AML Tech Upgrade: To avoid doing business with the wrong customers and counterparties, financial firms can now rely on a new generation of software applications that go beyond traditional rules-based screening to far more sophisticated data analysis, says a new research report from Celent.
The costs of not complying with anti-money laundering rules can be substantial as evidenced by whopping past regulatory fines. Examples: the US$8.9 billion penalty on BNP Paribas in 2014, the US$1.9 billion penalty on HSBC in 2012 and the US$670 million fine on Standard Chartered in 2012.
In this new world of digital media, emails and chat rooms, banks now need to scan through a broadening range of sources beyond just regulatory and official lists to identify potentially suspicious customers and networks. So innovative technology is needed, says Celent analyst Armin Ray in his report entitled “Emerging Solutions in Anti-Money Laundering Technology.”
The report highlights seven vendors: Basis Technology, Digital Reasoning, Fenergo, KYCnet, Safe Banking Systems, smartKYC and Thomson Reuters offering scanning methodologies which have already been used in other fields such as security, border control and intelligence agencies. “These new solutions employ tools and technology such as machine learning, fuzzy logic and semantic analysis to not only analyze large volumes of unstructured data, but also carry out traditional tasks of name matching in original languages and scripts without requiring traditional means of translation or transliteration,” writes Ray.
Bitcoin Under EU Review: The European Securities and Markets Association (ESMA) is asking for industry feedback on how virtual currency could change investment markets, as well as how the blockchain accounting protocol used by Bitcoin might affect the mainstream infrastructure for trading and settling securities transactions.
Although the European super-regulatory agency claims that its request shouldn’t be interpreted as a sign it wants to regulate the market, ESMA carries plenty of weight with the European Commission and Parliament which ultimately passes pan-European legislation. Comments are due by July 21.
Virtual currencies are a form of private money with an equivalent value to recognized national currencies. Doing business in Bitcoins, the most popular virtual currency, differs from traditional online transactions that typically require third-party intermediaries such as PayPal or Visa to keep the ledger of transactions. In the case of Bitcoins, every transaction is registered in a public ledger called a blockchain which is distributed among its users through a peer-to-peer network. The blockchain ledger is design to track the progressive transaction history of any element of Bitcoin currency, avoiding the potential that it can be spent twice.
However, the fact that transactions in Bitcoins can be done almost anonymously has concerned regulators who see the currency as attractive means of money laundering and illicit trading. In its request for comment, ESMA notes that the blockchain processes could be used as a means of transaction in and transferring ownership of securities in a way that “bypasses the traditional infrastructure for public offer and issuance of securities trading venues like exchanges and central securities depositories or other typical means of recording ownership.”
Elsewhere, Bitcoin is also under review by local regulators. In Canada, the Standing Senate Committee on Banking Trade & Commerce has been studying the emergence of virtual currencies and the development of blockchain technology for the past year. Benjamin Lawsky, superintendent of the New York Department of Financial Services, is finalizing rules making New York the first US state to adopt a so-called BitLicense, requiring digital currency companies to obtain a license to transmit money on behalf of customers.
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