Hong Kong is among the most essential financial hubs of the world, yet faces more and more money laundering and terrorist financing cases each year. In 2017, Hong Kong authorities conducted more than 1,800 money laundering investigations, forcing banks and companies to stay on their toes by fine-tuning and updating AML systems along with.
As with anything, the enterprise technology of all banks and companies forego regular upgrades, introducing newer and more efficient ways of handling financial matters. The same can be said for major changes in IT systems such as an ERP, a change in source code, etc.
Why Update AML Systems with Technological Upgrades?
Newton’s third law states that every action has a reaction – a statement we are all familiar with. This is also true for technological upgrades such as the ones mentioned above. The slightest change in a line of code can lead to a ripple effect, impacting other queries and logics relying on that specific line.
When going through major technological upgrades, the integrated AML software and respectively tuned AML rules get impacted as well, decreasing their efficiency and effectiveness considerably. Failure to update AML systems can create loopholes in the AML systems, effectively leading to a breach of the Bank Secrecy Act (30 U.S.C. 5311, et seq.) or 3310 AML compliance program.
Things to Keep in Mind When Updating AML Systems with Technological Upgrades
Money laundering techniques vary, from creating fake invoices and entries to creating a company that exists only on paper. Launderers keep on inventing newer and more complex ways to avoid detection, forcing AML regulators to stay on their toes in this ongoing adventure.
In 2018, the Federal Reserve Board, FDIC (Federal Deposit Insurance Corporation), and NCUA (National Credit Union Administration) recognized the need for integration of new and improved ways of tackling money laundering and terrorist financing.
They recommended the use of AI and ML (artificial intelligence and machine learning) tools to be integrated into AML systems so that they can automatically adjust their parameters as and when need be.
When making technological upgrades on banks’ and companies’ back-ends, the following are some factors AML regulators should keep in mind to decrease the chances of the system becoming ineffective.
- Change in AML rule parameters
- Change in source directories
- Change in code compliance
- Proper algorithm implementation
There is no Cookie-Cutter Policy to Updates
AML regulators oversee technological upgrades all the time, but each upgrade is different and may warrant different actions. Where one upgrade might impact your set parameters, the other might render your whole model inefficient. That is why it is important to keep a keen eye on the type of upgrades implemented and any ripple effects they may have.
Regulators might have to stay in close proximity to the upgrade managers or developers in charge to ensure their AML system keeps up with enterprise technology upgrades.
In the anti-money laundering industry, individuals with a keen eye for irregularities are always in demand. If you are looking for an AML regulator, APN Consulting can help. Get in touch with us today.