Are you currently in search of an AML software solution for your organization? With the plethora of solutions available in the market, navigating the complex AML software landscape can be overwhelming.
How do you select the right solution that not only fulfills your compliance obligations but also enhances your productivity? How can you ensure that your organization stays ahead of the regulations and doesn’t get fined for non-compliance? In this article, we'll walk you through how to do a modern AML software evaluation.
What is anti money laundering software?
Anti-money laundering software encompasses a variety of technologies designed to prevent, detect, and report potential money laundering activities and other financial crimes. It is typically utilized by financial institutions and other regulated organizations to comply with AML and countering financing of terrorism (CFT) regulations.
AML software also often includes features such as risk profiling, ID verification, customer due diligence (CDD), watchlist screening, transaction screening and monitoring, reporting, and audit trail capabilities.
It’s important to note that AML software is not one-size-fits-all and should be tailored to the specific needs and risks faced by each organization.
AML software key features
When evaluating anti-money laundering solutions, it is paramount to consider the key features needed to meet global and local AML regulatory requirements as well as industry-specific regulations.
As part of their obligations, organizations must:
Verify their customers identity
Perform customer due diligence
Identify, verify, and monitor for changes in ultimate beneficial owners (UBO)
Screen customers and transactions against sanctions lists
Assess and monitor financial crime risk
Monitor transactions and report suspicious activities
Maintain records of their due diligence efforts
Let’s dive into the different AML solution features that will help your organization meet these obligations.
Verify customer identity
Financial institutions and other organizations are required to collect and verify specific customer information as part of their identity verification process when establishing accounts or conducting transactions. This typically involves obtaining and verifying details such as the customer’s name, date of birth, address, and identification number (e.g., social security number or passport number).
To verify this information, organizations may employ various methods, such as using ID validation software to check government-issued identification documents, cross-referencing customer-provided information against reliable databases, or conducting documentary verification.
Furthermore, organizations must retain records of the information obtained from customers during the identity verification process. Document management and record-keeping features in AML software prove to be useful in complying with these requirements.
Identify, verify, and monitor ultimate beneficial owners (UBO)
Regulatory requirements for UBOs require financial services and other organizations to identify the persons who ultimately own or control a legal entity, verify their identity through reliable sources, and conduct ongoing monitoring for changes in UBO. This includes regular reviews and updates of UBO information, as well as monitoring for changes in ownership or control that may impact UBO status.
When possible, the AML software should include direct integration with a trusted UBO database, allowing for retrieval of UBO information from entity names. Additionally, the AML solution should have the ability to automatically create records for each UBO and associate them with the entity record, improving productivity and reducing manual effort. The UBO database can also be used for verification during account opening by cross-checking the provided information against a third-party database. Furthermore, the AML software should be capable of monitoring corporate structure changes using a risk-based approach, automatically creating records for new UBOs, and initiating the CDD process with an initial screening.
Screen customers and transactions against sanctions lists
Financial institutions and other organizations should use a risk-based approach when conducting sanctions screening of their customers, entities, and transactions against relevant sanctions lists issued by local, national, and international authorities. This includes checking against lists such as the U.S. Office of Foreign Assets Control (OFAC) sanctions, European Union (EU) sanctions, United Nations Security Council sanctions, and other relevant local or industry-specific lists. Sanctions screening should be conducted on a risk-based approach during onboarding, at regular intervals, and before a transaction is executed.
AML solutions should be capable of screening not only customer and entity names, but also senders, beneficiaries, and intermediaries of transactions. Real-time and periodic screening should be possible through an API or batch screening tool. Cases should be reviewed and escalated from a case management tool. It is crucial to verify that the AML software has access to up-to-date AML data sources that cover all the relevant sanctions lists.
Data quality is an important aspect of customer and transaction screening and the AML software should be designed to address data quality challenges to limit the number of false positives and avoid false negatives.
Assess and monitor money laundering risk
Organizations are required to adopt a risk-based approach to assess and manage money laundering, terrorist financing, and other financial crime risks. This includes conducting an internal risk assessment to identify and assess the specific risks relevant to their business operations, customers, products, services, and geographic locations. Ongoing monitoring is also required to ensure that the risk assessment remains current and relevant, which may involve periodic reviews, monitoring of key risk indicators, and updating of risk mitigation measures as needed for thorough risk management.
The compliance solution should also possess advanced features for customer AML risk assessment. For customers and entities, it should be able to assign risk scores based on predefined risk factors such as customer type, geographic location, sanctioned and Politically Exposed Person (PEP) screening results, product type, and more. Similarly, for transactions, it should consider risk factors such as customer profile, transaction type, transaction amount, and geographic location, among others.
One crucial aspect of the AML software is its ability to trigger alerts or notifications when risk thresholds are exceeded. This empowers organizations to proactively identify and mitigate potential AML risks in a timely manner.
Transaction monitoring and suspicious activity reporting
Organizations are required to detect and report suspicious activities. They need to adopt a risk-based approach in their transaction monitoring efforts and adapt to the customer’s risk profile as determined during the Know Your Customer (KYC) process. Depending upon the jurisdiction, organizations are required to report certain suspicious transactions that exceed specified monetary thresholds to the relevant authorities, such as large cash transactions or international wire transfers. Additionally, banks are required to file Suspicious Activity Reports (SARs) with the relevant authorities when they detect transactions or activities that are indicative of potential money laundering or other illegal activities.
AML transaction monitoring should include predefined scenarios, rules, or algorithms that analyze transaction data in real time for patterns or anomalies that could be deemed as suspicious activities. The system should be capable of adjusting the level of monitoring based on the customer’s risk profile and should be configured with established thresholds and alert triggers that are aligned with the organization’s risk appetite, compliance management, and regulatory requirements.
Maintain records of your due diligence efforts
Regulatory requirements for the due diligence process often necessitate organizations to adhere to strict record keeping, document storage, and audit trail practices. These requirements may entail retaining records of customer identification and verification documents collected during the customer due diligence (CDD) process, which may encompass copies of identification documents, transaction records, and other pertinent information. Additionally, organizations may be mandated to maintain secure storage and implement robust access controls for AML records and documents to ensure data integrity and confidentiality. Furthermore, it may be necessary to maintain a comprehensive audit trail that captures all actions performed on the records, serving as evidence of due diligence efforts for regulatory authorities and internal audits.