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AML Trends 2021

Stop guessing and start planning with our quick guide to Financial Sector Challenges in 2021

2021 promises to be a highly demanding time for the Financial Sector. As we leave 2020 behind, we’re saying goodbye to an unpredictable year: a year which came to redefine not only the compliance sector but literally everything in our lives.

2020 brought a host of concerns, including the need to further digitalise compliance processes during a time of heightened financial crime. Regulatory bodies demanded the strengthening of efforts to ensure the transparency of customer data, and corporations found it difficult to cope with the complexity of both such screening demands and their cost…

So, with an already challenging year behind us, let’s look at an expert breakdown of the key issues we’ll be facing in 2021, and the best-case solutions.

Stricter Fines, Increased Sentencing

Penalties issued by regulatory bodies globally are increasing each year. Back in 2018, $4.27 billion in fines were issued.

In 2019, regulators issued 58 penalties totalling a cool $8.14 billion – twice the number of fines issued in 2018, and nearly double the monetary value.

Then, within the first 7 months of 2020 alone, $5.6 billion in fines was issued – a number which strongly suggests that the period’s number and value of fines will greatly surpass those of any previous year.

And all this happened at a time when we were facing a global pandemic which created uncountable loopholes in the compliance structures of corporations and governments alike, and strengthened financial crime.

It’s no wonder that regulatory agencies, having thoroughly analysed the data, concluded that anti-money laundering measures must be made a whole lot stricter. The European Commission’s 6th AMLD (Anti-Money Laundering Directive) is already in the works (hyperlink to previous article), and we’re now looking at:

  • increased fines issued to legal entities
  • more power to judges, who will be able to exclude businesses from accessing public funding and issue fines to individuals
  • a fourfold increase in the minimum sentence, which will rocket from 1 to 4 years

More Fraud, More Technology

The use of technology in financial crime is an ongoing fight, and the COVID-19 pandemic of 2020 created a wonderful opportunity for criminals.

Suddenly, an overwhelming number of customers were choosing digital banking services. And that meant fraudsters the world over could take advantage of the virtual currencies rise in second-tier jurisdictions such as the Middle East and Eastern Europe, easily accessing systems while remaining untraceable.

Looking ahead to 2021, we’re seeing criminals shift attention towards digital and crypto currencies. As a result, regulator punishments will certainly become stricter, especially concerning transactions. In the coming months, we confidently expect that regulators will focus on:

  • fiat currencies
  • virtual assets
  • pre-paid cards
  • custodian wallets
  • enforcing the KYC requirements

These stricter measures (and their consequent punishments) will drastically expose the limitations of legacy rule-based systems which are unable to adapt. Now, more than ever, Machine-Learning Enhanced AML Tools will become an absolute necessity.

The utilisation of this software – which detects transactional behaviour and pre-analysed patterns by assessing immense amounts of data and providing accurate and fast results – will be the only way for companies operating in the Financial Sector to cope with the coming strictures.

The Compliance Challenges of Client Onboarding

We’ve already touched on the colossal number customers who – since the start of the pandemic – have been forced to switch to digital financial services. But let’s take a look at the other side of this equation: the compliance officers.

With so many more people now preferring online services (a phenomenon that emerged after the pandemic affected in-store services), client onboarding has become a mountain of a task for compliance officers. The newly introduced regulations will further increase the complexity of onboarding new clients, and many compliance officers will struggle to ensure a fast and frictionless process. 

Onboarding is the very first interaction any firm will have with its potential clients and, as more and more clients choose to digitally onboard, it has become vital that firms are able to deliver a smooth, effective onboarding process. In 2021, this must include:

  • being able to onboard large numbers of clients
  • staying in line with the regulatory agencies
  • providing an exceptional journey

As we move into the brave new world of 2021, firms need to find a solution to these onboarding issues, ensuring that the collection of client data is fully compliant with KYC & AML requirements and support the account opening process. The answer will come in the form of technologically advanced solutions to their compliance structure: state-of-the-art solutions which – like those offered by iSPIRAL – are continuously enriched with technologies such as machine learning and advanced analytics, and are able to adapt to any situation.

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