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SupTech – An AML/CFT regulatory authorities’ greatest tool

Published by – AsiaPacific AML

Technological and scientific progress in the areas of machine learning, artificial intelligence (AI), distributed ledgers, and big data has led to further discussion around the term SupTech – or supervisory technology. Although technology solutions for regulatory supervisors are nothing new, SupTech has gained significant attention and momentum as various solution providers begin to advocate the use of technology to enhance, adapt and develop supervisory controls across all forms of reporting sectors – into a single SupTech platform. Yet, supervisory control of Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) is one area where SupTech is still to be fully embraced. And it is here, through the effective and efficient government supervision of money laundering and counter terrorist financing regulatory obligations that SupTech can play a crucial role in ensuring financial stability and consumer confidence across all business sectors.

SupTech solutions are already delivering opportunities for government authorities to move away from labour intensive, unintegrated, ‘tick-box’ processes – towards automated, real-time, integrated, and 'smart’ data supervisory processes. The greatest benefits for introducing SupTech to regulatory bodies with responsibility for AML/CFT compliance is the ease in making determinations after implementing data-intensive case management tools. Where the work of analysts typically takes months, sometimes years to manually analyse big data (both qualitative and quantitative), SupTech can provide all relevant data within minutes to enable a human determination to be fully informed. This assists government supervisory bodies who have logistical obstacles such as -

• The appointed agency has several other high priority portfolios and may not always treat AML/Fraud oversight with the priority that it needs;
• Data will be received from disparate sources – meaning there is no consistency in data gathered and no ability to compare an apple with an apple;
• The supervisory authority may face human capacity constraints.

SupTech enhances the outcomes of the supervisory model, as well as meeting industry expectations for reporting key information, particularly data that is used by the board and senior management to identify, monitor, and manage risks and threats. It also improves the decision-making process throughout an organisation, helping to reduce the impacts of miscalculating probability and severity of losses resulting from risk management weaknesses and defects in operational systems. Equally, SupTech can improve a government’s strategic planning process and increase the likelihood of achieving supervisory objectives. From the business sector perspective, private organisations can improve their ability to identify and manage risks presented by new products and services.

A supervisory authority, such as a national AML/CFT regulator, can use digital automation to integrate data from a range of sources into a single report. SupTech achieves this by providing authorities with tools that capture larger and richer datasets from reliable sources, enabling automation and the quickening of administrative procedures. For thematic reviews, extracting datasets and using hypothesis to test consequences of unforeseen events also becomes less resource intensive.

AI specifically offers the opportunity to improve the efficiency and effectiveness of market conduct supervision by turning risk and compliance monitoring from a backward-looking process into a powerful, real-time predictive and proactive endeavour – overcoming issues found following the Global Financial Crisis were governments across the globe were operating with inadequate monitoring tools and management oversight.

Had such systems been operating from the early part of the 21 century – the ability to manage those issues that contributed towards the Global Financial Crisis would have been revealed as red flag indicators. Had governments across the globe been operating with adequate monitoring tools and management oversight, the financial markets today may have been operating in a much more stable environment with confident businesses and investors sharing confidence in market movements.

When trying to understand SupTech, the important roles played by accelerators, incubators, investors, consultancies, academia, established technology firms, start-ups, trade bodies and regulated firms must also be recognised. In many countries this encompasses developing technology platforms through greater RegTech involvement that goes beyond online filing of annual reports. Nevertheless, the successes of SupTech requires more than use of modern technology. A supervisor’s regulatory framework needs to be supported by:

• Establishing standards – clarifying wider expectations and helping to define industry standards and best practice.
• Acting as catalyst and convener – engaging with and bringing participants together and sharing views on priority areas of focus and future direction.
• Establishing certification - for approval or certification of solutions that meet relevant regulatory criteria.
• Leading by example - by trialling/adopting innovative technologies itself.

SupTech is a technological solution that delivers consistency, allows for the reporting of granular data, and brings about evidence informed policies and regulatory approaches that are responsive, deliver cross border collaboration and drive market development by lowering compliance costs. As a result, SupTech gives regulators access to big data, wider analysis, the ability to make quicker determinations and overall, obtain more meaningful outcomes.

When the use of SupTech is compared to the alternative practice of deciphering complex data on a manual basis, which is labour intensive and often comprising elements of human error – why are governments not acting quicker to transition to automated solutions?

Dr Nicholas Gilmour is an Executive Consultant at AML360 and frequent author on various topics relating to AML/CFT compliance – including the use of RegTech and SupTech solutions to support industry and national supervisory authorities. Having worked with businesses around the world, Nicholas is passionate about strengthening AML/CFT controls to increase safety and wellbeing for all. In March 2019 he moderated a group discussion at the C

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