[ad_1]
With the conflict in Ukraine now a year old and showing no signs of ending, it is clear that implementing trade finance document checking technology is now a necessity, not a luxury for banks.
However, from a practical point of view, financial institutions in the Middle East still face cumbersome procedures in terms of compliance checks. Can automation provide the answer? Conpend founder and director Marc Smith and senior solutions architect Mike Rondaij explain these issues to our readers:
Since Russia’s invasion of Ukraine, several countries in the Middle East have increasingly found themselves caught between a rock and a hard place, opting to remain neutral, while Western governments have responded by imposing some of the most complex sanctions packages ever seen.
That’s not to say financial institutions (FIs) in the Middle East have had a smooth ride with the sanctions landscape over the past year. Given that 80-90% of cross-border trade relies on trade finance, the imposition of any international sanctions would have a wide-ranging impact on the trade finance industry as a whole. In fact, as a standard trade transaction goes through multiple compliance checks during its lifecycle, it must comply with the latest sanctions and regulations. Sanctions are therefore not subject to geographical restrictions. Since financial institutions are responsible for the flow of funds and documents that facilitate trade, it is their responsibility to detect and mitigate any ongoing violations – or face serious consequences.
This poses particular regulatory risks for banks and other financial institutions around the world. What’s more, given the number of intermediaries involved in trade and the regulatory complexity of supply chains, detecting sanctions violations and related illegal activities at the bank level can be very difficult.
banks feel the pressure
To navigate this high-stakes, high-stakes environment, banks have had to adapt and enhance their internal processes for screening trade finance documents. Many have responded to the new situation by “self-sanctioning”, and the expectation of further control and public support in Ukraine has prompted many to take a tougher stance than the law requires to avoid reputational damage. Indeed, many banks — including those in the Middle East — have chosen to cut ties with Russian companies to mitigate the risk of damage to their reputations and potential loss of market share, even though they face no sanctions in their home countries.
Another compliance challenge for banks is the use of a new set of sophisticated tactics by fraudsters in an attempt to undermine imposed sanctions, making detection more challenging and burdensome. These tactics include falsification of bills of lading and certificates of origin; front companies that conceal beneficiaries; ship-to-ship (STS) transshipment; money laundering of International Maritime Organization (IMO) numbers, and Automatic Identification System (AIS) transponders used to reveal a vessel’s location manipulation.
As part of this, Know Your Vessel (KYV) has come into the spotlight. As Russian sanctions developed, some ships realized that the Russian (or Russian-related) flag would prevent them from docking, changing flags overnight as they tried to evade the restrictions. This type of “flag-hopping” on ships happens quite often, as criminals use false flags and “flags of convenience” to carry out illegal activities around the world. Determining which ships banks will or will not allow to finance adds yet more red tape to the already onerous workload of compliance teams.
Further compounding the significant sanctions pressure on financial institutions, due to the historically paper-based nature of trade finance, manual checks remain the basis for compliance-related tasks. In fact, modern supply chains contain many stakeholders, and traditional paper documents continue to be exchanged between them—documents often exceeding 100 pages.
Clearly, manual inspections in such a demanding compliance environment are not only impractical, but also risk human error.
Consequently, the growing need to meet the highest levels of compliance in an operationally efficient manner is driving banks to increasingly explore ways of conducting sanctions checks (and all forms of trade finance document checks) that are more efficient and Cost-effective and less labor-intensive.
automation in action
The good news is that technology solutions can accommodate this while being flexible enough to handle documents in all formats—while meeting the regulator’s stringent compliance standards. In fact, if they are to be more efficient, they must take into account the fact that trade finance will inevitably become more and more digital, but paper documents are likely to persist for some time to come.
That’s where artificial intelligence (AI) comes in: digital solutions that use AI and analytics to detect criminal activity and are centered around high-quality, up-to-date data. For banks, choosing to invest in such capabilities can greatly enhance existing compliance processes.
As opposed to manually monitoring and enforcing sanctions updates, AI software can automate these tedious but essential tasks.
Additionally, AI has the ability to expand compliance checks and add multiple dimensions beyond simple sanctions checks. For example, storing and using historical data of previous transactions can detect certain patterns or the likelihood of deviations from those patterns. AI can also perform more sophisticated anti-money laundering (AML) checks for overpricing and/or underpricing, and be able to detect multiple presentations of the same invoice and/or shipping document.
Manual intervention is only required when the system detects anomalies and requires further investigation. And, with software programmed to add new rules to the screening and assessment process in line with the latest sanctions requirements, financial institutions can rest assured that the correct checks are being made.
Not only do these capabilities relieve compliance teams from performing much of the work—at a time when it is becoming increasingly challenging to find experienced compliance professionals to support growing demands—but they also eliminate the need for individuals to maintain Be vigilant about the responsibility and pressure not to let anything slip through. In turn, employees are freed up to handle more value-added tasks, including providing effective support to customers and interpreting, processing, and triaging any alerts from the software.
bigger chance
On a more positive note, the potential applications and use cases in compliance are vast. Take Know Your Customer (KYC) compliance as an example. The often slow, tedious, error-prone manual process of onboarding customers and suppliers is carried out by AI applications, automating and streamlining sanctions and AML screening, identity verification, document certification and due diligence analysis. By delegating these processes to technology, compliance officers and relationship managers are freed up to focus on more value-added, customer-focused functions and address any discrepancies that are identified.
Enhanced KYC methods present an opportunity for many small businesses in the Middle East, where SMEs are the foundation of the economy, to efficiently scale up trading operations while ensuring full compliance with complex regulatory changes.
AI-driven automation is an important step towards a fully automated compliance checking process. This is the future – it doesn’t matter if the supply chain is still paper-based or fully digital, as AI software can seamlessly transition between the two. As for the Middle East, as the trade finance compliance industry continues to grow, the promise of automation is promising, with practical solutions that can transform existing processes and reduce the compliance burden on banks. – trade arab news service
[ad_2]
Source link
