Global anti-money laundering (AML) laws and regulations are becoming increasingly strict. As regulators look to keep pace with changes in technology and new methods of illicit activity, they are imposing increasing numbers of fines on firms that fail to comply. As the regulatory landscape changes, ComplyAdvantage looks at how firms can ensure they both understand and comply with AML regulations.
Iain Armstrong is the regulatory affairs practice lead at ComplyAdvantage, a leading provider of AI-driven financial crime risk data and detection technology. The company aims to neutralise the risk of money laundering, terrorist financing, corruption, as well as other financial crime.
Armstrong has held a number of senior compliance roles in major financial institutions, including NatWest, HSBC, and Barclays. Iain also spent eight years working at the UK’s Financial Conduct Authority.
Here, the ComplyAdvantage regulatory leader discusses the importance of understanding regulation, highlights changes in AML regulation, and how firms can ensure they avoid fines in 2023.
Our 2023 global compliance survey asked 800 C-suite and senior compliance decision-makers across North America, Europe, and Asia Pacific if they regularly consider the risk of and/ or choose to incur anti-money laundering (AML) fines and violations concerning their business decisions and compliance investment.
For the third consecutive year, there was a pronounced rise in the number of firms telling us they choose to incur AML fines and make violations “all the time”. This number, 61 per cent in 2020, had risen to 79 per cent by 2022.
The reasons behind this trend are likely complex, but raise an important question: Are firms becoming desensitised to the threat of fines? In this article, ComplyAdvantage will look at global AML enforcement trends and how firms can avoid financial penalties while operating in an ever-changing regulatory landscape.
AML enforcement trends
In 2022, global fines for failing to prevent money laundering and other financial crime surged more than 50 per cent, with many firms, particularly in the UK and the US, committing repeat infractions over an extended period. In total, financial institutions were fined almost $5billion for AML-related violations.
While fines are typically issued several years after AML failings occur, 2022 saw major infractions across four sectors: banking, trading and brokerage, crypto, gambling, and asset management. The violations that received the biggest financial penalties coalesced around a familiar theme: the failure to effectively calibrate AML measures with a firm’s risk profile.
Inadequate customer due diligence (CDD) processes and a failure to monitor politically exposed persons (PEPs) and other high-risk entities were also frequently highlighted by regulators. Resourcing and scaling challenges underpinned many of these infractions, with low compliance staff numbers and legacy systems unable to keep up with business growth.
Upcoming AML regulations in 2023
According to our global compliance report, when asked which area of their compliance function would be at risk in an audit, 48 per cent of firms (the highest proportion) told us it would be their knowledge of regulations. To ensure future audits go as smoothly as possible, compliance staff should be aware of the following upcoming AML regulations and guidance in 2023:
- The European Union will continue to overhaul its AML/CFT regulations as its latest reform package moves through the EU governance process. Additional initiatives likely to come to light in 2023 include new measures targeting environmental crime, a strategy to address de-risking, and action on rising numbers of cross-border money laundering cases.
- The US will continue focusing on three core themes, including strengthening laws and regulations to tackle illicit financial flows; modernising, building, and enhancing regulatory and enforcement frameworks, particularly in the crypto space; and targeting wrongdoers who seek access to the US financial system to launder the proceeds of crime.
- The Financial Action Task Force (FATF) will continue to work towards the priorities set out by the new Singapore presidency in July 2022. Compliance staff can expect upcoming regulations relating to strengthening asset recovery, countering illicit finance associated with cybercrime, and increasing the effectiveness of global AML measures.
Explore more by downloading the Regional Regulatory Trends report today.
How to avoid AML fines in 2023
Given that 79 per cent of ComplyAdvantage survey respondents said they choose to incur AML fines and make violations “all the time”, many firms seem to be experiencing “enforcement fatigue.”
To combat this, compliance officers will need to keep their businesses focused on good outcomes by emphasizing the human, as opposed to financial, cost of financial crime more than ever. Indeed, firms should not be complacent about the longer-term reputational effects of widely-publicized fines and enforcement actions.
To mitigate the risk of incurring AML fines in 2023, firms should:
- Enhance customer screening measures to streamline onboarding processes through automation and exceed regulatory requirements
- Implement a transaction monitoring solution that screens in real-time and can be configured according to different risk appetites for various business flows
- Access real-time global coverage with robust watchlists and sanctions-screening software
- Provide thorough training to compliance staff on AML requirements, including reporting obligations, sanctions/asset-freezing measures, and conducting adequate SOF and source of wealth (SOW) checks