The EU's New Anti-Money Laundering Authority and its Crime Prevention Focus

3 May 2024

The good news of the establishment of AMLA, the European authority for anti-money laundering and countering terrorist financing, in Frankfurt, signals an expected change in the financial industry. The EU is ready to collaborate with its members to ensure the financial crime fight has the means to be successful.

While this is just the start of more monitoring, AMLA will be operational in 2025, one thing is clear: customer mindsets are shifting towards a greater emphasis on technology and data management in financial crime prevention, according to Gabriella Bussien, CEO of Trapets, a Swedish regtech company.

Bussien highlighted the importance of leveraging knowledge providers and in-house development, as well as stressing the need for banks to stay ahead through innovation and technology-driven solutions. Additionally, Bussien discussed the importance of educating customers about Know Your Customer (KYC) processes to avoid misunderstandings and mistrust.

The AMLA driving factor

The importance of the creation of AMLA is symptomatic of a specific moment.  Why has the EU decided to establish it now? What factors have led to this decision, and why wasn’t it created 10 or 20 years ago? Understanding the timing and rationale behind AMLA’s creation is crucial in grasping its significance in the fight against financial crime.

For Bussien, the question arises as to why such measures haven’t been taken earlier. “However, when coordinating actions across multiple countries, there are inherent challenges in fostering willingness to collaborate. It seems that the recognition of the absolute necessity for such collaboration has matured over time. As the global landscape evolves, there’s a growing understanding that addressing financial crime requires a united, collaborative approach,” she said.

She stresses the fact that within the EU, for instance, it’s increasingly apparent that ignoring these issues is no longer feasible. Thus, there’s a shift towards acknowledging the need for a comprehensive, collective response. “While debates may persist, it’s encouraging to see a realization emerging that significant action is warranted from both EU institutions and member states to address financial crime from a holistic perspective,” she added.

It’s easy to think that this will be a pivotal moment for combating financial crime in Europe, but is it? What is clear is that this EU decision will establish a greater level of consistency and overarching supervision power, creating a more unified approach. From this perspective, added Bussien, it’s about ensuring stability and equality across the board within the EU financial system. This move towards centralized oversight aims to prevent fragmentation and promote a cohesive strategy in combating financial crime.

The new financial rap

From a customer perspective, there’s a renewed heightened awareness regarding financial institutions and their susceptibility to financial crimes, particularly in newer generations, who are accustomed to stringent KYC protocols and thorough background checks before becoming customers.

For Trapets’ CEO, there’s a shift in expectations, akin to the emphasis on sustainability in business dealings. “Customers are increasingly discerning about where their money is invested, conducting extensive research before choosing a financial institution. This trend, observed especially among newer generations, signifies a departure from the past, where switching banks was less common due to digital barriers,” commented Bussien.

The ease of digital banking has facilitated this shift, allowing customers to be more flexible in their choices. As a result, there’s a growing emphasis on informed decision-making and conscientious banking practices among consumers, particularly among younger generations.

But, as Bussien said, regarding false positives and their impact on customer bank switching, it’s a complex issue. Reports, such as those in the New York Times, highlight instances of false positives leading to account closures by banks. “While these closures may occur due to system protocols rather than any illegal activity on the customer’s part, it still can lead to dissatisfaction, especially if one relies heavily on digital banking,” Bussien commented. “It’s crucial for banks to have robust KYC processes in place to minimize false positives and ensure knowledgeable staff capable of making informed decisions.”

It seems clear that customers must understand that KYC questionnaires are linked to behavior analysis monitored by banks. Any inconsistencies between stated intentions and actual actions can prompt alerts. However, for Bussien, it’s equally important for banks to handle these situations delicately. Instead of immediately closing accounts, there should be thorough investigation processes in place to maintain customer satisfaction while upholding regulatory standards.

Image credit: EyeEm on Freepik.

Trust and credibility in the banking system

It is debatable if recent news regarding Lloyds Bank and Santander’s alleged involvement in facilitating transactions for Iranian foreign entities can have significant repercussions on brand reputation and losing trust and credibility among customers and the broader community. “Generally speaking, loyalty to banks has evolved. Previously, people tended to remain loyal to the bank they initially chose, but this sentiment has shifted across generations. Nowadays, loyalty to a single bank is less common, indicating a broader trend of stretched loyalty,” mentioned Bussien.

Regarding brand reputation, particularly in the financial sector, it’s unclear how much impact allegations of money laundering or similar issues have on customer churn. “While such scandals undoubtedly affect a bank’s image, customer behavior might be more influenced by their personal experiences. For instance, if a bank consistently fails to address fraudulent activities affecting customers, this may prompt individuals to switch banks, regardless of the institution’s involvement in larger-scale misconduct like money laundering,” added the Trapets CEO.

In essence, according to the specialist, the triggers for changing banks might differ based on personal experiences with fraud prevention and customer service, as opposed to perceptions of the bank’s involvement in illicit activities.

The role of tech in combating financial crime

How to weigh the importance of technology in the banking industry’s efforts to combat financial crime? While some banks opt to develop solutions internally, it’s essential to recognize whether technology is truly their forte. Often, partnering with specialized technology providers proves more beneficial, as these entities possess the expertise and agility necessary for continuous innovation and compliance with regulations.

Bussien makes it clear: “It’s a matter of weighing the bank’s internal capabilities against the advantages of leveraging external knowledge and resources. In most cases, banks may find it impractical and inefficient to handle such endeavors internally, given the complexities involved. Relying on technology providers ensures ongoing development and maintenance of robust systems tailored to evolving regulatory requirements.”

It’s unmistakable that banks must prioritize the structuring and management of their data. Effective technology implementation hinges on having organized, accessible data sets. Without a structured approach to data management, even the most advanced technology solutions may falter. Therefore, alongside technological investments, banks must focus on refining their data infrastructure to maximize the effectiveness of anti-financial crime measures. All of this combined can foster the renewed importance of financial crime prevention in Europe.