Evolving AML Trends: How Global Sanctions and Regulations Impact Compliance Strategies

In recent years, the landscape of Anti-Money Laundering (AML) violations and fines has seen significant developments influenced by global sanctions, regulatory changes, and increased scrutiny by regulators across different jurisdictions.

In 2022, the global fines for anti-money laundering violations and other financial crimes surged more than 50%.

In 2023, the cryptocurrency exchange Binance faced a record-breaking $4.3 billion fine for AML violations.

These fines underscore the regulatory scrutiny of firms failing to conduct due diligence and KYC (Know Your Customer) checks – two critical AML components.

In 2024 and beyond, financial institutions may face challenges that will shape their AML compliance strategies.

1. Enhanced Regulatory Requirements

To avoid the failure of banks, regulators want banks to have capital that matches their actual risk appetite and ensure that banks are accountable for their own financial decisions.

Therefore, the new regulatory requirements proposed by institutions, such as the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), are focused on revising the capital requirements for large banks and financial institutions with assets size of $100 billion or more.

This is to align the banking sector with international capital standards issued by the Basel Committee on Banking Supervision (BCBS) to boost:

• Resilience
• Financial stability
• Risk management capability

2. Focus on Crypto Transactions

The rise of virtual assets and cryptocurrencies demands tailored AML solutions and a collaboration with RegTech solutions providers to address risks associated with crypto transactions. This includes enhanced due diligence (EDD) and real-time monitoring of crypto transactions, which are integral to AML frameworks in 2024.

For instance, the European Union’s Sixth Anti-Money Laundering Directive (6AMLD) and Markets in Crypto-Assets Regulation (MiCA) aim to increase regulatory harmonization, particularly as an oversight for cryptocurrencies and their potential exploitation for terrorism financing and sanctions evasion.

Major banks like HSBC are actively exploring blockchain technology. By leveraging Blockchain, the bank aims to enhance the speed, security, and efficiency of transactions and develop solutions for monitoring and reporting crypto transactions to address the risks associated with digital assets and comply with AML regulations.

3. Advanced Approaches to Uncover Ultimate Beneficial Owners (UBOs)

Financial institutions are adopting advanced data analytics and other emerging technologies to improve the transparency of ownership structures and prevent the exploitation of complex corporate hierarchies for money laundering.

In 2022, the Financial Action Task Force (FATF) in mandated countries to:

• Strengthen the international standards on beneficial ownership of legal persons.
• Ensure greater transparency about ultimate ownership and control.

The United States has also introduced new Beneficial Ownership Information (BOI) reporting rules under the Corporate Transparency Act (CTA).

Beginning January 01, 2024, these rules necessitate certain types of entities to file the beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN).

One of the leading financial services institutions –JPMorgan Chase & Co has been actively updating its processes to comply with the new regulations and incorporating additional due diligence measures to identify beneficial owners of corporate clients.

4. Balancing Compliance and Customer Experience

As customer experience remains crucial, balancing compliance and customer experience will be a key trend in AML strategies for 2024 and the coming years. Financial institutions can leverage emerging technologies, such as artificial intelligence (AI), machine learning (ML), and natural language processing (NLP), to automate and streamline compliance processes.

This will ensure seamless customer interactions for low-risk clients while focusing scrutiny on high-risk customers and meeting critical AML/CFT regulatory requirements

For instance, banks like Wells Fargo have introduced automated systems to streamline AML compliance processes. These systems use AI to perform routine checks, thus speeding up customer onboarding and transactions while ensuring compliance.

5. Cloud-based AML Solutions

There is a shift towards continuous, real-time risk assessment and monitoring using cloud-based AI and machine learning solutions that enable institutions to analyze, identify, and respond to evolving financial crime threats and suspicious activities more proactively.

The popularity of cloud-based AML solutions is growing due to their scalability, flexibility, and security. These solutions allow easy adaptation to changing business needs and ensure secure data storage and analysis.

Goldman Sachs has invested in cloud-based solutions to manage their global operations, taking advantage of the scalability and flexibility offered by cloud computing to adapt quickly to regulatory changes in different jurisdictions.

6. Adapting to Digital Assets and Geopolitical Risks

Digital assets require robust KYC and transaction monitoring systems to track and report suspicious activities effectively. Geopolitical risk awareness also helps banks anticipate and manage cross-border compliance challenges related to sanctions evasion and politically exposed persons (PEPs).

Collaboration between regulators, law enforcement, banks, and financial institutions is necessary to address the new/emerging risks in digital assets and the current geopolitical space.

7. Customer Identification Program (CIP) and CDD in Broker-Dealers

Under the USA PATRIOT Act, financial institutions, including broker-dealers, must establish a CIP as part of their AML programs to verify customer identities and sources of income.

This includes:

1. Implementing robust procedures for verifying the identity of new account holders
2. Conducting due diligence to ensure compliance with AML regulations

Charles Schwab, a leading brokerage firm, has refined its CIP to comply with the USA PATRIOT Act.

Conclusion

The AML landscape in 2024 is characterized by evolving regulations, the integration of advanced technologies, and a focus on dynamic risk management approaches. Financial institutions must stay ahead of these trends to ensure effective compliance and risk mitigation in a rapidly changing environment.

At Anaptyss, we leverage our expertise in areas of AML compliance, ranging from case investigation to AML program audit/design and implementation.

For instance, Anaptyss has helped set up a consultative BSA/AML-focused risk mitigation program for a US-based community bank to meet the FDIC directives.