There is a prevalent misconception that, compared to larger banks, midsized financial institutions are less vulnerable to money laundering and other financial crimes. Given their ubiquity, though, such a conclusion can only be described as hasty at best. In fact, institutions with USD 1 billion to USD 10 billion in assets make up 97 percent of the total number of banks in the United States.

Truly, midsized banks are just as prone to becoming victims of malicious actors looking to make use of their services to funnel dirty money through legitimate banking systems. That said, it is true that cases of money laundering at these institutions may not be as heavily reported. In any case, midsized banks can also be subject to hefty fines, sanctions, and reputational damage.

Even a financial institution that only files a minimum amount of Suspicious Activity Reports every year still needs an effective anti-money laundering system to safeguard itself against the sophisticated threats posed by opportunistic financial criminals. Fortunately, cloud-based AML software can help address some of the unique challenges that midsized banks with a more limited budget and a more modest pool of resources face. Indeed, these types of solutions can offer financial institutions many benefits. Not only can they address ever-changing regulations and satisfy compliance obligations, but they can help banks stay relevant and competitive against their larger, more agile counterparts.

Why Choose Cloud-Based Solutions?

Traditionally, financial institutions would choose self-managed, on-premise software solutions to aid them in complying with AML requirements, primarily for security reasons. However, the technological infrastructure required to run and maintain these systems simply isn’t financially feasible for midsized banks, especially if they want to allocate the rest of their IT budget to other initiatives.

The financial landscape is also changing. Transaction types are now more diverse and transaction volumes have also increased. As a result, financial institutions must adhere to stricter and more complex regulations if they wish to avoid facing serious consequences.

Cloud-based solutions are a far more cost-effective alternative to on-premises software because financial institutions do not have to invest in any of the required infrastructures, nor spend on installation and maintenance costs. Turnaround time for deployment and implementation is also much shorter with cloud-based software, as they can be fully implemented within a single afternoon.

Other major advantages of cloud-based AML solutions include flexibility and scalability. Financial institutions can choose which systems they want to employ based on their specific situations. They can also scale their software usage accordingly to serve whatever needs their business may have.

Which Cloud-Based AML Services Should You Deploy for Your Midsized Financial Institution?

Know Your Customer

Know Your Customer refers to mandatory operational tasks carried out by financial institutions for the purposes of mitigating exposure to risk and complying with anti-money laundering and counter-terrorism financing laws issued by regulators. It is a continuous process that involves identifying and verifying the identity of a customer when they open an account with a financial institution. These verification checks are then periodically carried out for said customer over time, for as long as they maintain a business relationship with that institution.

Cloud-based KYC software gives midsized financial institutions the power to risk-rate potential clients in near real-time by collecting and analyzing data from multiple sources at once. It is also capable of constantly monitoring data from all relevant sources and alerting the financial institution to any changes detected. 

Customer Screening

Customer screening refers to the process of dynamically comparing the data that a financial institution has on its customers or potential customers against external data sources such as sanctions lists, watch lists, Politically Exposed Persons lists, and adverse media. Doing so allows financial institutions to protect their business and reduce reputational risk by:

• taking evasive action and declining to do business with the individual in question, or
• carrying out appropriate follow-up actions, such as filing a suspicious activity report or conducting enhanced due diligence.

Cloud-based Customer Screening platforms can simplify what would be a tedious and complex task for midsized financial institutions by screening customers against multiple watch lists with a single push of a button. They are also able to reduce false positives by making use of advanced data preparation techniques and matching algorithms that improve accuracy.

Regulatory Reporting

Submitting Suspicious Activity Reports (SARs) and Suspicious Transaction Reports (STRs) in an accurate and timely manner is integral to combating financial crime. However, midsized financial institutions operating on limited resources may find it difficult to satisfy compliance requirements if they must do them manually.

Cloud-based Regulatory Reporting solutions can automate these tasks so that AML professionals can file SARs and STRs with regulators in real-time, using the correct formats and processes specific to their locale. Additionally, these platforms are inherently more secure, enabling financial institutions to protect sensitive data.

Transaction Monitoring

Transaction monitoring is crucial to detecting money laundering and other illicit activities. Through it, financial institutions can be alerted to unusual customer behaviors and suspicious activities, enabling them to prevent financial crime.

Cloud-based Transaction Monitoring software comes with a library of industry-recognized scenarios that can be deployed immediately to efficiently detect suspected money laundering activities. They also allow midsized financial institutions to save on staff costs, as the software reduces false positives that human investigators will have to look into.

Midsized financial institutions require AML systems that are not only cost-effective and easy to manage but also don’t compromise on robustness and quality. With cloud computing, these smaller banks can experience the best of both worlds.