Exploring the Hidden Vulnerability in Your Financial Crime Defenses

With the rise of cyber threats and increasingly stringent data protection regulations worldwide, safeguarding the data used in financial crime compliance is under the spotlight. The International Monetary Fund (IMF) reports over 20,000 cyberattacks in the financial sector in the past two decades, resulting in losses amounting to $12 billion. Regulators are tightening their focus, as seen in the recent UK Financial Conduct Authority (FCA) consultation, asking firms how they protect sensitive data that is within or accessed by anti-money laundering (AML) and sanctions screening software.

The Overlooked Vulnerability

While many financial institutions prioritise data protection in customer-facing systems and customer management databases, there’s a critical weak link that often goes unnoticed: the security of customer data within AML and sanctions screening software.

The Potential Consequences

• Increased vulnerability to cyber-attacks and data breaches

• Non-compliance with data protection regulations across multiple jurisdictions

• Risk of significant financial penalties and reputational damage

Consider this: Recent FCA actions against firms for failing to maintain proper customer data protection resulted in combined fines exceeding £3.5 million. Now imagine the potential impact if criminals exploit vulnerabilities in your AML software to access sensitive customer information.

Key Areas of Concern in AML and Sanctions Screening Software

1. Data Acquisition & Storage: 

• Is customer data adequately protected during collection and storage? 

• Does the software meet data residency requirements for different jurisdictions?

2. Data in Transit: 

• Is data robustly encrypted when moving between storage locations and the software?

3. Authentication: 

• How robust are your access controls for the vast amount of sensitive customer data used in AML processes?

4. Compliance with Global Standards: 

• Does your software meet data protection rules and standards across all jurisdictions where you operate?

Meeting Regulatory Standards and Best Practices 

To ensure compliance and mitigate cyber risks, firms must not only comply with regulatory standards but also implement best practices in data security. Key considerations when selecting AML and sanctions screening software should include:

• Authentication: Does the technology offer secure authentication for users and APIs, such as OAuth 2.0 and seamless Single Sign-On (SSO) with your firm’s identity provider?

• Encryption: How is data encrypted both in storage and transit? Leading practices include AES-256 encryption at rest and TLS v1.2 for data in transit.

• Data Sovereignty: Does the software adhere to local data residency regulations? Cloud-native platforms should offer deployment options in multiple regions, ensuring compliance with jurisdiction-specific data requirements.

• Compliance with Data Standards: Ensure the software follows the latest data security standards, such as ISO/IEC 27001-2022, ensuring the integrity, confidentiality, and security of customer data.

The Stakes Are Higher Than Ever Before

As regulators become increasingly data-savvy, financial institutions should be prepared to demonstrate that their use and storage of customer data in AML and sanctions screening software meets strict compliance criteria. Moreover, firms aiming to showcase their commitment to countering cyber risks and protecting customer data should look beyond mere compliance and implement industry best practices.

The Bottom Line

The intensifying regulatory focus on data security within AML and sanctions screening software demands immediate attention. Your AML and sanctions screening software cannot become a backdoor for cybercriminals to access sensitive customer information. It is time to take a critical look at your financial crime compliance tools. Are you confident they are providing the level of data protection your customers deserve and regulators demand?