ISO 20022 in Anti-money laundering Parlance


The Indian economy is reliant on banks. As a result, the financial sector is the most susceptible to deception. In India, financial fraud has become more common. Scams in India have ranged from digital fraud to traditional loan mortgage fraud.

Technology is growing at a tremendous speed these days. Consumers may now access all possibilities over the internet thanks to technological improvements. Technological advancements aid in the expansion of the financial sector.

The growth of the banking sector has brought with it new money laundering threats. Hence, money laundering crimes have increased due to the increase in the use of mobile devices.

What is Anti Money Laundering?

Money Laundering is the process of demonstrating the source of money gained through illicit means as normal income. Payments from criminal operations are made in cash. It is difficult to spend unlawful income freely and swiftly. Instead of depositing big sums of money in one bank at a time, criminals deposit tiny sums over time. Smugglers transport funds generated illegally to countries where money laundering is not a crime.  They transport money where regulations are not aggressively enforced. As a result, this approach washes money and allows crooks to hide their tracks. Therefore, money laundering is a serious crime.

Anti-Money Laundering (AML) includes policies, rules, and regulations. These are designed to prevent financial crimes. AML is a global acronym for preventing money laundering. To prevent financial crimes, global and local authorities are created around the world. All these agencies develop AML policies. Companies must follow these AML regulations, but doing so can be a difficult task. Companies have AML compliance departments in place to ensure AML compliance.

Additionally, there are different money laundering methods. These methods grow and evolve as technology advances. According to the IMF, the global money-laundering rate ranges between 2% and 5% of global GDP. This percentage equates to a massive portion of the world’s total money. Global and local regulators have issued new anti-money laundering directives. These directives help to reduce the harmful impacts and damages of money laundering. It also helps in the discovery of financial offenders.  Hence, these rules are known as anti-money laundering regulations (AML).

What Is ISO 20022?

Since banks and financial organizations are preparing to migrate their payment systems. They want to switch from the old system to the new and data-rich ISO 20022 standard. By 2025, it will be the universal standard for all payments systems. It supports 80 percent of transaction volumes of the world. And also contributes to 87 percent of transaction value globally.

ISO 20022 was initially introduced in 2004. It is an international standard for electronic message relaying between financial organizations. It was designed to provide the financial industry with a standardized platform. This platform is responsible for sending payment messages and sharing payment data.  It does this by utilizing various software and techniques. It uses central vocabulary, a standard modeling technique.  Therefore, they use several Extensible Markup Language (XML) and Abstract Syntax Notation (ASN.1) protocols.

ISO 20022 In Anti Money Laundering

ISO 20022 is a standard for electronic data transmission between financial institutions. It describes a metadata repository containing descriptions of communications and business processes. Additionally, it also contains repository content maintenance procedures.

These standards enable consistent data gathering and tracking. This will help secure payments, transaction banking, as well as risk management. It helps in fighting financial crime. Hence,  it also helps in anti-money laundering (AML), technology, and product development.

ISO 20022 aims to remove many of the impediments that now slow down and cost global payments. These are the same impediments that are currently complicating compliance.

Increased automation and speed are part of the core of rationalizing ISO 20022. Process automation requires Artificial Intelligence and Machine Learning. It will reduce friction throughout the payment lifecycle.

Financial crime is a challenge

In recent years, there is an increase in the number of requirements for sanctions screening and anti-money laundering (AML).  The US Office of Foreign Assets Control’s expanded use of sanctions (OFAC). Non-compliance can have serious ramifications.

OFAC penalized corporations across the globe for about $1.3 billion for violating sanctions programs. It also penalizes for facilitating money laundering through its operations.

Transaction screening and account screening solutions are critical in assisting businesses. They are critical in combating illicit behavior. These solutions, however, are only as good as the data that powers them. Even the greatest filtering solutions are hampered by inconsistent formats and omissions. This allows financial crime to occur despite the best intentions.

Increasing Transparency

Financial crime can be enabled by obfuscated, misleading, or insufficient data. This makes screening systems incapable of flagging alerts or detecting illegal activities. The traditional payment format contains insufficient information from counterparties. It makes it difficult to evaluate.  For example, whether a client’s name matches a sanctioned company or not.

It provides more specific information on all parties participating in payment. This will not only speed up payments but will also boost transparency.  This helps in improving sanctions screening. It will assist organizations in better detecting and preventing financial crime.

The standardized structure of ISO 20022 messages makes it easier to transmit information. Hence, this helps institutions’ AML and sanctions screening activities.

Improving Efficiency and Consistency

Additionally, the ability to add features and data points to payments messages increases openness. It also allows crime screening technologies to provide more accurate and relevant alerts. Teams can devote more time and effort to actual matches and high-risk alerts. Hence, this will protect them from digging through large numbers of false positives.

Furthermore, organizations must continue to take steps to confirm beneficiary information. ISO 20022 allows for the inclusion of extra information to payments. Organizations must stay disciplined in their approach to validation. Therefore, payment misrouting is a real concern.

Better control of cash and liquidity risks

ISO 20022 additionally improves the visibility of payment traffic inflows and outflows. It happens due to enhanced payment data granularity, faster payment processing, and reconciliations. Treasury services will have improved visibility over cash and a real-time view of liquidity flows. This will help them in more accurate forecasting. Therefore, organizations can take a more nimble approach to manage and control their liquidity.