FATF Reviews Promise and Peril of Technology in Financial Crime Fight

Machine learning, application programming interfaces (APIs) and other technological advances have the potential to bolster anti-money laundering (AML) efforts but the compliance sector must overcome challenges to ensure their benefits, according to a global watchdog.

In two reports published Thursday, the Financial Action Task Force (FATF) outlined how technology is reshaping AML and counterterrorist financing (CFT) compliance, and what challenges may lie ahead as a consequence. Among the industry’s biggest hurdles: explaining the complexities of technology to supervisors so that they can best adjust regulatory requirements, upgrading legacy compliance systems, and safeguarding against the unintended legal and ethical challenges created by the adoption of new tools.

“The use of innovative technology in the financial sector brings with it not only significant and potentially transformative benefits, but also risks of unintended consequences, potential conflict with competing objectives, such as privacy, inclusion, equitable outcomes, and vulnerability to witting abuse,” FATF said in a report on the opportunities and challenges of new AML tech tools.

In some cases, the use of artificial intelligence can present “significant risks,” the report found.

“Potential lack of explainability and transparency can undermine the ability to assess an AI/ML solution’s accuracy in identifying suspicious transactions and other illicit activity, so that its effectiveness as an AML/CFT compliance tool cannot be established,” FATF said.

“In addition, although algorithmic decision-making may seem to offer an objective way of overcoming human subjectivity and prejudice, researchers are discovering that many AI algorithms replicate program developers’ conscious and unconscious biases and apply them at scale to unfairly target as suspicious the financial activities of certain types of individuals or entities, or produce risk profiles and decisions that deny them access to certain financial products and services,” the intergovernmental group added.

A second report published by Paris-based watchdog examined commercially available or emerging technologies that facilitate AML/CFT analytics with regulatory entities.

Read FATF’s “Opportunities and Challenges of New Technologies for AML/CFT” here

Read FATF’s “Stocktake on Data Pooling, Collaborative Analytics and Data Protection” here

Source: riskscreen.com