How to Build the Right AML Compliance: The Best Practices for the Fintech Industry

For decades, anti-money laundering (AML) has been a hot topic and a growing pain for the financial sector. Apart from the ethical aspect of fighting money laundering and terrorist financing,…

6 min read
How to Build the Right AML Compliance: The Best Practices for the Fintech Industry

For decades, anti-money laundering (AML) has been a hot topic and a growing pain for the financial sector.

Apart from the ethical aspect of fighting money laundering and terrorist financing, the fintech service providers need to implement effective AML measures to protect themselves. Given the significant regulatory penalties induced by compliance violations, any business in the financial space needs to stay aware and agile to new regulations.

However, the AML rules are inflexible. Varying at the national and international levels, they are also accompanied by lagging behind new technologies and digital finance attributes of leveraging a high speed and anonymity of online transactions.

To help benefit from deploying AML measures, we have gathered all critical components on building a successful and robust AML compliance framework for the fintech industry.

How Banks Comply with AML

Despite undergoing radical changes in the financial ecosystem, banks are still among the largest decision-makers and role models for alternative institutions. In order to successfully manage increasing regulatory demands, banks have invested enormous resources and employed numerous anti-money laundering practices and techniques.

And even though the AML regulations vary from country to country – in general, all banks undertake the following measures to meet compliance requirements: customer identification programs, independent audits, and suspicious activity screening.

Customer Identification Programs

To ensure legitimacy, banks must follow proper customer identification and verification lying in Know Your Customer (KYC), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) procedures.

The KYC process involves affirming a customer by collecting all personal details, including digital biometric data, through documents and other reliable sources.

After the KYC procedure, banks apply comprehensive risk assessment. Customer details are analyzed and screened against multiple online databases, such as politically exposed persons (PEPs), government records, watchlists, and sanctions screening.

Independent Audit

It’s important for any financial institution, especially banks, to have all measures to stay compliant. One of the measures is undertaking an independent audit which looks at institution financial activity reports, tests the effectiveness of AML compliance, evaluates AML training, and reviews policy documents. An audit is taken to reveal problem areas, allowing banks to put measures in place before any issues occur.

Suspicious Activity Screening

Typically banks have an expansive customer portfolio and handle millions of transactions per day. With such a high volume, it’s impossible and inefficient to inspect every single transaction.

Therefore, regulatory agencies publish AML policies about behavior that should be paid attention to (e.g., making numerous cash deposits or payouts over several days). If an AML officer detects behavior that exceeds reporting thresholds and has no apparent business purpose, it is instantly labeled as suspicious activity.

How to Build the Right Compliance Program for a Fintech Business

In a fintech context, compliance may seem a bit challenging. Fintechs must follow KYC requirements, perform AML monitoring, and take preventive measures against financial crimes.

However, at the same time, fintechs have a lot more power to reinforce AML compliance measures.

By adopting the accumulated experience of banks as well as focusing on state-of-the-art achievements, fintech players may successfully combat multiple methods to exploit and avoid AML compliance measures.

Here are the best practices and procedures to follow to form a proper fintech compliance program.

1. Awareness is a top priority

As AML legislation and regulations are constantly evolving, it’s vital to be aware of new developments and ensure their correct implementation within the organization.

2. All-round risk assessment

No two organizations experience the same cluster of AML risks. That’s why every fintech player needs to take a more comprehensive approach to risk assessment and consider all factors like the products and services they offer, their customers and clients, and their geographic location.

3. Internal Regulation

Any AML compliance program should necessarily center around the institution’s internal regulations and rules to identify and report financial crimes.

These rules spread to an organization’s employees responsible within the system for conducting and navigating policies and procedures to ensure compliance on an ongoing basis.

4. Focus on Anti-Money Laundering Technologies

A successful anti-money laundering program must use all layers of real-time and historical data and analytics to detect unusual behavior.

As AI technologies like machine learning become more common, these next-generation AML technologies can streamline and automate many processes to effectively identify financial crimes.

Furthermore, these techniques can be used for case enrichment, a holistic entity view, and a client risk rating.

5. AML Training

While every employee within a financial institution should have at least a basic understanding of AML procedures, it may be vital for an organization to enforce further specific training to those responsible for AML-focused tasks and regularly update their knowledge and competencies. Trained employees will bear more responsibility for the overall compliance program and can oversee the general performance of AML policy within the organization.

Moreover, some extra duties like negotiating with authorities and auditors may help better integrate AML recommendations obtained from audits and reports.

Verified Payments, in turn, has a separate Anti-Money Laundering Department to serve every customer who requires full-stack BaaS services. The Department supervises and manages all control processes and works to ensure the company’s compliance.

What to Expect in 2022

As 2022 has come, new regulations and updates in compliance are expected to enter into force. Therefore, businesses and individuals need to be ready to incorporate new robust compliance frameworks to enforce the existing measures.

Use of Third-Party Providers

Various third-party services are expected to help AML compliance, transaction monitoring, and risk-assessment management. Besides, it is believed that using third-party providers by financial institutions may improve AML screening and identity verification as well as detect emerging risks and new violation tactics.

Advanced AML Screening

Anti-money laundering screening is a method to assess the risk of crimes that individuals and businesses can bear. With the help of an advanced screening system, it is possible to control the existing clients by thoroughly screening them against the global financial crime databases, PEPs lists, and watchlists. This, in turn, may allow businesses to identify money laundering activities before they happen.

Data Exchange

Recently, the Financial Action Task Force (FATF) has obliged authorities and businesses to cooperate against money laundering and terrorism funding. Both sides have to deal with the same issues regarding information: its importance, amount, clarity, and ability to use effectively. While the trend towards data exchange may take time to understand, it is expected to see more initiatives in 2022.


Money launderers will always keep pace with advances in financial technology to carry out illicit activities. However, detecting criminal actions in time will also remain the top priority for all financial institutions that want to strive in the existing circumstances.

Despite all the challenges, it’s vital to develop a robust AML framework to track down, detect and stop the potential risk of money laundering and other financial crimes.

And of course, one of the extra perks of the proper framework is that it will help avoid enormous fines and earn the trust of new and existing customers and investors.