20 July 2022

Speech by Elizabeth McCaul, Member of the Supervisory Board of the ECB, at the conference on “The use of artificial intelligence to fight fi

Europe needs a strong AML authority and framework

Thank you very much for inviting me to this exciting conference on the use of artificial intelligence (AI) to fight financial crime. The recently created Anti Financial Crime Digital Hub is a welcome initiative for pooling resources to combat money laundering and terrorist financing through new technologies and AI.

In 1986, the historian Melvin Kranzberg stated his six laws of technology.^[1] The first is: “Technology is neither good nor bad, nor is it neutral.”

Let me unpack that a bit.

To state the obvious: technology is neither a panacea nor a poison. It is basically a tool that can serve multiple purposes. The proverbial hammer can be used to build a home or to hurt somebody. Chlorine can be used for sanitation but also for chemical warfare. And AI can help identify potentially suspicious transactions but, if used wrongly, it can also undermine fundamental rights such as the right to non-discrimination or privacy.

The challenges and opportunities of digital transformation often go hand in hand. While the digitalisation of banks’ value chains may create challenges for their know-your-customer obligations, machine learning solutions are already helping banks to become more efficient when conducting customer due diligence, identifying ultimate beneficial owners and monitoring transactions.

Technology is fundamentally a human activity. As such, it reflects not only the cultural context of the society in which it is used, but also its biases. Because technology is designed and programmed by humans, it is not neutral, just as our societies are not neutral. One of the most famous examples is the risk of bias in AI, which may lead to discriminatory outcomes if not properly identified, monitored and mitigated.

If you allow me to adapt a popular quote from Shakespeare’s “Hamlet”, I will say that technology is neither good nor bad, but humans make it so.

So, what does this mean for supervisors?

Technological solutions offer the possibility to deliver tremendous benefits and we should be ready to harness them. But any technology solution needs to be buttressed by three pillars: an appropriate regulatory framework, sufficient supervisory oversight and, last but not least, a deep understanding by users – banks and supervisors alike – not only of the potential but also the limitations and risks of new technologies.

Europe needs a strong AML authority and framework

Let me begin with a short overview of where Europe stands in the reform of its framework for anti-money laundering and combating the financing of terrorism, or the AML/CFT framework for short. Following various money laundering scandals in recent years, Europe has embarked on an ambitious endeavour to reform its AML/CFT framework.

Given the high-profile experiences that shined a light on shortcomings in our framework, it is important to fix the gaps we identified. While we are not responsible at the ECB for the supervision of compliance with AML/CFT regulations, as prudential supervisors, we are keenly aware of our responsibilities that arise where AML/CFT compliance failures ultimately create reputational and franchise threats or even threaten a bank’s survival. Deficiencies in a bank’s AML/CFT framework are often symptomatic of deeper structural problems in governance, risk management, and internal controls.

In my view, the proposed establishment of a new European AML authority should build upon some of the lessons learned when creating European banking supervision. These lessons cover three areas.^[2]

SSM

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