Anti-money laundering (AML) and sanctions compliance are two of the most important and challenging areas for financial institutions and other businesses that operate in the global market. AML and sanctions regulations aim to prevent and detect the misuse of the financial system by criminals, terrorists, corrupt officials, and rogue states. However, complying with these regulations is not a simple task, as it requires constant vigilance, adaptation, and investment.
In this article, we will explore some of the recent trends and developments in AML and sanctions compliance, and how businesses can prepare for the future challenges and opportunities in this field.
Increased Regulatory Scrutiny and Enforcement
One of the main drivers of the evolution of AML and sanctions compliance is the increased scrutiny and enforcement by regulatory authorities across the world. According to a 2021 survey by Norton Rose Fulbright, 71 percent of financial institutions across the globe reported increased regulatory scrutiny in 2020, and 81 percent expected this trend to continue in 2021 and beyond.
Some of the factors that contribute to this heightened regulatory attention include:
- FATF mutual evaluations, which assess the compliance and effectiveness of countries’ AML and counter-terrorist financing (CTF) regimes.
- The growth of cryptocurrency and fintech services, which pose new risks and challenges for AML and sanctions compliance.
- The continuous pressure by US regulators on financial institutions, especially non-US-headquartered ones, for both AML and sanctions compliance.
- The legislative changes in AML laws across the globe, such as the EU’s Sixth Anti-Money Laundering Directive (6AMLD) and the US’s Anti-Money Laundering Act of 2020 (AMLA 2020).
- The intensified use of the US sanctions regime for geopolitical purposes, such as targeting Iran, Venezuela, Russia, China, and North Korea.
The consequences of non-compliance with AML and sanctions regulations can be severe, ranging from hefty fines to license revocations, reputational damage, and criminal prosecution. For example, in 2020, Goldman Sachs agreed to pay more than $2.9 billion to settle charges related to its role in the 1MDB scandal, which involved money laundering, bribery, and sanctions violations.
Increased Cost and Complexity of Compliance
Another major challenge for AML and sanctions compliance is the increased cost and complexity of compliance. According to the same survey by Norton Rose Fulbright, 67 percent of financial institutions reported spending increases on AML and sanctions compliance over the past 12 months, and 74 percent expected an increased spend over the next 12 to 24 months.
Some of the factors that contribute to this increased cost and complexity include:
- The need to update and enhance the policies, procedures, systems, and controls to comply with the evolving regulatory requirements and expectations.
- The need to collect and analyze more data and information from various sources, such as customers, transactions, third parties, and public records, to conduct effective customer due diligence, transaction monitoring, sanctions screening, and risk assessment.
- The need to train and retain qualified and experienced staff to perform the AML and sanctions compliance functions, such as compliance officers, analysts, investigators, and auditors.
- The need to respond to and cooperate with the regulatory inquiries, investigations, audits, and enforcement actions, which can be time-consuming and resource-intensive.
The Role of Technology and Innovation
Despite the challenges, AML and sanctions compliance also offer opportunities for technology and innovation. Many financial institutions and other businesses are leveraging new technologies and solutions to improve the efficiency, effectiveness, and agility of their AML and sanctions compliance programs. Some of the examples of these technologies and solutions include:
- Artificial intelligence (AI) and machine learning (ML), which can help automate and optimize the AML and sanctions compliance processes, such as customer identification and verification, transaction monitoring and alert generation, sanctions screening and matching, and risk scoring and classification.
- Blockchain and distributed ledger technology (DLT), which can help enhance the transparency, traceability, and security of the financial transactions, and facilitate the information sharing and collaboration among the participants in the financial system.
- Regtech and suptech, which can help streamline and simplify the regulatory reporting and supervision, and enable the real-time and data-driven oversight and feedback by the regulators and supervisors.
- Cloud computing and data analytics, which can help reduce the cost and complexity of the AML and sanctions compliance infrastructure, and enable the access and utilization of large and diverse data sets and sources.
Conclusion
AML and sanctions compliance are dynamic and evolving fields that pose significant challenges and opportunities for financial institutions and other businesses. To succeed in this environment, businesses need to adopt a proactive, risk-based, and technology-enabled approach to AML and sanctions compliance, and stay abreast of the latest regulatory developments and best practices. By doing so, they can not only avoid the potential pitfalls and penalties of non-compliance, but also gain a competitive edge and reputation in the global market.
