Financial institutions have traditionally opted for on-premises software solutions to help them comply with AML requirements out of a sense of security. But many are now choosing to move to cloud-based solutions.
The reason: the financial landscape is rapidly evolving. Transaction types are diverse, and transaction volumes have increased. Over the next decade, non-cash payments are expected to grow 10.5%, totaling nearly 2 trillion transactions by 2029. From a regulatory standpoint, this has resulted in increased complexity. Yet regulators haven’t become more lenient; instead, noncompliance can bring with it steep fines and significant reputational damage.
Cloud-based solutions offer financial institutions a path toward adapting their AML processes to avoid that fate and meet current and future AML requirements. Here are five specific advantages of opting for a cloud-based solution.
1. Speedy Remote Configuration
Cloud-based software is hosted off-premises, either by the vendor or a third party, which eliminates the need for on-site installation and configuration. The initial deployment of cloud-based software is also quick, especially when compared to on-premise solutions. It can usually be done in an afternoon, with full implementation completed within days, depending on the level of customization desired. Updates, bug fixes and patches are released and installed virtually, so there’s no need for an in-person visit, nor is there any disruption to a compliance officers’ day-to-day work.
2. Leaner IT Teams
In a cloud-based software environment, the IT infrastructure needed to support the suite of tools compliance officers use, from sanctions screening to ongoing transaction monitoring software, is generally handled by the vendor. So financial institutions can redirect the resources they may have been using to support an on-premise solution to other initiatives. Considering that banks spend around 7% of their revenue on IT but just 35% of their budget on innovative initiatives and the rest on legacy solutions, this could make a significant impact — not just on a bank’s bottom line, but also on creating a more effective compliance program.
3. Secure Remote Access
Whether a company’s compliance team is distributed geographically by choice or because of extenuating circumstances, cloud-based software makes this possible. Compliance officers can securely log into a virtual compliance environment wherever they are and, oftentimes, with any device (laptop, mobile device, and so on) and remediate alerts from anywhere; they just need an internet connection. Given how quickly alerts can accumulate, this flexibility helps ensure timely reporting of suspicious activity and prevents impossible-to-clear backlogs.
Because many cloud solutions are subscription-based (SaaS, or software-as-a-service), and because deployment is a quick, relatively simple process, it’s easy for financial institutions to scale their software usage according to business needs. So if a company processes and needs to screen, say, 40,000 transactions per day one year, but that number grows to 60,000 next year, your transaction monitoring software can easily scale up to meet that growth. Different rule-sets, as well as features or other complementary tools, can also be added, subtracted or customized when and if a company’s risk appetite or business approach changes.
5. Ability to Leverage Innovative Technology
The complexity of the regulatory environment means financial institutions must leverage new technologies to simultaneously fulfill their compliance obligations and remain competitive in an increasingly crowded field. Indeed, regulatory bodies are even encouraging the “implementation of innovative approaches…in order to strengthen the financial system against illicit financial activity.”
Automation, advanced analytics, and big data offer a clear path to success in this. While on-premise solutions are capable of incorporating these technologies, it is costly to regularly update and manage these solutions. Additionally, as more companies transition to the cloud, access to newer technologies will default to the cloud. As a result, there may be less support for on-premise solutions in the future.
Compliance is made easier in many ways by cloud-based solutions. Yet to reap the benefits, it’s critical that financial institutions understand their software vendor’s approach to information security. When a financial institution suffers from a data breach, it risks exposing its customers’ sensitive identity information — which is highly coveted by the very criminals AML compliance programs are put in place to stop. So when choosing a vendor, you need one that puts information security front and center and is proactive about mitigating risks.
Read more about what to look for when assessing a cloud-based software provider’s security infrastructure here.
Originally published April 9, 2020, updated May 5, 2022
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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