An exclusive article by Fred Kahn

The global financial ecosystem is undergoing a profound transformation as real-time and instant payment systems become the new norm. From SEPA Instant Credit Transfer in Europe to FedNow in the United States and the RTP network in the UK, instant payments are now widely available for both retail and corporate transactions. This accelerated movement of money presents new opportunities for consumers and businesses but also creates significant challenges for anti-money laundering (AML) frameworks. Historically, AML controls have relied on batch processing for transaction screening, allowing time for complex risk assessments and manual intervention. As payments now clear within seconds, the need for real-time payment screening has emerged as a non-negotiable requirement. Financial institutions, regulators, and technology providers are being pushed to innovate, adopting real-time risk scoring, automated interdiction, and advanced analytics to keep up with the pace of financial crime.

Why Instant Payments Demand Real-Time AML Controls

Traditional AML monitoring has often depended on batch-based screening, where transactions are accumulated and assessed in intervals, sometimes hours or even a day after execution. This system has provided a comfort buffer, enabling investigation teams to flag suspicious transactions, apply sanctions screening, and evaluate risks in a more controlled environment. However, the rise of instant payments is rendering this model obsolete. With billions flowing every day through schemes like SEPA Instant, Singapore’s FAST, India’s UPI, and the US’s RTP and FedNow, criminals are quick to exploit the time lag and limited visibility inherent in batch screening.

The main risk lies in the speed: once a payment leaves the sender’s account, it may be irretrievable, making post-factum investigation useless. Fraudulent actors, money launderers, and terrorist financiers can execute multi-jurisdictional schemes in seconds, moving funds beyond the reach of authorities. Regulators are acutely aware of these risks. The Financial Action Task Force (FATF), through its guidance on digital transformation and the mitigation of new payment risks, urges financial institutions to adopt technologies capable of delivering real-time transaction screening and interdiction.

The European Union has responded with specific requirements under the revised Wire Transfer Regulation (Regulation (EU) 2015/847) and the forthcoming Payment Services Regulation (PSR). These legal instruments call for immediate and continuous screening against sanctions and watchlists, without interruption to payment flow. The United States, through its Office of Foreign Assets Control (OFAC) and FinCEN, expects similar diligence for all payment rails, including those settling in seconds.

Tools Powering Real-Time Risk Scoring and Interdiction

The rapid pace of instant payments has triggered an arms race among technology vendors to deliver the tools required for real-time AML. Three main technological pillars are supporting this transformation: real-time screening engines, automated interdiction workflows, and machine learning-powered risk scoring.

1. Real-Time Screening Engines:
   These systems intercept payment instructions at the moment of initiation, screening them against updated sanctions lists, politically exposed person (PEP) databases, and internal blacklists. Unlike batch processing, these engines must operate within milliseconds to avoid delaying the payment. Solutions such as Firco Continuity, Dow Jones Risk & Compliance, and Accuity’s real-time filters have become standards, offering APIs for integration with instant payment platforms.
2. Automated Interdiction Workflows:
   If a payment triggers a risk flag or matches a sanction, it must be stopped or “held” before funds are debited or credited. Automated workflows route alerts to investigators or apply preset rules to block, reject, or further scrutinize transactions. This requires deep integration with the core banking and payment systems, ensuring that legitimate payments are not unduly delayed, while suspicious transactions are halted instantly.
3. Machine Learning and Behavioral Analytics:
   The adoption of artificial intelligence is accelerating, but unlike the generic AI buzz, the focus is now on specific, explainable models capable of flagging anomalies, detecting mule accounts, or identifying typologies associated with instant payment fraud and money laundering. These models are trained on massive, real-time data streams and must provide both speed and explainability to satisfy regulatory scrutiny.
4. API-Driven Architecture and Cloud Deployments:
   Open banking and payment modernization initiatives have prompted financial institutions to adopt API-first solutions, enabling seamless integration and scalability. Cloud-native deployment ensures systems can scale to handle the volume and velocity of instant payments, with resilience and failover capabilities to prevent downtime.

Key Challenges in Transitioning from Batch to Real-Time AML

Adopting real-time AML controls is not just a matter of buying new software. Financial institutions face an array of operational, regulatory, and technical challenges as they attempt to modernize their AML environments.

1. Latency and False Positives:
   A central technical challenge is minimizing latency. Instant payment schemes typically require funds to be cleared within two to five seconds. Any friction or delay could result in service-level breaches, customer dissatisfaction, and even regulatory penalties. At the same time, the risk of false positives—innocent transactions flagged for further review—must be tightly controlled. Excessive false positives can clog investigation queues and create friction for legitimate users, potentially leading to loss of business.
2. Legacy System Integration:
   Many banks still operate with legacy core banking systems that were never designed for real-time processing. Integrating modern real-time screening solutions often requires complex middleware or even a full replacement of aging systems. This process is expensive, risky, and time-consuming.
3. Data Quality and Enrichment:
   Real-time screening is only as good as the data provided. Missing or poor-quality sender or beneficiary information, such as incomplete names or addresses, can lead to inaccurate screening and increase both false negatives and positives. Data enrichment tools, which leverage external databases to fill in gaps, are becoming critical for successful real-time AML.
4. Regulatory Harmonization:
   Global financial institutions must comply with varying AML, sanctions, and KYC regulations across multiple jurisdictions. Each market may have its own definitions of instant payments and its own requirements for sanctions screening or suspicious transaction reporting. Harmonizing these requirements in a real-time environment is a significant compliance burden.
5. Customer Experience and Friction:
   End users expect instant, hassle-free payments. AML systems must be invisible when everything is in order but instantly effective when stopping criminal activity. Striking the right balance between compliance and customer experience is a constant challenge for product teams and compliance officers alike.
6. Resource Allocation and Talent Shortage:
   Real-time alert handling often requires a shift in the skills and staffing of AML investigation teams. Institutions may need to reengineer their operational model, moving from batch-style overnight reviews to 24/7 coverage. This change places new demands on both human resources and technology budgets.

Implications for Financial Institutions and the AML Landscape

The move to real-time payment screening is fundamentally altering the way financial institutions approach AML compliance. The implications are far-reaching, with both positive outcomes and new risks to manage.

1. Shift Toward Proactive Risk Management:
   Real-time AML screening enables a more proactive stance, allowing institutions to prevent financial crime rather than reacting after the fact. This shift helps reduce financial losses and reputational risk, which can be devastating in the event of a publicized AML failure.
2. Regulatory Scrutiny and Enforcement:
   Regulators worldwide are stepping up their expectations around real-time controls. The European Banking Authority (EBA) has emphasized the need for instant payment risk mitigation in its guidelines on the prevention of money laundering and terrorist financing (see EBA/GL/2022/05). The US has similar expectations for real-time screening in the context of FedNow and RTP. Regulatory fines and enforcement actions are increasingly tied to failures in real-time detection, rather than batch-based shortcomings.
3. Increased Demand for Vendor Solutions:
   Technology providers specializing in real-time AML are experiencing significant growth, as financial institutions rush to upgrade their legacy platforms. Vendors are offering increasingly sophisticated solutions, often leveraging SaaS and cloud-native deployments, to address both the scale and complexity of real-time risk management.
4. Innovation in Analytics and Data Sharing:
   As instant payment schemes expand, collaboration and data sharing between banks, fintechs, and regulators are becoming more common. Shared databases for transaction monitoring and typology libraries are helping institutions detect cross-institutional patterns that would otherwise go unnoticed.
5. Emergence of New Risks:
   Criminals are innovating in parallel, exploiting vulnerabilities unique to instant payments, such as synthetic identities, mule accounts, and account takeover fraud. Real-time AML solutions must be dynamic, capable of evolving in response to new criminal techniques and regulatory updates.
6. Operational Transformation:
   The shift to real-time requires new operating models for compliance teams, including 24/7 coverage, automated case triage, and advanced training for investigators in instant payment typologies.

Conclusion: Real-Time AML Screening Will Define the Next Era of Compliance

Financial crime is evolving alongside advances in payments technology. The acceleration of instant payment schemes means that traditional batch-based AML controls are no longer fit for purpose. Real-time payment screening is now essential for effective financial crime prevention. Institutions that fail to adapt will face heightened risk of regulatory action, financial loss, and reputational harm. The transition is complex, requiring investment in technology, operational redesign, and a renewed focus on data quality. Those who succeed in deploying effective real-time AML controls will not only protect themselves but also set new industry standards for compliance in the digital age.

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Related Links

• EBA Guidelines on Money Laundering and Terrorist Financing Risk Factors
• FATF Guidance on Digital Transformation of AML/CFT
• Regulation (EU) 2015/847 on Information Accompanying Transfers of Funds
• US FinCEN Guidance on Real-Time Payments
• UK FCA Financial Crime Guide

Other FinCrime Central Articles About New Challenges Related to Instant Payments

• Penalties Reveal Specific AML Gaps at Major Singapore Payment Institutions
• Visa to acquire AI-driven payments protection firm, Featurespace
• AML fines Europe: a costly wake-up call for PSPs and EMis

Curious to understand which vendors offer payment screening? Take a look at the FinCrime Central AML Solution Provider Directory.

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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