While seemingly disparate, the realms of financial crime and cybersecurity are increasingly intertwined. As cybercrime proliferates both in the UK and internationally, companies capable of identifying their specific cyber threats are best positioned not only to protect against losses, but also to ensure compliance with Anti-Money Laundering (AML) regulations.
A range of illicit activities, including identity theft, fraud, ransomware attacks, and money laundering, exploit financial information within digital systems. These criminal acts, regardless of their depth or scale, necessitate urgent attention and prevention. In response, global AML policies, regulations, and legislation have been established to curtail these areas of financial crime.
Therefore, it’s essential that cybersecurity measures, procedures, and processes are increasingly adopted by fintech businesses, as they are well-positioned to influence how these crimes are detected and managed. This article outlines the importance of cybersecurity in maintaining AML compliance in 2023.
How is Cybersecurity Related to Anti-Money Laundering (AML) Activities?
Regulated companies, notably in the fintech sector, collect sensitive or financial data from their customers. This information, collected for AML purposes as part of due diligence obligations, is stored on secure databases. Access to such databases is often strictly regulated, requiring authorization either internally or externally. This secure database could contain vital data on identity verification, credit history, adverse media reports, past or pending sanctions, criminal record, employment history, directorships, politically exposed persons (PEP) list, CCJs (County Court Judgements), bankruptcy or insolvency history, Notices of Correction, and undeclared links.
Vulnerabilities in these systems, applications, and across connected networks, data streams, and IoT devices, could trigger larger-scale data breaches, posing significant risks to regulated businesses. In the worst-case scenarios, these businesses could face hefty fines, data protection court proceedings, ICO fines, further regulatory sanctions, and potentially irreparable reputational damage in the event of a data breach, particularly if customer data misuse by criminals results in ongoing losses.
Financial services companies, banks, building societies, credit providers, lenders, and every firm in between recognise the necessity for robust cybersecurity controls, implemented company-wide, from the top down.
Importance of AML Compliance
Secure and robust programmes, policies and procedures collectively ensure AML stability across an organisation. AML compliance is especially critical for regulated entities like banks and financial institutions.
AML regulations aim to prevent cybercriminals from using banking services to commit fraud and subsequently launder their ill-gotten gains. The global scale of money laundering, according to the UNODC, is so significant that it amounts to nearly €1.87 trillion annually, which is roughly 2-5% of the global GDP. Therefore, remaining AML compliant significantly reduces the risk of criminals profiting from their activities, thereby contributing to a better society and demonstrating corporate maturity.
Early Warning Signs of Online Money Laundering
Staying AML compliant is a challenge, with many cybercrimes often going undetected for prolonged periods. In 2020, IBM reported that businesses took, on average, around 280 days to detect and contain cyber attacks. Therefore, a robust AML strategy requires vigilant monitoring of certain activities or situations, often involving internal or outsourced cybersecurity specialists to oversee a cyber threat detection strategy, which may not necessarily signal a cyber attack but indicate potentially unethical or illegal fund acquisition.
Types of AML Software and Tools
AML software spans a wide range of technologies and programs that support a company’s requirement to comply with AML legislation and regulations. These programs can identify suspicious transactions, use artificial intelligence and machine learning to optimise transaction monitoring, comply with Suspicious Activity Report (SAR) requirements, prepare and submit electronic reports independently, and much more.
Establishing a robust AML program involves strategic decision-making, automation, continuous improvement, and regulatory compliance. These requirements highlight the criticality of examining an organisation’s cybersecurity posture and existing vulnerabilities.
For those interested in further exploring these themes, this year’s LIBF Annual Trade Finance Compliance Conference will be held on June 21, 2023.