The past year has been an active one in the realm of anti-money laundering (AML) compliance.
Digital payment systems have taken the world by storm, regulators are identifying ways to combat new forms of fraud, and the U.S. government issued “the first government-wide priorities for anti-money laundering and countering the financing of terrorism policy,” aimed at enforcing AML laws more proactively.
Despite regulators issuing billions of dollars in AML-related fines to financial institutions in 2021, it hasn’t been enough to lower fraud rates. As a result, new compliance updates are expected in 2022. And while it is uncertain of how things will play out over the next few months, there are a few trends in AML compliance that we can identify today.
Top 3 AML Trends for 2022
More Stringent Crypto Regulations
Cryptocurrencies have made it easier for bad actors to hide the source of proceeds from criminal activities and have quickly become the preferred method of payment for cybercriminals.
This trend has become so widespread because cryptocurrency is easy to use, difficult to track, and offers anonymity and the ability to bypass international regulations and borders.
That is why the revised version of the Bank Secrecy Act includes cryptocurrency and other digital assets within its scope. Because crypto assets are seen as volatile, they are likely to present a risk for financial institutions that hold them. So, it should not come as a surprise that regulators will continue to enact more stringent laws around these intangible currencies in 2022.
Due to the changes implemented in 2021, virtual currency businesses must register with FinCEN and perform customer due diligence and AML screening as part of a KYC “Know Your Customer” process.
This process prioritizes measures that force those using cryptocurrencies to have an identity and makes it a requirement for any business dealing in virtual assets to abide by AML regulations. Crypto exchanges that fail to do so will face heavy penalties and fines.
More Transparent UBO Laws
There has been a global trend toward transparency over the last ten years. Consistent with that trend was the enaction of the National Defense Authorization Act for Fiscal Year 2021 (the "NDAA"), which included several provisions under its “Corporate Transparency Act,” that now require financial institutions to verify customer information against FinCEN’s Ultimate Business Owner (UBO) registries.
The UBO legislation will require certain financial organizations to file information regarding who the beneficial owner of the reporting company is, along with information that confirms the identity of the person applying to register a business.
The goal is to reduce the risk of financial crime by offering increased transparency and insight into who the valid owner of the business is. However, not all nations (like Switzerland, for example) are planning to accept these regulations, which may increase money laundering and other financial crime in these regions.
Increasing Pressure to Adopt More Advanced Software
Regulators have already been putting pressure on businesses in the finance industry to adopt better technology, and there are no signs that this trend will slow down. As a result, we will continue to see the emergence of sophisticated AML compliance and regulation software that boasts high-tech features like automation, artificial intelligence, and machine learning capabilities next year.
According to a recent industry survey by ACAMS, there’s a need to improve the quality of AML investigations and regulatory report filings, as well as a desire to reduce costly false positives.
On top of that, a recent global study found that 57% of the total cost of compliance with financial crime-related regulations is labor, amounting to $103 billion.
This is due, in part, to the fact that more and more analysts are needed to review the increasing volume of alerts from transaction monitoring. Fortunately, software like Unit21 enables risk and compliance teams to immediately see a magnitude decrease in false-positive rates, lowering labor expenses and allowing analysts to focus on the actual cases that require thorough investigation in a timely manner. Save even more time by using an AI-powered predictive scoring solution that prioritizes alerts for your team.
As finance businesses navigate into the future, they will need to implement automated compliance practices to secure their spot in a financial landscape that is continuously influx. The right software can help compliance professionals identify, track, and report on multiple fishy activity based on a set of transaction monitoring rules - including transactions or relationships between customers that the naked eye may miss. It can also help automate part of the reporting process, saving compliance teams hours.
The only way to combat the changing face of financial crime is with AML technology that can be flexible enough to adapt to new threats. In addition, as compliance teams increase in size, the use of AML software allows many of the processes to be automated, which helps lower costs and increase efficiency across the department.
Apart from focusing on better software in 2022, software that can specifically provide artificial intelligence and machine learning will also serve a significant role. In particular, organizations will be investing in these types of solutions because the scale and complexity of financial transactions are becoming too challenging to keep up with on a human level.
As a result, financial institutions, including banks, exchanges, and FinTechs, have been scrambling to incorporate software that features A.I. and machine learning, intending to aid their ability to tackle information overload. Having a robust AML software stack will be more critical than ever in 2022.
The Biggest AML Trends 2022
There is a lot to consider regarding AML trends and typologies. The fight against money laundering and cybercrime has been an arms race since the dawn of the internet. Now more than ever, it's essential to stay up to date.
- Regulators will continue to seek ways to monitor and track transactions using cryptocurrencies. The new regulations around KYC for crypto companies that have been put in place are just the beginning.
- The global trend toward transparency is reflected in the unprecedented provisions made to the Corporate Transparency Act, which now requires the verification of UBOs against FinCEN’s registry. While it may be challenging for financial institutions to verify this information, those who do not will face strict consequences.
- The organization that wields the best software in 2022 wins. Now is the time to invest in an adaptable AML software system that will allow your financial services business to scale AML compliance and fraud detection efforts.
To achieve this, it's best to rely on a fraud and AML solution that stays up to date on rapidly changing compliance regulations. It isn't easy to stay up-to-date; you'll want to build a robust fraud and AML program to make it easier and help you stay on track. Whether you're operating operating a fully functioning Fintech or starting a neobank from scratch, risk and compliance operations are paramount to your success.
Want to learn more about how Unit21 can help your business streamline AML compliance? Schedule a demo today to see our platform in action.