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November 10, 2022

Technology for AML? You’re Playing our Song!

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The hit Netflix show “The Playlist” details how the rise of Spotify was in large part a struggle between a music industry unwilling to accept that the digital age had arrived and entrepreneurs who realized that the previous model of music distribution had been rendered obsolete. It chronicles how an industry that saw technology as a challenge to its authority, rather than a partner for achieving its goals, ultimately harmed everyone – artists, distributors, and record labels themselves.  

Besides documenting the fascinating origins of one of the world’s most popular platforms, what makes the show so compelling is that it reflects a simple fact that we often need to remind ourselves of:  

The digital age is upon us, and companies that fight this reality will not survive.  

Change is inevitable. Every industry must cope with this reality at some point. Making the shift to technological advances can often be uncomfortable, but industry leaders who fear or resist change are doing themselves—and their businesses—a disservice. 

The same process which has happened in entertainment, media, communication, and finance, is also happening within the anti-financial crime space. A story from last month which likely slipped the radar for people who aren’t involved in the daily fight against financial crime (as we are at EverC!) lays bare this dynamic. 

A landmark case in AML regulation  

In mid-August, the Dutch “neo-bank” Bunq, won a unique appeals case being hailed as a landmark ruling which paves the way for the use of technology to fight fraud.   

Bunq brought none other than its own financial regulator, the Dutch Central Bank (DNB), to court over the challenging of its anti-money laundering policy and the Central Bank’s rejection of the use of certain technologies to fight financial crime. The step of a new challenger bank suing its regulator is unprecedented . Bunq claims that “none of the traditional players has ever dared taking such a move” in so blatantly defying the approach of a regulatory authority.  

Bunq’s choice: Using AI-enhanced controls to fight AML  

The case was triggered after the DNB initially prohibited Bunq’s use of artificial intelligence and machine learning for anti-money laundering purposes.  

This led the challenger bank to sue the banking authority on the grounds that implementing the DNB’s AML strategy could pose “long-term detriment” to the bank’s users and the broader financial system. Bunq alleges that the DNB’s methods relied “on questionnaires that boiled down to asking people ‘Are you a fraudster?’”  

Bunq felt that by being forced to eschew technological means in favor of lower-tech AML controls - which often rely on antiquated methods and a glorified “honor system” – they were unnecessarily taking on undue risk for their customers and the broader financial system.  

Surprisingly enough, the court ruled in Bunq’s favor as it won its appeal against the Dutch Central Bank. The ruling is seen as a victory for proponents of the use of AI and machine learning in the anti-financial crime space. Moreover, a month prior to the final ruling, DNB published a study where it promoted the use of certain technological innovations within the framework of a more effective AML regime.  

What do the regulators think about using technology to fight financial crime?

DNB isn’t the only regulatory authority to “get with the times” where AI is concerned.  The following regulators are beginning to encourage the use of technology in the fight against financial crime:   

What’s next for AML technology? 

In the digital world, the old “check-the-box” method of AML checks and the reliance on the good intentions of potentially bad actors isn’t up to the task. To meet the challenges of an increasingly open and complex financial landscape, banks, payment providers and other financial institutions must make prudent use of technology. While it may have taken awhile, governments are now very much encouraging them to do so.  

EverC is a leading innovator in the AML arena, with solutions and services that leverage technology to help allow financial institutions and marketplaces fight against financial crime, so they can grow safely at scale. 

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