A key challenge for financial institutions managing regulatory compliance is balancing risk management with operational efficiency and effectiveness through innovation. Organizations should not be wary of innovation—they should embrace it. Small and midsize financial institutions and other financial services firms, such as asset management companies, hedge funds, casinos, and sportsbooks, are likely more prepared to implement new technology than they give themselves credit for, and in fact may be best positioned to harness innovative solutions to efficiently and effectively enhance their financial crime compliance programs. 

There are three main components in AML/counterterrorism finance (CTF) compliance innovation, and with a few simple steps small to midsize firms can leverage their resources to develop innovative technological solutions that will help meet their regulatory compliance needs. These include:

  • Readying the data: Smaller organizations usually have fewer data sources and geographic locations for storage, making it easier to organize and normalize all that information into one data set that is ready to be analyzed. With a normalized data set, the next step is to review how an institution’s data is housed, saved, tracked in order to enter it into a transaction monitoring system for review.
  • Use automation to support investigation: Once data has been normalized, the main priority shifts into high gear: monitoring for suspicious transactions and activities. The best compliance programs use a combination of automated algorithms and analytical review to ensure that data is properly analyzed and flags are raised based on set parameters.
  • Align systems to communicate: Whether a financial institution is using a small number of systems or many, its compliance efforts will bog down if the data architecture does not enable those systems to communicate with one another. Misalignment can allow things to fall between the cracks and result in inconsistent monitoring, which can have costly consequences.

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