Fenergo recently assembled a panel of experts from across the anti-financial crime community to analyze the regulatory landscape and enforcement actions data from 2022.
The webinar panel comprised:
- James Nurse - Managing Director, FINTRAIL (moderator)
- Rory Doyle - Financial Crime Policy Manager, Fenergo
- Samantha Sheen - Founder and Director, Ex Ante Advisory
- Federica Taccogna - Managing Director, Interpath Advisory
- Wren York - COO, Anti-Human Trafficking Intelligence Initiative
The full webinar is available to watch on-demand, but we’ve summarised some of the most thought-provoking insights from our panel of experts below. They examined key trends, emerging risks, and some of the most compelling issues for compliance officers, sourced directly from our live audience.
Financial Crime and Compliance Enforcement Actions in 2022: The Data
During the session the panel delved into Fenergo’s analysis of enforcement actions data from our annual report, Reading Between the Fines. They also discussed the global financial crime and risk landscape in 2023 and beyond.
The report itself summarises the penalties from 2022 and the fines we've seen over the past twelve months. And what we've seen is that generally fines, and the values of those fines, have decreased by twenty-two percent. But when we specifically look at anti-money laundering (AML) fines, our analysis revealed that they rose by fifty-two percent.
So, whilst fines overall decreased in 2022 since 2021, from an AML perspective these types of punitive measures from enforcement agencies are still very much a hot topic.
The Largest Enforcement Actions by Financial Regulators in 2022
Some of the main headlines examined by the panel included 2022’s main enforcement actions, namely that over half of the year’s total fines amount came from multi-billion-dollar fines issued to two financial institutions.
A Nordic bank was fined an enormous $2.1 billion by US and local regulators, and one of the world’s largest commodities trading companies was fined $1.1 billion – making up more than half of the $4.2 billion in fines issued to financial firms for AML and related compliance failings in 2022.
Enforcement Fines Rose for Crypto Firms, Individuals, and for ESG Compliance in 2022
We also found that fines to crypto firms and their founders were up significantly in 2022, with crypto increasingly coming into both the regulatory and media spotlight. But it's not just digital assets that have been facing increased scrutiny.
The rise in fines for individuals at financial institutions did however rise quite significantly. Looking back at 2021, the total figure stood at around $16.5 million, which rose in 2022 to around $31.2 million - a nearly 100% increase.
Separately, something new to the table that we hadn't seen before was the topic of Environmental, Social, and Governance – also known as ESG, resulting in $5.5 million in fines. These fines are obviously a relatively new category, but it’s fast becoming a mandatory reporting requirement across the globe. So, whilst the actual value of these fines in 2022 was low when compared to AML fines, the panel agreed that ESG seems set to be a growing priority for regulators going forward, and FIs need to be conscious of this.
1) How Can Service Providers Help Banks to Remediate Compliance Breaches and Help Reducing Regulatory Fines?
By collating everything compliance teams need in once place, digitally, to provide a single journey.
Whether it’s onboarding, ongoing transaction monitoring, SAR filing, and offboarding documentation, so that when the regulators come into your organization you’ve got everything you need to be fully and efficiently compliant.
One of the greatest problems FIs have had over the years has been the process of manually finding all the information you need on a given customer or case which, with Fenergo and similar systems, is solved by providing the means to digitally access all the documents about a customer and their history all in one place. It’s a great starting point to show regulators that you’ve got a robust compliance system in place across the entire client lifecycle.
2) What Are the Challenges of Working with Regulators and Governments in a Post-COVID Era?
Post-COVID, one interesting phenomenon is a new interest rate environment that we’re not yet used to. For many years we’ve been used to low rates which didn’t make it as viable for banks to exist and to offer as many products as they now do. Now, interest rates are higher but so is the amount of volatility in the market, which banks are having to respond to. There’s an increase of activity from FIs offering new features which will in turn pose new challenges to regulators – which they may be unprepared for, and possibly even more reluctant than FIs to seek help on.
Service providers can offer help here by advising FIs through making changes to their risk profiling processes and update their compliance practices.
Some of the behaviour of FIs and their customers, post-COVID but also in recent years more generally, much has changed which creates problems for examiners. For example, around 80% of Black Friday activity in the US in 2022 used buy now pay later (BNPL) activities, which have led to defaults in times of economic hardships and created complications for FIs and examiners alike.
An increase in non-AML fines and the plateauing of AML fines in recent years might be because, during COVID, regulators had trouble getting on site to conduct their inspections which may account for the lessening of activity and result in increased enforcement action volumes in 2023’s data now that we’re firmly in a post-COVID year.
3) How Supportive Are Regulators of New Financial Technologies Like Artificial Intelligence (AI) and Blockchain?
It’s looking like regulators are becoming increasingly supportive of FIs using novel technologies.
In US, in late 2017, regulators issued joint statements encouraging banks to get comfortable with technology and demonstrating that they were also trying to get comfortable with technology. This manifested as fintech programs, technical sandboxes, and no action letters (NALs) which safeguard qualifying organizations from repercussions if their use of technology produced unexpected outcomes. Furthermore, communications were put out regarding sharing BSA resources, in recognition of the burden compliance can put on FIs.
Regulators themselves use AI and other cutting-edge technologies for many purposes, such as checking the effectiveness of screening systems at FIs. They essentially use technology to assess technology, either by directly leveraging it themselves or engaging third-party experts.
One notable example comes from a legal case in France, where the Autorite de Controle Prudentiel et de Resolution (ACPR) used AI to check the transaction monitoring systems at a very large bank, ultimately fining the bank €1.5 million.
So, it’s less of a case these days that regulators are challenging FIs for using technology in their compliance processes, and more of a case of the regulators trying to keep up with the speed of innovation – banning technology simply isn’t an option, unless regulators want to push use of it underground.
Watch the webinar on demand for the full discussion.
For Fenergo’s full analysis of 2022’s enforcement actions data and predictions for 2023, download our report: Reading Between the Fines.