Anti-Money Laundering (AML) in Banking and Finance: Best Practices


Anti-Money Laundering, AML in banking and finance, is a legal obligation that the industry must oblige to ascertain they do not knowingly or unknowingly support money laundering and terrorism financing activities. Banking is a major financial service, and AML in banking is almost synonymous with AML in finance.

Banks are obligated to perform all anti-money laundering checks on their customers, as the launderers most exploit the banks for placement, layering, and integration – the three stages of converting the illicitly gained money into financially acceptable form.

Unlike earlier methods of form filling for filing suspicious transaction reports (STRs) for cash deposits beyond the threshold levels, modern anti-money laundering or AML in finance follows advanced Artificial Intelligence (AI) and Machine Learning (ML) technologies. Simultaneously, many banks are adopting Blockchain technologies to fulfill their AML-KYC compliance needs.

AML in banking and finance

Banks and Money Laundering

With increasing volumes of online payments and virtual banking operations in practice, new forms of money laundering in banking have become all the more sophisticated and not as easy to capture.

For instance, a rise in the number of card fraud, friendly fraud in payments, and a new form of e-commerce money laundering, called transaction laundering, all have come into play.

It makes the current situation challenging for banks and money laundering detecting authorities, adding complexity to the daunting task of bringing perpetrators of financial crimes to justice.

Steps to Achieve AML in Financial Services

To remain AML-CFT compliant, anti-money laundering or AML in banking has certain procedures. The first always remains to Know Your Customer (KYC) or Know Your Business (KYB) for identity verification of the customer and to ensure the person is the person they claim to be. However, AML in financial services is also about continuous due diligence and ongoing monitoring. Frequent ID document checks and upgrades also form an important part of the AML measures and are often linked to enhanced due diligence.

The next in the AML in financial service fraud mitigation measure is client screening against individual, organizational or national sanctions. Client screening against politically exposed persons (PEPs) and adverse media lists is next on the list, and also equally important to check if the customer holds any influential position or has gained negative publicity in the past.

Banking AML compliance procedures have one final important measure, i.e., transaction monitoring. Positive KYC identity verification and screening checks don’t mean the customer is risk-free. Hence, AML in banking calls for continuous monitoring of customer behaviors and activities. To abide by this important AML in banking obligation, the financial institution must use an effective AI-ML base transaction monitoring solution.

Banking AML Compliance and SAR, STR filings

Financial Action Task Force (FATF), an international AML-CFT policy-making body for financial and regulated institutions, ascertains the prominent role of the Financial Intelligence Unit (FIU) in combatting money laundering and terrorism financing nuisances. Each FATF member nation has one national FATF FIU body setup.

The banking risk team is subject to filing all Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) to the state FIU within the stipulated time for prompt investigations.

How to Ensure Optimal AML in Finance Procedures

Employee training and effective in-house risk mitigation technology are the two main factors that define the quality of AML in banking efficiently. Practical AML staff training, with regular tests and revisions, determines the proficiency levels of the staff. Alongside this, the banking AML compliance engine must be such that it can be easily integrated into the existing operating system without creating much friction.

State-of-the-art automation tools for anti-money laundering in banking can save the organization from financial penalties and help build a strong reputation that helps in customer retention and new client acquisitions.

If you are a financial service looking for AML-CFT implementation in your organization, IDMERIT offers hassle-free integration with single API AML automation. You may further read pertinent information on our website or book a free consultation and get in touch with our AML financial crime manager for your business.

Jay Raol
Jay Raol

Jay Raol has been a Media Manager, Entrepreneur, Political Analyst and an Environmentalist. He aspires to climb the mighty Himalayas, and learn a new language every year. He lives in the beautiful city of Carlsbad in Southern California and owns a great collection of books. He is on schedule to publish his first book; 'Thou Art, Dope'. Co-founded two companies that provide futuristic solutions to the world while being quite enthusiastic about helping and investing in technology startups.

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