Many businesses still find compliance to be a financial burden and refuse to invest in technologies that can improve the effectiveness of their regulatory reporting process. As such, many compliance teams are forced to work with legacy anti-money laundering (AML) systems that can no longer keep up with the changing rules and guidelines set by regulatory bodies. Acquiring a new AML investigation system is a significant investment for sure, but it’s an expense that will benefit the company and the brand in the long run. If you’re a compliance officer and you’re trying to make a case for purchasing or subscribing to a new AML solution to your boss, be sure to include the following reasons:
Outdated AML Investigation Systems Are Less Likely to Be Effective Against Financial Crime
The global financial industry, as a whole, has reportedly spent more than USD 180 billion in compliance. Despite the significant resources that financial institutions have allocated for this specific purpose, many companies still fail to meet the minimum requirements set by regulatory bodies. In fact, in the last ten years alone, local and international regulatory bodies have imposed a total of USD 36 billion in fines and sanctions on companies that have failed to meet their guidelines.
In addition to considerable monetary losses, companies that were unable to comply with stringent rules and regulations concerning financial crimes also risk damaging their reputation and losing the trust of their stakeholders and the general public.
Unfortunately, the older financial crime detection and investigation systems that companies use to deter financial criminals are no longer as effective as they used to be. Financial criminals are making every effort to exploit the weaknesses in old security systems used by the companies that they are targeting. Just like security systems, financial crimes are evolving. If your company is still stuck using a legacy AML solution, then it’s highly likely that the system you are using is no longer effective against the current schemes used by financial criminals. This puts your company at higher risk of losing money through financial criminal activity as well as sanctions and fines ordered by regulatory bodies.
Maintaining Legacy AML Systems Consumes a Significant Portion of a Company’s Compliance Budget
More than half of a regular financial institution’s compliance budget goes to technology-related expenses. A few companies use this portion of the budget to completely overhaul their AML system, thereby ensuring that their compliance team is using state-of-the-art and future-proof compliance solutions for the next few years. These companies don’t have to spend a lot of money for yearly system upkeeps, and they can still comply with changing regulatory guidelines without overworking their compliance team members.
Still, there are financial companies that use this portion of their budget to simply patch up the legacy AML system that they use. These traditional companies find themselves needing to spend more each year just to keep up with the basic regulatory rules. At some point, their legacy AML system won’t be able to accommodate regulatory changes, or the vendor responsible for these legacy systems will stop providing technical support. When that time comes, these traditional companies will need to completely overhaul their financial crime detection process. They’ll have to spend much more to fill technological gaps and to update the skills of their compliance teams.
Manpower Is Another Driver for the Increasing Cost of Compliance
Compliance teams that use legacy systems are often required to make up for the inefficiencies of the AML solution that is available to them. These specialized staff members are often bogged down with the task of ensuring that the output of their dated compliance solution adheres to the latest standards set by regulatory bodies. This is a tedious job that can demoralize your team members and cause them to burn out or look for greener pastures.
AML solutions out in the market today offer plenty of options for automation and customization, and these functions can help your compliance team stay on top of the work that they need to do. The new compliance system can take care of sorting and managing data, and the compliance team can easily tweak the system’s settings so that it can continue to adhere to new regulatory rules. On the other hand, the compliance team members can focus on improving their skillsets and turn their attention to tasks that require critical thinking.
Future-Proofing Your Company Requires Updating Your Compliance Solution Now
An outdated AML investigation system puts your company at greater risk of non-compliance and being used in financial criminal activity. At the same time, the lack of adequate technical support can exhaust your compliance team, thereby leading to increased rates of burnout among its members and the need to hire new and more people to take over. Modernizing your company’s AML solution today is essential to reducing your compliance costs, increasing the overall efficiency of your company, and protecting your company from financial crime.