HKMA Spotlights RegTech Use to Implement AML/CFT Measures

Source: Regulation Asia Manesh Samtani, Regulation Asia 2020-06-16

The HKMA outlines four regtech use cases that support the effective implementation of AML/CFT measures at Hong Kong banks.

The HKMA (Hong Kong Monetary Authority) has published its third issue of Regtech Watch, a newsletter with seeks to promote the adoption of regtech by the banking industry in Hong Kong.

In the latest edition of Regtech Watch, the HKMA outlines four regtech use cases that support the effective implementation of AML/CFT measures at authorised institutions.

Use case 1 – Remote account opening

In general, these regtech solutions adopt a two-stage approach to identifying and verifying the identity of an individual customer: first, authenticating the genuineness of the identity document such as through detection of hologram security features; and second, confirming the person holding that identity document is indeed the live customer by comparing the customer’s selfie with their HKID card photo using AI, facial recognition technology, and liveness detection techniques.

There is growing acknowledgement that these technologies, if properly and responsibly applied, and with appropriate risk mitigation measures in place, can make remote on-boarding of customers no more risky than traditional face-to-face processes, the HKMA says.

Further, technologies such as optical character recognition (OCR) are also applied in pre-filling the application form to simplify the form-filling process.

Use case 2 – Transaction monitoring

These regtech solutions learn from the large volume of false-positive transactions previously labelled by bank analysts to identify common patterns, so that similar legitimate transactions are incorrectly flagged as suspicious less often. This reduces the number of false positives, allowing for better targeting of AML analysts on higher value work.

While this regtech application is at a comparatively early stage, it has the potential to make existing systems more effective and allow human resources to be deployed more efficiently, the HKMA says.

Use case 3 – Automation of ML/TF risk management practices

Some banks are adopting technologies to provide an end-to-end workflow management solution which digitalise, automate and streamline certain ML/TF risk management processes (such as collecting customer due diligence information), thereby reducing human error and increasing efficiency.

In particular, APIs have been applied to integrate core AML/CFT systems with peripheral systems such as news databases, to automatically collate customer information.

Robotic process automation (RPA) technology has also been applied to automate certain routine tasks such as name screening for better operational efficiency.

Use case 4 – Network identification

These regtech solutions use advanced data mining on expanding data pools to identify suspicious activity by tracing networks of transactions and counterparties linked to the customer initially identified as engaging in such activity, thereby freeing up resources, time, and ultimately providing more detailed information on the potential risks.

Early results have been promising and this approach shows significant potential in combating ML/TF and sanctions evasion, particularly if linked to other parts of the AML/CFT ecosystem, including law enforcement and public-private information-sharing initiatives, the HKMA says.

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HKMA Spotlights RegTech Use to Implement AML/CFT Measures

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