Exploring Anti-Money Laundering Regulations & Fines

Financial criminals are continually becoming more sophisticated in their money laundering methods and operating within increasingly complex networks. As a result, anti-money laundering (AML) regulations and enforcement actions are more stringent, hitting financial institutions (FIs) with large fines when money laundering risk has been missed.

Great strides are being made around the world to clamp down on financial crime. However, FIs continue to struggle with ineffective AML systems and manual processes, requiring huge compliance teams and unsustainable costs. The good news is, emerging AML solutions are better than ever at improving compliance with AML regulations. By identifying suspicious activity more intelligently, FIs will be better equipped to detect and mitigate financial crime risk.

AML Regulations and Guidance Across the Globe 

The past few years have seen a rapid rise in regulatory pressures across the globe. While countries face diverse business environments and challenges, AML regulations and compliance standards provide a framework to build effective systems to help combat money laundering.

In 2019, the Wolfsberg Group released global guidance on AML efforts in its Statement on Effectiveness. The guidance recognized that no two FIs are the same and each financial crime program should specifically focus on whether its efforts are effective in achieving the overall goals of the global AML risk management regime.

The European Union’s AML Directives are used as a mechanism to harmonize legislation across its member states and is now on its fifth iteration. 5AMLD introduced new legal requirements for cryptocurrency and beneficial ownership. In the U.S., FinCEN’s CDD Rule enforces legal entity beneficial ownership identification and verification, applying substantial customer data requirements on FIs.

Against this backdrop, governments around the world are more aggressively enforcing current regulations to expose dangerous entities, persons and political regimes. FIs must keep pace with the developing AML regulations and should consider opportunities to utilize new technologies to enable more effective and efficient financial crime detection.

Failure to Comply with AML Regulations Result in Significant Fines

Enforcement actions and penalties for non-compliance with AML regulations have been increasing. In 2019, there were 58 AML penalties globally, totalling US$8.14 billion, – double the number of penalties in 2018. Consequences for FIs failing to meet AML regulations include harsh fines, reputational damage, diminished market value and loss of consumer confidence.

In April 2019, NYDFS, New York County (Manhattan) District Attorney, U.S. Department of Justice, the Federal Reserve, Office of Foreign Assets Control enforced one of the largest fines to date of $1.3 billion for failures in sanctions controls.

Other recent enforcement actions include:

Many enforcement actions cite AML control deficiencies including:

• Ineffective risk-based frameworks and monitoring systems
• High rates of false positives
• Lack of internal sanctions controls
• Insufficient resources devoted to alert investigations
• Incomplete or missing customer and transaction data
• Inadequate reviews and reporting of suspicious activity

By investing in new AML compliance technology, FIs can automate lengthy manual processes, better detect suspicious activity by reducing false positives and improve the overall analysis of risk.

Innovation Meets AML Regulations

Historically, AML regulations have restricted FIs from experimenting with new and emerging technologies. However, as regulators have recognized the benefits of technology in combatting financial crime, they have been working closely with FIs to improve AML risk management.

In the UK, the Financial Conduct Authority (FCA) has pioneered several initiatives including collaboration between technology and compliance experts to discover actionable, technology-driven solutions to help combat AML compliance challenges. Similar collaborative tactics have been emulated by other regulators around the word such as the Monetary Authority in Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) establishing vibrant innovation ecosystems.

In the US, numerous regulatory agencies are launching pilot programs and other broad initiatives to push for innovative approaches and exploring new technology that can effectively and efficiently combat money laundering and crime. By implementing innovative approaches to AML, FIs will be equipped to efficiently comply with AML regulations and optimize AML monitoring and investigations systems to enhance financial crime detection and mitigation.

Adapting AML Systems to the Evolving Regulatory Landscape

Every day, we see new financial crime threats and AML regulations will continually evolve to protect the world from financial crime. FIs play a huge role in preventing financial crime. New and emerging technologies can help improve AML risk management by delivering greater intelligence, more focused risk analysis and coverage, and more effective and efficient AML systems.