Author(s): Shenggang Li

Originally published on Towards AI.

A Practical Guide Combining Causal RL, and Thompson-Sampling for Watch-List Prioritization and Peer-Group Outlier Detection

Anti-Money Laundering (AML) operations are facing a dual challenge: growing regulatory pressure and increasing transaction complexity. Traditional rule-based systems — such as fixed watch-list filters and static thresholds — are becoming costly and ineffective, generating high false-positive rates and missing sophisticated patterns like smurfing chains or dormant-to-active account spikes. Meanwhile, banks are under pressure to balance compliance with operational efficiency, ensuring every alert and every Suspicious Activity Report (SAR) brings measurable value.

This paper introduces a reinforcement learning (RL)–driven framework for AML, using Causal RL and Thompson-Sampling bandits, enhanced by unsupervised clustering techniques like HDBSCAN. It shifts the paradigm from reactive rules to a proactive learning model, dynamically improving decision-making to decrease false positive alerts and optimize investigation efforts, thereby balancing risk with operational efficiency while maintaining compliance with regulatory standards.

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Published via Towards AI