Setting Your Compliance Priorities for 2023 – A Look Back at 2022

The total value of fines issued by global regulators to financial institutions (FIs) and individuals during 2022 hit their lowest in recent years*. 

Regulators Issued Lower Value Fines in 2022 than in Previous Years

As the world emerged from two years of disruption caused by the COVID-19 pandemic, penalties issued in 2022 amounted to just over $4 billion ($4,188,204,721). This is considerably less than the previous two years. In 2021, $5.4 billion of fines were issued, while 2020 saw record fines of $10.6 billion. So, the total fine value in 2022 was 22% less than 2021, and just 39% of the levels of fines served in 2020. 

Most of the total fine value – around $3 billion of it – was served by the United States, including the single largest penalty (just over $1.2 billion), which was handed to one of the Nordic region’s leading FIs. This fine was in relation to activities prior to 2018. 

AML and KYC Breaches are the Biggest Threat for Compliance and Risk Management

Enforcement actions for Anti-Money Laundering (AML) related regulatory breaches made up nearly all (99.28%) of the fine values in 2022. Combined, these totaled just over $4.15 billion, an increase of 52% from the $2.7 billion** of fines issued solely for AML breaches in 2021. 

Notably, fines to individuals rose to more than $31.2 million in 2022, compared with just over $16.5 million in 2021. Similarly, fines issued to crypto-related FIs and their employees nearly doubled, rising 92% from 2021 to reach almost $193 million. 

In our annual research report, Fenergo explores the stories and trends behind global enforcement activity during 2022. We also look ahead to some of the potential trends for enforcement, regulation, and the financial services industry in 2023.

Financial Institutions Appear to be Getting Better at AML and KYC Compliance 

If we look at 2022 purely in terms of the global fines total, it seems like an unremarkable year for financial institution enforcement actions. However, considering how many fines have been issued worldwide, activity is up significantly. 

Fines appear to be having the desired effect of incentivising FIs to identify and prevent financial crimes in their banking systems. If we take the largest fine out of the picture - $2.1 billion issued to a Nordic bank - we see a trend which suggests better practice across the whole industry. 

We can credit much of the fall in fines issued to FIs to better reporting frameworks, assisted by automation of many of the processes around AML and Know Your Customer (KYC). While KYC and other compliance areas, AML or otherwise, have often been seen as a cost center, we are now seeing that investment pay back in terms of avoiding fines and potential loss of business due to reputational damage.

American Regulators Issue the Highest Fines for Compliance Breaches

More than half of the total fine value issued in 2022 came from just two $1 billion-plus fines, with the US once again being the most stringent enforcer of financial penalties. Numerous smaller fines distributed across other jurisdictions point to regional regulators getting more active in cracking down on financial crime. 

Crypto and International Sanctions Will be 2023’s Biggest Financial Crime Risk Factors

Another significant component of 2022 was the further integration of cryptocurrencies into the traditional financial ecosystem. As finance continues to evolve, technology will continue to play a key role in the prevention of financial crime. 

In the report, Fenergo explores the trends influencing enforcement action across the world and look ahead to what 2023 might bring, especially given the raft of sanctions imposed on Russian individuals and companies since the invasion of Ukraine and the wider implications for global finance. 

Analysis of enforcement actions data is key to helping your organization take steps to better detect and avoid the risks of financial crime.

What to Expect from Financial Crime Regulation and Law Enforcement Trends

Fenergo’s 2022 research into financial institution fines highlights that the traditional regulatory challenges of AML, KYC and sanctions still dominate the enforcement landscape. However, we are seeing developments in emerging areas such as Environmental, Social, and Governance Reporting (ESG) and digital assets, which are set to increase in the coming years. 

In previous years, the total amount of fines issued across the world has been boosted by one or two significant incidents. We have seen only two such billion-dollar incidents in 2022, which could be due to the pressures on regulators, or it may be a sign that the financial sector is getting better at ensuring reporting and compliance. We should also bear in mind that some investigations that may have been delayed by COVID-19 could filter through into 2023’s enforcement actions. 

The financial sector is increasingly turning to technology to address the compliance challenge they face. For example, nearly seven in ten (68%) financial sector decision-makers include technology for automation in their KYC budget priorities.

For Effective Financial Crime Risk Management, AML and KYC Must be Automated

By accelerating the digital transformation of AML/KYC operations, FIs can gain a clear understanding of the risks presented by entities and individuals throughout their lifecycle. This will be crucial as firms navigate increasingly complex sanctions and regulatory frameworks in today’s turbulent socio-political and economic climate. 

Taking advantage of the power of automation will also allow Money Laundering Reporting Officers (MLROs) and Heads of Compliance to adopt a risk-based approach to compliance while ultimately protecting the business from enforcement action. 

At Fenergo, we are committed to developing CLM technology solutions that enable financial institutions to automate AML/KYC processes and remain compliant in multiple jurisdictions. 

*Although the total global fines levied against financial institutions were lower in 2022 than in 2021, the dollar value for purely AML and CFT-related fines increased.
**Excluding the $2.1 billion in enforcement actions for tax fraud.