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Fenergo: Financial Firms Hit With 57% More Financial Fines in 2023 for Compliance Shortcomings

Penalties for financial firms which failed to adequately comply with regulations surged by 57 per cent in 2023; according to Fenergo, the digital solution provider for Know Your Customer (KYC) and Client Lifecycle Management (CLM). 

Fenergo has released their annual financial fines analysis, showcasing that penalties for failing to comply with anti-money laundering (AML), KYC, environmental, social, and governance (ESG), sanctions and customer due diligence (CDD) regulations totalled $6.6billion in 2023, up considerably from $4.2billion in 2022 and $5.4billion in 2021.

The highest value fine of $4.3billion was issued to the world’s largest cryptocurrency exchange, Binance, in relation to AML failings. Binance was ordered to pay the fine to resolve investigations by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC) and the Commodity Futures Trading Commission (CFTC).

Following this Cayman Islands, where Binance is headquartered, also saw the largest regional increase in fines received from global regulators, from just over $3million in 2022 to more than $4.5billion in 2023.

The jurisdictions with the highest penalty totals were the US, which saw an increase of 69 per cent – reaching $5.1billion, the second highest year on record, and China – up from $55million to $1.4billion in 2023.

Regulators in the UK appear to have been more lenient, with its penalties totalling $25.26million, down 86 per cent from 2023.

Crypto and payments firms hit hard

Crypto and payments firms have driven the biggest uptick in fines this year, receiving 69 per cent and 21 per cent of global penalties, respectively. Fenergo also revealed that 2023 has become the first year when crypto and payments firms surpassed traditional financial institutions with regards to the value and severity of financial penalties received for AML breaches.

Rory Doyle, senior financial crime manager of regtech Fenergo, talks fines
Rory Doyle, head of financial crime policy at Fenergo

Rory Doyle, head of financial crime policy at Fenergo, also reacted to the growth in the number of financial fines: “Regulators have clearly had their foot on the accelerator this year, demonstrated by the huge enforcement crackdown on virtual currency providers.

“These findings spotlight a need for more robust frameworks for AML within newer, digital-first providers. That said, firms of all sizes must ensure they are well prepared from a financial crime perspective as regulators prioritise AML/counter financing of terrorism (CFT) in 2024.

“The challenges facing financial institutions this year include the need to plug the growing educational gap, as well as the ongoing shortage of qualified financial crime professionals to conduct effective client due diligence.

“With more work and fewer resources, firms must look to leverage cutting-edge technology to create a centralised financial crime ecosystem – including machine learning and artificial intelligence – to reduce the growing skills gap and, ultimately, mitigate the risk of further enforcement action over the coming 12 months.”

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