How QuantaVerse is applying AI and machine learning to improve AML programme effectiveness

Innovations in anti-money laundering (AML) are leading to many businesses reenvisioning how they approach compliance. As financial institutions welcome modern technologies to better adhere to regulations, they realise other benefits from automating their AML practices, says QuantaVerse Founder David McLaughlin.

Anti-money laundering compliance can cost businesses huge amounts of money, time, and training—and despite this investment, not everyone gets it right. Improving AML efforts has become a universal concern for administrative organizations and associations like the Financial Action Task Force (FATF), Financial Conduct Authority (FCA), and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). What’s more, according to Kroll’s Global Enforcement Review, fines related to financial crimes such as money laundering, bribery, and sanctions totaled $4.67bn in 2020 compared to $3.75bn in 2019. With regulations becoming stricter and penalties for non-compliance becoming steeper, adopting advanced technologies is non-negotiable.

Admittedly, financial institutions face multiple challenges throughout the lifecycle of selecting, implementing, and maintaining their transaction monitoring system (TMS) where many financial crimes are obscured. One of the key reasons that so much crime continues to go without being caught is due to companies relying solely on these legacy technologies. As David McLaughlin points out, relying on TMS can become a liability due to the high percentage of crimes it misses.

The numbers, indeed, don’t lie. The United Nations estimated that around $800bn to $2trn is laundered every year – which is 5% of worldwide GDP. Unfortunately, about 90% of this amount remains undetected. “The amount of dirty money flowing around the globe was something that made us develop AML solutions using artificial intelligence (AI). If we could meaningfully reduce the financial crime being missed, it would be something to be proud of,” McLaughlin said.

McLaughlin admits that “every financial services company, regulator, government and law enforcement agency knows that current systems are not finding and reporting on much of the illegal money flowing through the system. Players in the environment don’t have the tools and bandwidth to be able to find more.” Challenges hindering compliance efforts, according to FATF, include the “complexities and costs involved in replacing or updating legacy systems making it challenging to exploit the potential of innovative approaches to AML/CFT for both industry and government.” This is where McLaughlin believes QuantaVerse has been on the forefront of the RegTech sector and a gamechanger since it was launched in 2014 as it applied modern technologies to the AML challenge when no one was.

The goal with QuantaVerse was always to create a measurable societal impact by being able to reduce financial crime, choke the pipeline of criminal money-moving around the globe and modernize the compliance landscape. To do so, QuantaVerse needed to holistically address AML solutions. “From the start, we saw we could not build only one part of the solution. We’re not offering just a data cleansing capability or a link analysis capability. We’re going to look at the entire AML landscape and build solutions that improve the entire ecosystem. We find risks and crimes that traditional systems are never going to be able to catch,” McLaughlin said. “We can essentially go to an organisation and confidently say, ‘we can help you run the best AML compliance department possible.’”

Bringing technology and experts together

Business investment in AML procedures has escalated significantly in the last decade. By 2025, the market worth of the software for curbing the laundering of money is expected to reach $2,717m from $879m in 2017. However, when it comes to reducing financial crime, no tool will be successful if it cannot be used efficiently by AML teams as part of a well-designed AML/BSA program.

The triad of compliance strategy, investigative expertise and technology solutions is what companies need to make sure that they’re not at risk of reputational and regulatory damage. In August 2021, leading managed services firm, AML RightSource acquired QuantaVerse to bring together all the weapons companies need to effectively and efficiently fight money laundering and meaningfully improve BSA compliance. “There’s more that the customer needs than just tech tools,” McLaughlin notes, adding that with this merger, he is bullish about making greater waves in the sector. “Of course, we have the technology that improves your compliance department, but we also have the experts that know how to make the most of it. The marriage with AML RightSource and QuantaVerse being able to supply that technology with leading advisors and investigators is a unique proposition to the market.”

How QuantaVerse is thwarting criminals through tech

Money laundering is not an easy crime to prevent as criminals are constantly improving the ways they hide and move dirty money. Illegal actors are always searching for processes to turn their proceeds into usable assets. In order to stay ahead of these criminals, it’s important to reduce false positives and focus on risk. QuantaVerse does so by improving financial crime identification, automating investigations, and documenting investigation results. Essentially, the technology speeds through data gathering and analysis and puts the pieces together. “This is where big data, AI, and machine learning are married together,” notes McLaughlin.

Detailing the way it works, McLaughlin said, “We trained the platform to analyse the transactional entity data across three primary components.” The QuantaVerse solutions examine the reputation of the people or organisations that are moving and receiving money. For example, it aims to find proof indicating whether their past actions might have illegal records. Secondly, the technology looks at the transaction for anomalies and if there is something about the transaction that is different from established patterns. And thirdly, the technology analyses the intent behind the businesses and evaluates if it makes economic sense for these parties to do these transactions.

Roping in the regulators

While navigating through the increasing number of regulations is a herculean task, convincing regulators to allow companies to use AI and machine learning was once a roadblock. When McLaughlin was scaling QuantaVerse in its early days, the question was, ‘what will the regulators think’. To tackle this, they created a “glass box” enabling regulators and AML teams to transparently understand how the platform works and how risk was analyzed. The company also had an independent third-party firm validate the technology.

These efforts came to fruition in 2019 when regulators went beyond just accepting new technology. McLaughlin recalled, “They said to the AML community, ‘We now don’t just accept use of advanced technology, we expect you will begin using it.’” This expectation has accelerated plans to adopt this technology across the industry. This was further codified by the AML Act of 2020, which was passed as part of the Defence bill in December of 2020. Financial companies are now required to establish streamlined programs, “including automated processes to, as appropriate, permit the filing of” of suspicious activity reports.

Business benefits of advancing AML technology

Relying on legacy technology is not only failing to find financial crime, it is also driving up compliance costs for covered institutions. For example, it is estimated that 95% of the alerts created by TMS are false positives that must be investigated – requiring the valuable time of AML investigators. “This is a direct result of the simple, rules-based nature of a TMS engine. False positives are created because perfectly legitimate transactions sometimes violate the rules programed into the TMS.”

As the fast-evolving FinTech landscape works to automate AML practices and scale their business processes, McLaughlin believes QuantaVerse will continue to influence the marketplace to help other organizations in the ecosystem understand the power of technology. He said, “Our solution is a workable alternative to racking up costs associated with finding financial crime. This is going to help you make a better, more consistent process for managing your compliance department.”

He concluded, “QuantaVerse evolved this AML industry with the technology platform we created. We’re going to do it again because of the ‘triad of effectiveness’ that is now being offered by AML RightSource.”

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