U.S. financial institutions continue to lead in fines, paying out 83% of the total penalty dollars, despite being cited for only 10% of the world’s regulatory violations.
NEW YORK, LONDON, DUBLIN – AUGUST 24, 2023 – Fenergo, the leading provider of digital solutions for client lifecycle management (CLM), today released its half-year annual findings on global financial institution enforcement actions, revealing a sharp 88% decline in monetary penalties collected in H1 2023 compared to H1 2022. U.S. financial institutions continued to lead in fines, paying out 83% of the total penalty dollars totalling $157,263,860 despite comprising only 10% of the world’s regulatory violations.
Global financial regulators levied 97 fines in the first half of 2023, totalling $189,098,690 for non-compliance with Anti-Money Laundering (AML) regulations, including Know Your Customer (KYC), and client due diligence (CDD), as well as sanctions violations. In the same period last year, regulators collected $1,576,818,350 in fines from violations across EMEA, North America and Asia Pacific. The second half of calendar years has historically seen an uptick in enforcement actions, but the findings confirm a multi-year trend of decreasing fines, which peaked in 2020 at over $10 billion.
U.S. institutions paid out 83% of world’s monetary fines from only 10% of enforcements.
While the report shows that global actions and monetary penalties are on the decline for the financial sector, US FIs saw their share of fines decrease in value by 45% since last year during the same period. The U.S charted a 44% decrease in total penalties in 2022 over 2021, bucking the global downward trend. Moreover, in 2023, U.S. regulatory agencies have demonstrated a willingness to investigate the world’s most prominent financial institutions, including large individual settlements with Coinbase, Wells Fargo, and BlockFi. The U.S. Federal Reserve and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) hit Wells Fargo with the largest collective fine in the first half of 2023, at $97.8 million.
Commenting on findings, Rory Doyle – Head of Financial Crime Policy at Fenergo, said: “In both periods, we saw several large individual fines that constituted the bulk of the global fines total. Even when removing these individual large fines, there is a decreasing trend in global fines issued in the first half of the year for financial crime regulatory violations. But banks should not assume that regulators are taking their feet off the accelerator. Especially in the U.S., regulators are demonstrating a focus on scrutinizing larger institutions for serious violations, instead of levying enforcement actions on many organizations, no matter the violation.”
While front page SEC enforcements against the likes of Coinbase roiled the cryptocurrency markets earlier this year, fines issued against digital asset institutions only constitute 33% of total global fine volumes. “Regulators across the globe are still trying to finalize regulatory schemes for the cryptocurrency industry, as debates continue about how the space should be regulated,” added Doyle. “This year regulators and policymakers have made it abundantly clear that crypto’s advancement into mainstream financial systems warrants the implementation of guardrails to end to the regulatory uncertainty. I expect the U.S. Treasury could announce additional AML regulations this year to account for gaps in current frameworks.”
Following the pattern of recent years, regulators are showing signs of turning up the heat in the second half of 2023. Already since July, there has been at least $2.65 billion in enforcement and settlement actions levied by regulators in the China, Cyprus, the US, UK, Dubai and Belgium, including a $186 million settlement with Deutsche Bank for AML regulatory violations to US regulators. This trend for harsh penalties in the second half of the year is becoming a common theme as FIs scramble to settle balance sheets ahead of end-of-year reporting.”
Doyle concluded: “Disruptive financial technologies continue to expand the playing field for financial criminals and sanctions evaders. They are also adding myriad complexities for compliance teams and the regulators themselves. Factors like the pandemic investigations backlog may be contributing to the downward trend. But we are also observing that established institutions are pursuing a more rigorous compliance posture and use more automated compliance processes, both out of regulatory necessity and as competitive advantage against other banks.”
For more analysis on enforcement actions in 2022, download Fenergo's Reading Between the Fines report.