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Anti-Money Laundering Software – Can it Help Challenge Financial Terrorism?

Over the years, there has been a sharp rise in the number of wired transactions owing to the increasing number of technological advancements in the financial services market.  The increase in the number of wired transactions, have potentially exposed the institutions to the risk of money laundering.

Money laundering is the act of covering up the money or funds obtained illegally through cash transfers or illegitimate businesses. It generally involves three major steps, i.e. placement, layering, and integration. At the placement stage, the money is placed into the legitimate financial system. At the layering stage, the illegitimate source of the money is hidden with the help of multiple transactions. The third and final stage is the integration of the money, wherein the money is now withdrawn and is now being used via different methods.

The issue of money laundering was one of the key issues in the early 90s and since then, it remains as one of the most crucial challenges for economies, globally. However, in the last five years, the financial institutions have witnessed several technology-based transformations. Even the banking software industry has experienced various forms of developments in the context of researching, exploring, and utilizing resources to create value, along with managing them. The banking software industry is expected to evolve over the next ten years in terms of facilitating global, multi-service, low-cost, and digital banking. This, in turn, enhances the demand to counter the surge in money laundering incidences.

In order to keep a strong check on such money laundering incidents, to keep track of customer transactions, and to detect suspicious transactions, various financial institutions actively use anti-money laundering software. The software enables filtering the data of the customers, classify the data for the level of suspicion and scrutinize for anomalies. The software identifies and flag transactions, wherein there is an influx of large amount of funds or withdrawal. Sometimes, when a person deposits a large amount of money through multiple smaller transactions in an account, the software also flags such transactions. The flagged and blacklisted names are then evaluated by the financial institution personnel.

At present, there are different types of anti-money laundering software available for different types of applications. The five major types of software available in the market include transaction monitoring software, customer identity management, case management software, currency transaction reporting, and compliance management software.

Global AML Software Market Value Snapshot ($Million)

                                     Source: Expert Interviews, Secondary Research, and BIS Research Analysis

Based on a recent market intelligence by BIS Research, the anti-money laundering software market was valued at $991.4 million in 2018 and is projected to reach $1770.2 million by 2023, in terms of value. The market is expected to witness a CAGR of 12.29% during the forecast period. This growth of the market is propelled by reasons such as the need for introducing automated transaction monitoring system, increasing volume of wired transactions, and fulfilling the compliance requirements of international regulatory bodies.

Quality of data, outdated technology, budget constraints, increased regulatory expectations, and enforcement of regulations are some of the major challenges faced by the end-user industries. In order to boost the adoption further, anti-money laundering software solutions need to provide end-to-end solutions. These end-to-end solutions have the potential to enlarge the competence and efficacy of the across systems by establishing easy connect among multiple anti-money laundering software. Lastly, with financial institutions focusing on increasing transparency with the prevailing cases of false positives, anti-money laundering software can greatly help achieve that.