john.gilbert@nst.com.my

KUALA LUMPUR: Financial services firms and non-bank institutions still banking on human capital as compared to artificial intelligence (AI) when comes to anti-money laundering (AML) compliance.

Based on a recent survey entitled True Cost of AML Compliance conducted by LexisNexis Risk Solutions shows Malaysian financial services firms spend nearly US$900 million annually on AML compliance, behind Singapore of US$3.13 billion, Indonesia of US$1.59 billion and ahead of The Philippines of US$0.48 billion.

However, the distribution of compliance costs is similar between small (less than US$10 billion) and large (more than US$10 billion in assets) organisations, and these costs lean more towards labour than technology, LexisNexis Risk Solutions findings show.

And given that larger firms employ nearly twice as many full-time equivalents (FTE) as smaller firms on average, this contributes to exponentially higher compliance costs. Labour includes not only salaries, but also benefits, taxes, and overhead, LexisNexis Risk Solutions report noted.

Affin Bank Bhd group chief executive officer Kamarul Ariffin Mohd Jamil said in Affin Bank context, the bank are still investing on human expertise although the proportion spent on information technology (IT).

"Technology is gaining momentum. Mainly because employing AI is still relatively new in the AML field and we require data analysts for programing the AI to suit the Malaysian AML practices.

"The employing human expertise from various disciplines such as forensic accounting, legal and law enforcement agencies and regulatory bodies do assist us in detection of transaction irregularities, but the future is to program the AI to perform as such to reduce human intervention and judgement," he told The New Straits Times.

Affin Bank Bhd group chief executive officer Kamarul Ariffin Mohd Jamil said the group’s second quarter profits more than doubled to RM156 million and this was mainly due to write-back of credit impairment losses.

Kamarul said it is inevitable that, the banking world is gearing towards this area because when it comes to AML compliance and detection of irregular transaction, and that Affin Bank need analysis that is data proven, and if possible, free from human bias or prejudice.

"In the long run the bank is looking into employing AI in AML compliance so that the transaction monitoring can be more data proven, accurate and holistic across the entire banking spectrum," Kamarul said adding that Affin Bank is leveraging on the use of big data analysis, customer transaction patterns, spending behaviors in detecting suspicious transaction, fraud and money laundering.

LexisNexis Risk Solutions findings also showed that larger firms in Malaysia are more likely than smaller ones to use shared interbank compliance databases, AI and unstructured audio analysis.

Malaysia’s exposure to domestic and transnational criminal activity, including fraud, corruption, drug trafficking, wildlife trafficking, smuggling, tax crimes, and terrorism finance increases its vulnerability to money laundering.

This adds additional risk to financial firms and makes de-risking even more important, it said.

Touching on non-bank organisation, LexisNexis Risk Solutions survey shows non-bank payment providers are creating challenges for compliance organisations.

It said non-bank transactions have grown exponentially, from total of 31.3 million mobile payment transactions in 2018, compared with just 1 million transactions in 2017.

And, over the past year, over 1 in 3 suspicious activity reports have involved non-bank payment providers, resulting in increased stress on compliance teams and an increase in alert volumes and resource costs.

The survey finds that in response to the impact from these providers, a number of financial firms have migrated to dynamic monitoring, created a team to evaluate emerging payment technologies, or

implemented more rigorous training.

Commenting on the matter for non-bank side, Max Money Sdn Bhd founder and chief executive officer Abda Hamid said AML compliance costs for MaxMoney comprises on both labour and technology.

"We have an in-house team of compliance personnel which are tasked to ensure AML directives are met and also in-house IT professionals who ensure the smooth operations of our systems with AI base. However, a significant chunk of our technological costs are from the IT," he said.

Hamid said as MaxMoney’s customer base is primarily comprised of foreign nationals for it remittance division as compared bank customers, its AML systems are able to identify and verify foreign legal documents more efficiently by leveraging on existing data.

LexisNexis Risk Solutions survey also showed that current use of other technologies/services is limited, except for shared interbank compliance databases among larger firms.

Regionally, findings show that large firms, which have more AML compliance staff and higher total assets, use

more of these technologies/services than others (4 or more).

But unstructured audio analysis, shared interbank compliance databases, and in-memory processing are expected to become a standard part of the process in 5 years.

Other findings shows Malaysian AML compliance costs have reportedly increased by an average of 9 per cent during the past 24 months.

Across firm size, there are expectations that AML compliance and sanctions costs will rise similarly during the coming year.

However, a number of firms expect to increase compliance staff in order to address challenges and

risks posed by non-bank payment providers.

Nearly two-thirds of Malaysian financial firms are currently monitoring digital identities for criminal behavior; even more are able to monitor online transactions in real-time and behavior for sanctions breaches.

A majority of those who don’t currently monitor digital identities for criminal behavior plan to so wo within the next 1-3 years, LexisNexis Risk Solutions survey finds.