In recent years, a rush of RegTech has emerged to address anti-money laundering transaction monitoring. Yet, most banks are still using antiquated platforms that hamper a true transformation.
A bank needs to monitor hundreds of thousands of transactions every day. In 2021, 118.3 billion real-time transactions were made globally, according to Global Payment Trends 2021. By 2026, the transactions are expected to be 427.7 billion. As the number of digital transactions is rising, so do suspicious transactions.
Like finding a needle in the hay
Failing to report suspicious activity is a big no-no. At the same time, it’s extremely difficult to judge what constitutes suspicious activity. To keep up with the rising tide of both transactions and regulations, banking and finance companies often have little choice but to throw more people, time, and resources at the problem.
This adds up quickly. Since 2008, the banking sector has seen a 60 percent increase in compliance-related costs. The Asian-Pacific, European, Middle Eastern and African, Latin American, and North American markets spend about 181 billion USD per year on maintaining financial crime compliance. Labor constitutes the biggest chunk of compliance costs; on average 10,000 USD is spent by banks per employee on managing regulatory risks.
RegTech provides relief from complexity
Financial institutions that lack compliance and due diligence were fined a staggering 2.7 billion USD in 2021, according to the AML Fines 2021 Report. But the fallout isn’t just fines and sanctions. It’s the actual damage caused by business disruption and loss of productivity.
As the velocity and vectors of fraud and money laundering have accelerated, companies look for relief. Increased costs for regulatory compliance, in combination with increased opportunities for automation and digitization, have thus led to the emergence of RegTech. And RegTech (the collective name for SaaS- and cloud-based solutions that help manage regulatory processes in an automated, safer and cost-effective way) can provide true relief from the complexity of keeping up.
Cracking the AML problem
So far so good. However, based on Cognizant’s experience, most banks and financial services firms are using platforms for AML transaction monitoring that were deployed in some form or version before the global financial crisis. They were built in a time before the ascendancy of the open-API mindset, and without the operating models or architecture that would support a mesh of AI/machine learning-powered RegTech solutions.
What should bankers do then? Together with Microsoft, Cognizant is rethinking the blueprint and recommends a concerted approach, built on cloud, as the only way to crack the accelerating AML problem. We have gathered our insights in this free eBook where we describe the structure, tools and framework required for effective AML transaction monitoring, together with examples from customers we have worked with.
To learn more, please visit Cognizant’s cloud section.
Whether it’s migrating the entire core infrastructure to one or more cloud service providers, aka hyperscalers, or just simplifying a handful of processes using Software as a Service (SaaS) tools, the cloud represents the digital future. The pandemic has accelerated the ongoing cloud adoption and during 2021, 51% of Nordic organizations are predicted to reach IDC’s highest level of cloud maturity.