Why Mid-Size Banks Need to Modernize Against Money Laundering Today

Mid-size financial institutions are omnipresent in the United States. According to the Mid-Size Bank Coalition of America, their members—all with assets approximately between $10 to $100 billion, with an average of $20 billion across the board—serve customers and communities in over 13,000 branches spread out over 49 states, Washington D.C., and three U.S. territories. Altogether, their combined assets exceed $2 trillion, they receive nearly $1.7 trillion in deposits, and have total loans of over $1.5 trillion.

These figures represent the vast majority of regular people who rely on community banks to safeguard their money and protect their interests. Unfortunately, mid-size financial institutions are just as vulnerable to money laundering and financial crimes as their larger, more commercial counterparts. If anything, it’s possible that they could be more so. Criminals are probably well-aware of the fact that smaller banks do not possess the resources or infrastructure that they need to adequately protect themselves from illegal schemes. Here’s why your mid-size financial institution should prioritize seeking out modern solutions against money laundering and other financial crimes, as well as how to get started on it:

Modernization is Essential to Meet New Regulatory Standards

As a whole, the global financial industry has put about $180 billion towards compliance. Financial institutions take it very seriously, and are willing to set aside a significant chunk of their resources towards meeting AML requirements issued by both local and international regulatory bodies. They know that there is much at stake: they risk opening themselves up to expensive fines, harsh sanctions, and irreversible reputational damage should they be found guilty of having facilitated financial crime. Merely being associated with illicit activities can cause them to lose the trust of their stakeholders and its brand to fall out of favor in the public eye.

Unfortunately, despite the best efforts of all involved, financial crimes continue to evolve. Malicious actors are constantly refining their methods in order to get past a bank’s defenses against criminal activities. 

Regulatory bodies help financial institutions stay a step ahead of financial crime by setting local and global standards to improve detection, streamline investigations, and produce more accurate AML reporting. Because these regulations need to address ongoing pressure from criminals, though, they are constantly being changed. In a lot of ways, modern AML systems are simply better equipped to adapt to these changes than legacy systems.

The Disadvantages of Relying on Legacy AML Systems

Most mid-size financial institutions that refuse to move on from their existing legacy AML systems simply may not be aware of how doing so could be negatively affecting their business. In addition to the distinct lack of agility when it comes to adapting to ever-changing regulations and standards, legacy systems are also extremely limited in their capacity to accurately detect irregularities. That’s because most of them utilize outdated approaches that rely on rules-based architecture trained on historical data.

Legacy systems can also be a drain on your resources: as they get older, they inevitably become more difficult and expensive to maintain. The average legacy AML system is a disparate one that has been formed out of several different systems patched together over the years to address this or that need. It’s entirely possible that your bank is spending more than it should on something that barely serves its purpose, and does so inefficiently to boot.

Finally, the inherent weaknesses of legacy AML processes mean that the results they produce often still need to be validated by humans. This creates additional work for compliance teams who must now spend time poring over false positives on top of making sure that the system’s output is in line with the latest standards and regulations. Employing a modern AML solution instantly solves the issue of unnecessary redundancy. It can take on many of the tedious, time-consuming tasks that are keeping your compliance team members from performing tasks that would be more value-adding to your organization.

Creating Better Customer Experiences Through Modern AML Solutions

False-positive events don’t just create more work for staff members to sift through and investigate. When such an event is triggered, transactions can be unnecessarily held up or halted, creating friction between the financial institution and the customer. You may justify these instances as minor inconveniences at best, but they do add up—and when that happens, you may lose that customer’s business entirely.

Even the process of customer onboarding can be considered a pain point if you continue to use slow, outdated AML systems to perform background checks on potential clients before entering into a business relationship with them. Again, experiencing unnecessary delays during this critical stage can be incredibly frustrating for a new customer, who can and likely will be more than happy to take their business elsewhere. A modern AML solution can solve these issues with a unified platform for Know Your Customer(KYC) and Customer Due Diligence(CDD), allowing you to immediately verify a potential customer’s identity, as well as their source of funds.

In conclusion, modernizing your mid-sized bank’s AML systems doesn’t just protect your business from financial criminal activity. It can also save you money, improve relations with your customers, and bring your firm into the future.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

Posted in Articles

Leave a Reply

Your email address will not be published. Required fields are marked *