A new report by ThetaRay, co-authored by EU regulatory expert Prof. Andrea Minto and ThetaRay’s Vice President of Regulatory Affairs Yaron Hazan, warns that Europe’s anti-money laundering (AML) system is at a breaking point and cannot sustain the demands of the region’s evolving regulatory landscape without widespread adoption of advanced AI technologies. The study, titled “Next-Generation AML Solutions: An Analysis of AI-Based Tools vis-à-vis the Reform of the European AML Institutional and Substantive Architecture,” underscores that legacy AML systems—reliant on outdated rule-based models—are fundamentally unfit for today’s complex financial crime environment. Despite increased budgets and stronger enforcement, the report reveals that Europe’s AML framework continues to suffer from high false-positive rates, poor alert-to-intelligence conversion, and fragmented, siloed operations. These inefficiencies stem from systems that lack cross-border visibility and the ability to detect sophisticated, networked financial crime patterns. The authors argue that two major EU regulatory developments—the AML Package and the Artificial Intelligence Act—collectively mark the most significant shift in AML compliance expectations in decades. The AML Package strengthens due diligence requirements, expands governance obligations, and establishes the new EU-level Anti-Money Laundering Authority (AMLA) to harmonize enforcement across member states. Simultaneously, the AI Act classifies transaction monitoring and sanctions screening as “high-risk” AI applications, imposing strict rules on transparency, human oversight, data governance, and model lifecycle management. The report highlights growing vulnerabilities in correspondent banking and crypto-asset flows, where traditional systems fail to detect hidden transaction networks across complex cross-border chains. It also warns of mounting tension between the AML Regulation (AMLR) and GDPR data protection rules, creating potential legal and regulatory conflicts for financial institutions without clear guidance. Yaron Hazan emphasized that the current model of rule tuning, manual investigations, and defensive reporting is no longer effective. “Failing to adopt AI will become a compliance vulnerability under the new regime,” he said. “Institutions must transition from volume-driven alerting to intelligence-led detection.” Prof. Andrea Minto stressed that technological capability is now a legal obligation. “The AML Package and the AI Act make clear that integrating AI into customer due diligence and AML monitoring is inevitable. Financial institutions must prepare for a world where compliance and technology are inseparable.” The report calls for a strategic shift toward hybrid human-AI oversight, robust data governance aligned with the AI Act, explainable and transparent models, and integrated workflows that connect customer and transaction screening. It positions AI not as a mere tool for efficiency, but as a core component of future compliance resilience. ThetaRay, a global leader in Cognitive AI for financial crime compliance, provides SaaS solutions that help institutions move beyond the limitations of rule-based systems. Its technology enables faster implementation, reduces false positives, and delivers actionable insights by uncovering hidden criminal networks. Deployed by major financial institutions including Santander, Clear Bank, Mashreq Bank, Payoneer, Onafriq, and Travelex, ThetaRay helps organizations meet regulatory demands while enhancing operational efficiency and customer experience.