Anti-Money Laundering Powered by RegTech | HCL Blogs Blogs

Anti-Money Laundering Powered by RegTech

Anti-Money Laundering Powered by RegTech
November 30, 2017

The world become inter-connected electronically with each and every devices (approximately 20 billion devices) by 2020. So, the threats would be very huge especially in Financial Services. Hackers would be using hi-tech ideas to steal intellectual property from tech firms. This enforces the financial service companies to take steps for de-risking with the help of Financial Technology (FinTech). Here, FinTech is the technology used to support/enhance security and enable new products and services of Financial Services.


Regulation Technology (RegTech) is the branch of FinTech which we can define as “the use of new technologies to solve regulatory and compliance challenges more effectively and efficiently”. Nowadays, technology plays a vital role in all aspects especially in RegTech, such as Big Data Analytics, Cloud Computing, Robotics/Machine Learning/Artificial Intelligence (AI) and Innovations in cryptography. Financial service companies are key players for further development of RegTech.

Anti-Money Laundering (AML):

In the rapid development of business process automation in financial service companies as a part of cost cutting, we cannot avoid Money Laundering. The money laundering is the major issue for financial services that is apart from cost, significant legal and reputational risks. This is possible through the following loopholes, which we cannot wiped out 100%, but we can reduce tremendously based on RegTech compliance.

  • The Legacy System extensively follows instructional algorithm/rules based systems/Transaction Monitoring Systems (TMS).
  • Disloyal employees
  • Lenient Laws

As per Reserve Bank of India (RBI), there are three steps involved in Money Laundering. They are as follows :-

  1. PLACEMENT refers to the physical disposal of cash proceeds derived from illegal activities.
  2. LAYERING refers to hiding the source by creating complex layers of financial transactions. It conceals the audit trail and provides anonymity.
  3. INTEGRATION refers to the re-injection of the laundered proceeds back into the economy as a normal business funds.

RegTech & AML:

To approach Anti-Money Laundering (AML), we need to incorporate the advance and rapidly developing technologies of RegTech. Automation can deliver efficiencies in high volume transactions through software based rules, alerts and AML case management. RegTech can be automated the following:-

  • Compliance data management
  • Employee surveillance
  • Fraud prevention
  • Audit trail capabilities


KYC – Know Your Customer | SAR – Suspicious Activity Reports | TMS – Transaction Monitoring Systems.

Big Data Analytics:

Big Data Analytics is the process of analysing huge structured/unstructured data sets.

The accuracy of RegTech is possible only by big data, gathered from Suspicious Activity Reports (SAR). Here, the data which needed for analytics is called as Risk Data. So, there is a significant need to automate AML programs to not only perform accurate risk scoring but also to keep costs down.

Big Data Analytics can be a solution for this and shut down the flow of illicit funds tremendously by assessing those risk data.

Cloud Computing:

Cloud Computing is the practice of using shared/distributed computer processes.

The cloud solutions for AML offer pay-per-use model, hence used for low cost business model. It provides innovative developments in cloud computing technology for AML. Even though it is concerned about the data security, it is growing at a significant rate.

The Cloud Computing is a low-cost emerging technology that has opened up a world of new possibilities including the ability to share data quickly and securely with various entities. The finance service company that receives huge data may find it too complex, expensive, and time consuming to comb through. Using RegTech tools, the firm can combine the complex information that it has with data from previous regulatory failures to predict potential risk areas that should focus on. By creating effective analytics tools which comply with the regulatory body and financial authorities, the RegTech firm has saved the company time and money.

Artificial Intelligence (AI):

Artificial Intelligence is the artificial system which able to perform tasks without human intervention using systematic analysis of historical data. Machine Learning evolved from AI, able to learn without being explicitly programmed each and every step.

The legacy AML programs extensively deploy TMS which keep busy the experts to setup new rules. Because, the fraudster keeps on learning those scenarios/rules quickly and constantly try with new technics/fraudulent methods to avoid detection. So, we need dynamic nature of systems to overcome those risks.

AI technics do not require technical expert to establish rules each and every potential criminal activity. Instead the system identifies the suspected activities through Machine Learning from risk data. Also it has its own advantages like pattern recognition, quick analysis of correlations between extreme data volumes, handling big data effectively and efficiently, etc., The AI system would improve its accuracy automatically and continuously, due to evolving historical data.


Cryptographyis the practice for secure communication. Earlier it was achieved through encryption/decryption technique. Now-a-days it is heavily based on cryptographic algorithms.

In digital world, internally and externally high-grade encryption had been used for all data in transit. This technique is upgraded as encrypt data which stored on systems. So that it would be highly secured.

Blockchain technology technology is widely used in financial services as another form of cryptographic technology. This is a digital ledger using bitcoin for transactions. Here bitcoin is the cryptocurrency. The Blockchain is a distributed consensus system that enables transactions to be quickly validated and securely maintained through cryptography, computational power, and network users, removing the need for a trusted centralized authority.


The RegTech revolution is already making its presence felt. As the AML landscape is rapidly changing, the financial service companies moving towards automation by adapting RegTech. Each and every hi-tech solutions have its own pros and cons. So, we have to be conscious adapting technology based on our requirements. So far, finance service companies spent considerable amount for AML. It is anticipated that RegTech would be powerful to mitigate money laundering activity efficiently and cost effectively, in near future. Even greater improvements in the field of RegTech are entirely within our reach.