking US anti-money laundering regulations and agreed to resign from his post as part of a settlement struck with US authorities in November of last year. Binance consented to settle charges in February by paying USD 4.3 billion.

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Approximately, half of the companies that paid AML penalties last year were banks. Obviously, the losses for financial institutions that are hit with AML penalties are not limited to just the penalties themselves. They pay a heavy price in terms of declining revenues, customer dissatisfaction, collapsing stock prices, and loss of reputation and brand value.

Rules-based software that used to be deployed by banks to detect money laundering is inefficient and leaves analysts with too many alerts to deal with that could be positive or negative. Solutions based on artificial intelligence are much more efficient in detecting money laundering, compared to software-based on rule-based approaches.

Today deep neural networks can reveal complex interdependencies among money laundering activities across the world leading to fewer false alarms and more accurate recommendations. One such fintech startup that stands out for its artificial intelligence-based AML software is Silent Eight, which is also one of the many fintech companies founded in Singapore by European entrepreneurs.

In the case of Silent Eight’s solution, the recommendations are supported by a written narrative explaining in plain English the decisions. Silent Eight’s machine continually learns as time goes by, and updates its algorithms to constantly improve the quality of its recommendations. The result is that it significantly reduces analysts’ time to review cases and arrive at correct conclusions.

The rising number of global fintech entrepreneurs who are heading to Singapore to launch their fintech startups stands testimony to the allure of the city state’s world-class business environment, regulatory framework, and global mindset. Coming from Poland, Martin Markiewicz is the co-founder and CEO of Silent Eight. Based in Singapore, which is now a major regtech hub, Martin provides the vision behind the company’s AI-based advancements in fighting financial crimes.

Silent Eight is the winner of the FinTech Abu Dhabi Innovation Challenge and the Monetary Authority of Singapore’s 2017 Fintech Hackcelerator award. In 2018, it won a top fintech award in Australia. The same year, Standard Chartered announced that as part of its efforts to lead the way in the global fight against financial crime through the use of regtech, it had partnered with Silent Eight to deliver cutting edge capabilities to its Financial Crime Compliance (FCC) teams.

In 2019, Standard Chartered’s fintech and ventures unit, SC Ventures invested in Silent Eight’s oversubscribed Series A funding round, becoming a minority investor in Silent Eight and reaffirming the global banking giant’s trust in Silent Eight’s solution.

With an educational qualification in mathematics, Martin is a serial entrepreneur. Before launching Silent Eight, Martin had made his mark, creating a few successful startups in Europe and Asia, which includes a startup that saw a successful IPO.

In fact, Martin launched his first startup, Konsultant.it, which provided software and hardware development solutions for small and medium enterprises in 2001. In between, he was the strategic sales director of Wola Info, a leading European IT company. Later Martin established SevenFlow Investments – a multidisciplinary engineering company with a track record of landmark projects. SevenFlow Investments would finally become a part of a highly successful IPO.

With his 16 years of experience in software and artificial intelligence solutions covering a wide range of applications, Martin has taken the challenge of helping banks outsmart financial criminals and money launderers, who are gaming their transaction systems, headlong. In an exclusive interview with International Finance, Martin speaks about the Singapore fintech startup ecosystem, the value proposition that Silent Eight provides to its users, the Singapore fintech’s growth, and the future of AML software.

International Finance: Could you tell us more about the background of Silent Eight founders and the motivation to launch an anti-money laundering startup in Singapore?

Martin Markiewicz: Before we started Silent Eight, we took a company from startup to publicly traded in Poland. Our track record of creating a publicly-traded company from an idea gave us the confidence to try something new.

We were looking to do something significant, something that would help people. Our strengths are in engineering and problem solving, so we were looking for a global problem we could solve that would make the world better. It sounds a little cliched, but it’s what we wanted to do. We kept coming across money laundering, financial crime, the challenges that institutions face to run their business and ensure exactly who they were doing that business with.

In essence, we understood the global damage caused by all these activities. We saw the billions of dollars being spent every year to fight financial crime, and we also saw statistics after statistics that showed the bad guys won way too often.

The way we build is from the bottom up, working with a customer to solve a problem. This led us to Singapore, a global financial centre, to launch our business in supporting banks to combat global financial crime.

If you examine our clients, they are clients with a global scale and to match them, we are expanding globally with offices in Singapore, New York, Chicago, Seattle, London, Hyderabad, and Warsaw.

What are the key challenges that AML solutions face globally, especially the volume of false alerts? How do Silent Eight’s solutions minimise this challenge?

The false alerts are just one of the many problems. There are a lot of major lawbreakers and bad guys who are trying to get into the financial system and freely move around it. What financial institutions need to do is investigate existing and potential clients, vendors, and other partners in terms of their activities.
We help with false alerts.

We investigate 100 percent of the alerts for our customers and solve them. We do not suppress them nor are they weighted or partially solved; they are either solved or not. This is one of our key differentiators. Our IP does not decide whether an alert should be solved or not and which way it should be solved. Our AI acts according to the specifications of our clients.

The removal of false alerts is the first step to achieve our purpose, which is finding true alerts. Solving false alerts is challenging, and it’s important. Finding true positives is what we are here to do. We help our customers keep clear of terrorists, drug lords, and sanctioned people, and this way we also secure the interests of firms that protect our clients and the broader financial system. But ultimately, it’s even bigger than that in scope.

Each time we help a client refrain from financing a person with bad intent, we make it that much harder for the person with bad intent to hurt people at scale. That’s what we are about; solving false alerts gets you to true alerts and solving true alerts saves lives, money, and jobs. This is exactly what we were looking to do.

So, what are the implications of Standard Chartered’s investment in Silent Eight?

Standard Chartered is one of our minority shareholders. One of the implications is that they have invested in us and that gives us a vote of confidence. It’s always a good feeling when a client using your product says “hey, can I invest in your company?” I hope the implication of this is that we will do great in the future.
I feel that our product is differentiated, and it’s a great fillip for a global bank to invest with their capital in a company that provides them a critical product, not limit their commitment to just words.

With regard to regtech, ongoing developments like the US-China trade war are creating new sanctions lists. How is Silent Eight keeping up with these dynamic developments?

We do not create or maintain sanctions lists. Our customers have other excellent providers for that. Our AI leverages those lists and learns and grows each time an input changes, including a sanctions list. This approach means no matter what new sanctions are added or changed we are ready to support our customers in abiding by their directives.

In terms of minimising human effort and maximising productivity, can you quantify the gains that organisations can make by using Silent Eight solutions?

It’s clear that the AI can process data and solve alerts at a velocity unreachable by humans. However, we do not view it as a clear choice between human or AI solved alerts. We see it as a very traditional AI-human relationship in that a human sets the rules, the AI does the work, and another human checks the work. It is symbiotic with each component in the chain responsible for the part they are best suited.

The other key differentiator between AI and human solutions is the AI is incapable of making a mistake, either through poor training, or bias, or tiredness or any of the flaws that we are made of.

On a daily basis you may have thousands of alerts. So how does Silent Eight system ensure that it scales to meet the hundreds of thousands of alerts?

Our system is built under a scalable infrastructure with a capacity to handle hundreds of thousands of alerts every day. It’s designed to work with the biggest financial organisations in the world across multiple jurisdictions and languages.

With the number of machine learning based AML solutions available in the market, what is the unique value proposition offered by Silent Eight to financial institutions?

The first key differentiator is there is no opaqueness in how an alert is solved. We show clients each of the agent results that created the solution and which set of client rules it followed. And each alert is auditable.

It’s important to reiterate, we do not weight, or recommend, give probabilities, or suggest, and we definitely do not suppress. We follow the rules the clients give us. It is as simple as that.

Each time we solve an alert we tell the overseeing analyst exactly why the alert was solved without any black box challenges. We provide the solution and the explanation how it is worked out.

For example, it is harder for clients to trust a score generated by the machine stating that “this case has only 5 percent probability of something serious.” In my opinion, that approach doesn’t help very much. On the other hand, what helps is the machine saying “Hey this is a true case or a false case,” and then further explaining the recommendation with supporting information. With that, clients can agree or disagree with the recommendation and justify their final decision. The idea is to ensure that the machine generates transparent, reliable, and explainable information.

Which are your key markets and where do you see the most growth in the next five years?

We have big projects with European and US domiciled global banks underway and many regional banks especially in the US. We really see our target market as anyone who is worried about the accuracy and consistency of their AML processes and who could do with an AI-based helping hand.

What are the advantages and challenges of scaling a regtech startup in Singapore?

As I mentioned earlier, Singapore would be the best starting place for establishing a business. I think the fact that we started off in Singapore is an advantage because of its great regulatory and business environment.
Singapore offers a great platform for us to build something like this. Also, it is a pretty small market unlike the US — so the mindset is to go global right from the start. We are currently surrounded by like-minded people with a similar approach. That’s definitely an advantage.

In terms of developing technology, what are your plans for the next five years?

Our technology is receiving awards nearly every month, so we are very happy with the status quo. We, like any client-focused business, continue to develop based on client feedback and we have a full roadmap of client-driven requests.
Right now, we are on a certain version of the product, and the next version will be much, much better than the current one. We will ensure that the product only gets better across all use cases.

What does the future of machine learning-based AML solutions look like? How do you see the technology evolving in the future?

I think machine-learning will be increasingly adopted as the benefits become more well known as opposed to the ‘terminator complex’ that tends to often to spring to mind when people hear about AI.

The space we are in right now is complex. We are constantly stopping people from doing bad things. It is important to remember that these guys bring a lot of resources and power into play. They are also constantly trying to dodge our efforts.

So, it only makes us believe that we should keep improving and getting better at using advanced technologies, such as artificial intelligence. I think the future in this space is tremendous. In the next five years, we are going to see a big shakeup in terms of who are the new market leaders. More and more players are coming up — offering advanced solutions that can be used by financial institutions without sacrificing their gains. In my view, this is the way to go. Mostly, we look forward to supporting our clients in redefining what it best looks like when it comes to keeping criminals away from the global financial markets.

The post Silent Eight: AML software that makes sense of alerts appeared first on International Finance.

Cyprus has granted more than 3000 golden visas to wealthy foreigners since 2013. It is reported that a minimum €2 million investment can get an investor a passport and instant visa-free travel across the European Union, including Cyprus. Cyprus is a member of the European Union. 

Moneyval is the committee of experts from the European council who foucs on evaluation of anti-money laundering and terrorism financing. The agency in its report said that the chance of vulnerabilities had dramatically increased with the Cyprus Investment Programme. These risks have not been mitigated fully, according to the report. 

According to the Moneyval report, the total amount invested under the scheme was $7.25 billion between 2013 and 2018. Last November, Cyprus said it would strictly review the processes that helps to grant citizenships. 

Despite Cyprus’ advanced measures against money laundering (AML) and financing of terrorism (CFT), there are shortcomings challenging the Cypriot AML/CFT regime, observed Moneyval report.

It appears that real estate is one of the main sources of money for launderers. The real estate sector is usually subject to limited supervision, according to a European Parliament research note issued last year. Moneyval asked Cyprus to further introduce preventive measures in the real estate sector to curb criminal activities in the country. 

The post Cyprus’ golden visas scheme might lead to corruption, says EU appeared first on International Finance.

TookiTaki is an anti-money laundering software company. The latest funding round was led by Viola Fintech and SIG. In addition, Nomura through its venture capital arm Nomura Incubation Investment also participated in the funding. 

Tomer Michaeli of Viola Fintech, told the local media that, “We found TookiTaki’s approach to be very unique, its pragmatic way of creating an overlay on top of legacy AML systems helps increase accuracy and significantly lower operating costs for financial institutions. Moreover, its regulator-ready “glass box” solution shows an innovative approach and a deep understanding of the challenges in the modern AML solutions market.”

Funds from the extended Series A funding will help the company to develop its product offerings and boost technological innovation. It will also help to encourage further recruitment in Singapore, India and the US offices.

The company plans to aggressively expand its research and development team in the US, Europe, Singapore and India. It has appointed former LinkedIn director Subhas Samanta as vice president of research and development. 

TookiTaki uses machine learning models to analyse and arrive at sound decisions after a series of investigations. The company’s software has two models. The first one looks for suspicious transactions, while the other constantly updates money-laundering patterns categorising them as low, medium, and high-risks. This makes it easier for the company to carry out investigations in the future. 

The post Singapore AML regtech TookiTaki raises $19.2 mn to invest in R&D appeared first on International Finance.

The report is the culmination of almost a year’s work, which included extensive consultation with a broad group, including entrepreneurs, regulators, and bankers. The rapporteur, Assembly member Pierre Person, included in the report a number of recommendations regarding the tax treatment of crypto assets and regulation of ICOs and crypto-asset service providers. The report also proposes a series of measures intended to foster the crypto-asset and blockchain sector in France, including improved access to banking services for entrepreneurs in the crypto sector, a cut in tax for electricity consumption association with cryptocurrency mining, and adoption of educational curricula to ensure that the entrepreneurs of tomorrow are equipped with the necessary knowledge and skills to take advantage of blockchain technology.

We applaud these recommendations. M. Person and his colleagues clearly made a concerted effort to gain an understanding of crypto assets and blockchain technology.

In his foreword to the report, the chairman of the finance committee, Éric Woerth, expressed reservations regarding some of the rapporteur’s proposals and suggested the report should have proposed a ban on privacy-preserving virtual currencies, explicitly naming Zcash as an example.

We respectfully disagree with M. Woerth.

His suggestion appears to be rooted in a failure to appreciate the importance of personal financial privacy and a misunderstanding of how anti-money laundering and counter terrorist financing measures can be applied to virtual currencies to prevent their use for illicit purposes.

Financial Privacy is Essential

Personal financial information can reveal too much about the subject—including how much they earn; where they shop; what newspapers, magazines and websites they subscribe to; their hobbies and interests; what causes and political parties they donate to; and how much they have saved. The Electric Coin Company believes that privacy is a fundamental human right and that personal financial privacy is essential to protecting the individual freedoms that preserve an open and democratic society. We also believe that privacy is an essential feature of any virtual currency, to achieve widespread adoption and fulfill its potential to improve society.

Governments of the world’s largest economies have recognised the importance of personal financial privacy and have enacted legislation to protect it. Examples include the Gramm-Leach-Bliley Act in the United States, the EU’s General Data Protection Regulation (GDPR), and Japan’s Act on the Protection of Personal Information. High-profile incidents, such as the Experian data breach, have raised public awareness of the importance of robust privacy protections.

At the same time, the growing use of virtual currencies has raised concerns about their potential misuse for criminal activities. Around the world, regulators and policy makers have begun applying Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations to virtual currencies.

Different jurisdictions are moving at different speeds. In the US, the Financial Crimes Enforcement Network (FinCEN) moved swiftly to classify virtual currency exchangers as money-services businesses, while the New York Department of Financial Services introduced specific legislation in the form of the BitLicense, which has provided regulatory clarity for firms operating in this sector and their customers.

In Europe, the EU’s Fifth Anti-Money-Laundering Directive, requires that virtual currency exchanges and custodial wallet providers begin carrying out “Know Your Customer” (KYC) and AML checks from January 2020.

At an inter-governmental level, FATF is currently working to finalise its recommendations regarding the application of AML/CFT regulations to virtual-asset service providers.

Actively Engaging Policy Makers

We at the Electric Coin Company actively engage with policy-makers and regulators, both directly and by supporting the work of organisations such as Coin Center, the Blockchain Association, Global Digital Finance, and the Blockchain Alliance.

We believe that well-educated policy makers and regulators write good policy and regulations, so we seek to help those groups understand how the privacy-preserving technology that underpins Zcash works, what the implications are for regulation and compliance, and most importantly, how a privacy-preserving virtual currency like Zcash is compatible with common AML/CFT measures.

From an AML/CFT perspective, Zcash is similar in nature to cash. The techniques and processes that have been honed and perfected over decades to detect and discourage the use of cash for money laundering and terrorist financing can be applied to Zcash, including customer due-diligence checks, record-keeping, and making Suspicious Activity Reports (SARs) when appropriate.

The Zcash protocol requires the use of payment addresses for all transactions. This allows virtual-asset service providers (VASPs), such as exchanges, to issue a unique deposit address to each customer, thus allowing Zcash transactions to be unequivocally attributed to a specific customer. It also requires that customers provide a payment address in order to receive payments or withdrawals from a VASP. This enables record-keeping and transaction monitoring, both of which are necessary to enable the detection and reporting of suspicious transactions. It also allows VASPs to prevent customers from sending funds to payment addresses that have been identified as being associated with sanctioned persons or organisations. In combination, these measures allow VASPs to manage the AML/CFT risks associated with Zcash transactions, while benefiting from, and allowing their customers to benefit from, the privacy that Zcash provides.

The post Zcash is compatible with AML/CFT regulation appeared first on International Finance.

Named as a CNBC Tech Disruptor 2017, Trulioo provides secure access to alternative and traditional data sources worldwide to instantly verify consumers and businesses online. Its online verification platform GlobalGateway helps companies comply with Anti Money Laundering (AML) and Customer Due Diligence (CDD) by automating Know Your Customer (KYC) and Know Your Business (KYB) workflows. Trulioo supports over 500 global clients to instantly verify 5 billion customers and 250 million business entities in over 100 countries—all through a single API integration. The company accesses data from leading mobile network operator (MNOs), credit bureaus, utility companies, government-approved ID documents and public records to digitally verify an individual. Some notable clients include PayPal, Stripe and World Remit.

Asia—the world’s most promising FinTech region

RRecently Trulioo made its foray into the Southeast Asian nation of the Philippines, and now offers instant identity verification for consumers in the country. Philippines is a big remittance market—last year, the country recorded inflows of approximately US$33 billion, an all-time high. In January, cash remittances from Overseas Filipino Workers (OFW) reached US$2.4 billion—a 9.7 percent increase on the previous year. A large portion of remittance flow into the Philippines comes from the UK, positioning it as a lead driver, second only to the US. This month, remittances from the UK were valued at 1.6 percentage points, making it a substantial catalyst of growth.

According to World Bank, the Philippines is one of the world’s largest recipients of remittances, third only to India and China. Remittances are the country’s largest source of foreign exchange income and account for approximately 10 percent of GDP in 2017.

A step into the country’s booming remittance market with global identity verification would afeguard against nefarious activities, as well as keep remittance costs low for senders and recipients, said CEO Stephen Ufford.

Trulioo’s General manager Zac Cohen is bullish on their expansion plans in Asia, “It is one of our strongest markets, owing to the density of population, growth of mobile phones and the immense number of expats they have. Be it China, the Philippines, or India, there are plenty of expats who play a crucial role in driving the ecommerce and remittance markets. We continue to expand our presence owing to the density of population, growth of mobile

phones and the immense number of expats they have. Be it China, the Philippines, or India, there are plenty of expats who play a crucial role in driving the ecommerce and remittance markets. We continue to expand our presence across the region.”

Trulioo, which launched in 2011, has remained very positive about the payments market, but has expanded its remit to include ecommerce/online marketplaces and financial services—both of which have volumes of customer information that need to be verified. However, global banking remains the biggest market for the company, says Cohen.

Challenge of digital verification in age of cyber-threat

The danger of cyberattacks is a very real one being faced by companies all over the world today. While there are some constantly recurring countries on the list, such as Russia, China, Vietnam, India and Iran, cyber threats loom large across almost every corner of the digital world. However, Trulioo verifies user data using multiple credible sources and is constantly updating its marketplace of identity data and services.

“As businesses continue to become more digitized the world is facing a very real threat,” says Cohen. “What helps drive our use-case is that we don’t retain or store any customer data, and are constantly working with industry forces to keep the verification process free of threat or sabotage of any kind.”

The emphasis on data privacy has been resonating across economies and governments, following which regulations like GDPR have been implemented with the threat of strict fines for non-compliance.

These measures are beneficial for a data-driven economy. Cohen says, “The reinforcement of data protection, privacy and transparency through regulations indicates an evolved approach to managing data. Being in the ID verification space, we have upheld user privacy to the highest possible levels from the beginning. Moreover, being in Canada where data protection has been upheld by private companies and governments to the highest standards, gave us a thorough understanding of its critical role.”

Cohen believes GDPR is just the start. “We’re seeing multiple jurisdictions across the world being implemented to safeguard user privacy, and this is the only way to standardise business practices in today’s times.”

The success of a company like Trulioo is reflective of the changing needs of businesses today across the world.

The post Staying Tru to your identity appeared first on International Finance.

Human trafficking is a predicate offence to money laundering and terrorist financing. It is considered a financial crime, because it is a source for bad actors to gain funds and as such, companies in all industries, and especially financial institutions, have a mandate to disclose to regulators their efforts to wipe out human trafficking.

Their efforts are part of a robust financial crime compliance regime that all banks must have in place, as designated by global regulators. Central to regulatory compliance is automated screening using highly specialized software, name matching and other forms of patterned data that are then used in company communications to regulators. In other words, technology, data and analytics plays an extremely important role in identifying human traffickers while ensuring banks comply with regulations and operate efficiently.

Each year we issue the True Cost of AML (anti-money laundering) Compliance study. The goal is to understand the challenges financial institutions face when it comes to fighting financial crimes, like human trafficking, money laundering and terrorist financing. Through awareness, these issues can be resolved and the compliance function can focus more energy on stopping more financial crimes, which ultimately benefits society.

We recently conducted the EMEA edition of the True Cost of AML Compliance study where we researched Germany, France, Switzerland, Italy and The Netherlands in 2017 and South Africa in 2018. The true annual cost for these countries totaled USD85.4 billion. Table 1 outlines the annual cost per country.

Consistently the research showed across each country that AML compliance costs have risen in the past two years by about 20%, and an overwhelming majority (90%) of the respondents think the costs will continue to rise by double digits for the next two years, especially in the areas of compliance and sanctions screening. What variable is causing this cost upsurge? Labour.

Much of the AML Compliance function continues to be manual. In fact, the manual nature of this function attributes nearly 75% of costs to compliance. A True Cost of AML Compliance survey respondent from a Swiss financial institution said, “Complex procedures and approval by various authorities is not only a time-consuming task, but it also costs our firm a fortune to comply with the AML process.” Labour resources represent a significant component of compliance spend and activities, and this expense burdens firms, which causes a decrease in employee productivity and loss of prospective customers.

A truth stands: if labour continues to be a significant component of AML compliance, then overall costs will continue to increase. Why in the most technologically advanced era is compliance still so manual? The answer lies in the due diligence process.

Not surprisingly, the time required to perform customer due diligence has a significant impact on overall AML compliance costs, and firms in Europe reported long processing times across customer types. Even for domestic retail customers, who should face the simplest requirements, no respondents reported being able to complete due diligence in less than one hour. A majority of the respondents indicated they spend three to eight hours on domestic retail customers, with an average time of about seven hours.

Of interest is that financial firms spend more due diligence time on those entities that represent a smaller portion of new monthly accounts – namely, corporate customers. This resembles the “80 / 20” rule whereby most cost is consumed for a minority of customers. A “catch-22” exists. Corporate accounts are profitable but more complex than retail customers. With more complicated ownership structures, subsidiaries and overseas relationships, manual efforts can take substantially longer, increase labour costs, heighten customer friction and actually erode profitability.

A survey respondent from an Italian financial institution said, “The lack of a unique view of the customer forces our office to import data from different sources and channels and store them in multiple systems, so the process is frantic, tedious, and costly. This hampers our productivity.”

Alert processing times are significant and expected to get worse, contributing to increased costs and customer friction.

Most participating firms reported that alerts of any type take three or more hours to clear, with average times ranging from eight hours for KYC/due diligence alerts to 21 hours (nearly three business days) for AML transaction monitoring alerts.

KYC/customer due diligence alerts represented the greatest variation across countries. Firms in Italy were more likely to clear these alerts quickly (with an average time of 5 hours), whilst firms in the Netherlands were more likely to take a longer time (average of almost 10 hours). The challenge of clearing alerts is likely to get worse. More than half of firms who participated in the study (58%) expected alert volumes to increase by an average of 12 per cent. Significantly more Swiss financial institutions (78%) were likely to indicate expected increases.

The combination of increasing customer due diligence requirements, lower productivity and continued reliance on manual resources means that AML compliance has a meaningful negative impact on customer acquisition. There is a strong correlation between respondents’ ratings of AML compliance impact on customer acquisition and on overall productivity. This impact was cited as moderately negative by 72 % of firms. Similar to LoB productivity, firms in France and Germany are slightly more pessimistic about the impact on customer acquisition than firms in other countries (76 % and 78 % respectively); banks are more pessimistic than investment firms, likely due to the faster pace and volume of transactions on the banking side.

Customer friction during the on-boarding process costs European financial institutions prospective customers (73 per cent of respondents reported losing up to 4 per cent of prospective customers). For those prospective customers who do not leave during on-boarding, delays cause more than just frustration from waiting. They actually can cost customers money based on not being able to move forward with transactions. This is not a good way to start a new customer relationship; in fact, it likely leads to loyalty erosion faster compared to those who start out on a positive note. Expressed as a percentage of new account applications, almost half (42 per cent) of firms indicated between 6 per cent and 10 per cent of new accounts are delayed – similarly across countries and different types and sizes of firms. That reality can translate to a sizeable number of angry new customers who very quickly become high risk of churn at some point.

Something has to give.

Bank compliance functions are operating in an era of heavy operational workload. No doubt. Within this framework, most survey respondents indicated that streamlining or improving the efficiency of the KYC/customer due diligence processes is a priority for their organization. Overall, this aligns with concerns across countries regarding lost productivity and customer friction that is costing financial firms in terms of actual expenses and lost customers. Even more important, rising costs and new / ever-increasing regulatory requirements will necessitate more AML compliance process efficiencies; the role of technology and data are playing a role to relieve much of the burden financial institutions face with AML compliance.

Many survey respondents have already adopted shared interbank compliance databases and unstructured text data analysis, in-memory processing [what does this mean?, and cloud-based KYC utilities. Fewer firms use machine learning and artificial intelligence but adoption is expected to be widespread within five years. Unstructured audio and video data analysis are seen as relevant but less mature and further out for many. Not surprisingly, large firms (more than USD50 billion in assets) with their large compliance budgets are more likely than small firms to have implemented or be planning to implement these technologies.

Use of technology reduces the manual intensity of AML compliance, which enables compliance analysts to do their jobs more efficiently. This streamlining, especially of the due diligence and KYC processes, helps banks in their efforts to stop human trafficking.

For example, when a bank screens its customer list against a worldwide dataset using technology and linking, they can make sure they are not doing business with human traffickers, associates of human traffickers, money launderers or any other type of bad actor, thus curtailing human trafficking. Advanced linking technology is important because it enables the return of only relevant intelligence so that a financial institution can more accurately pinpoint if someone it is doing business with is a bad company or bad actor.

Human trafficking works in the dark shadows of the world. Technology, data and analytics are the tools financial institutions are using to put pieces of intelligence together to see where they might fit unwittingly in this crime. Additionally, technology, data and analytics gives companies intelligence to understand the scope of the problem and arms them with knowledge. As a result, companies can ask better questions, notice odd patterns and then reach out to their law enforcement agencies to shine a light into the dark shadows and stop human trafficking by stopping the flow of money associated with human trafficking.

Thomas C. Brown is the senior vice president of LexisNexis Risk Solutions in charge of U.S. commercial markets and global market development.

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According to The Independent, the move comes as bitcoin’s value has been slashed down from US$19,000 in December to US$10,900 today. The value was only US$1290 a year ago.

Mr Carney addressed cryptocurrencies as a ‘failure’ during the Inaugural Scottish Economics Conference in Edinburgh.

In his point of view, there are great benefits and responsibilities that accumulate with the financial system. The EU and the US expect the exchanges to be on a par with ‘anti-money laundering and counter the financing of terrorism standards’ met by other financial institutions.

Senior financial crime lawyer at Ropes & Gray, Jo Torode, said, “As cryptocurrencies become increasingly interlinked with the mainstream financial services industry it is inevitable that certain wrongdoers will seek to use them as a means to hide illicit proceeds in the monetary system. Indeed Europol have estimated that four percent of all criminal proceeds in Europe are currently being laundered through cryptocurrencies—or put it another way US$5.5bn in illegal money.

“Regulation particularly for money laundering purposes will therefore likely make cryptocurrencies more attractive to certain mainstream and regulated investors looking to fit a new and potentially profitable means of trading within their existing regulatory framework.”

The rise of new financial systems such as cryptocurrency involves higher risk. In order to curb the system’s downside necessitates continuous improvement in regulation. Torode points out that it is important to ensure the regulation does not stifle innovation.  

Appropriate regulation as she describes would provide legal and regulatory protection to those seeking benefits from cryptocurrencies, and the blockchain technology. “This is the next stage in bringing cryptocurrencies and blockchain within the regulatory framework, speeding up the march towards legitimisation of an asset class that, until a few years ago, many law many enforcement agencies, believed had limited legitimate reasons for people to use.”

However, the drawback of this is mainly heavy time consumption and efforts to distinguish transactions from lawful to illegal activity, she added.

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