Predictions: Why 2024 Will be the Year of Financial Regulation

January 17, 2024

After a turbulent year, Fenergo experts share what they predict will happen in the compliance space during 2024.

2023 saw a continued string of enforcement actions from regulators attempting to crack down on financial crime. Global enforcement action reached $6.6 billion, up 57% from 2022. There are many regulatory changes on the horizon for financial institutions (FIs) in response to the increasing enforcement actions.

Digital Assets Sector to Face Further Regulatory Scrutiny

There was increased focus on crypto firms in 2023 as evidenced by the fact that in 2022 crypto fines totaled $193m, before skyrocketing to over $4.5 billion in 2023. During 2024, crypto firms will likely continue to be a priority enforcement area.

“As we look ahead to next year, I imagine watchdogs will continue cracking down hard on reporting failures over the coming months, as they look to iron out financial crime and ultimately protect investors.”

Stella Clarke, Chief Strategy and Marketing Officer at Fenergo

In the US, Congress is currently defining which organization is ultimately responsible for regulating cryptocurrencies and protecting their consumers. In the next few months, as crypto companies receive clarity on which body regulates them, the volume of crypto traded in the US is likely to rise in response.

The Year of Regulatory Regulation

Financial Institutions should expect to start feeling the pressure of rising regulatory standards and stricter rules in 2024.

Regulation in the United States

In the US, the Commodities and Futures Trading Commission (CFTC) issued its latest advisory on penalties, monitors, and admissions, while FinCEN finalized their new rules around Beneficial Ownership Information (BOI) reporting.

“2024 looks to be the year of the regulatory revolution.”

Tracy Moore, Director of Thought Leadership at Fenergo

2024 should bring a greater focus on understanding and processing beneficial ownership information which will have a significant impact on large financial institutions.

Hurdles to Overcome with Arrival of EU’s AML Package

Significant regulatory changes are on the horizon in the next twelve months for FIs operating across Europe with the EU's single rulebook due to come into force this year and threshold changes on ultimate beneficial ownership checks.

“One of the most pressing [hurdles] will be the substantial reduction in the beneficial owner threshold, from 25% to 15%, and 5% for high-risk entities. This will have a profound impact on European financial institutions, who will be required to conduct a significant remediation project practically overnight.”

Rory Doyle, Head of Financial Crime Policy at Fenergo

Responding efficiently to these new thresholds will be difficult for FIs without the right software solution in place.

Digital Transformation and AI

The focus on digital transformation is set to shift to smaller players after a decade of focus on the major FIs and AI is sure to be a part of that conversation. But whether it will become fundamental to compliance is yet to be seen.

“2024 will undoubtedly be the year to see if AI is worth the hype. Following an explosion of investment in AI in the last 12 months, the next 12 will show us whether or not the dollars spent on the tech’s capabilities is delivering the returns investors hope it will.”

Cengiz Kiamil, VP of Market Development at Fenergo

It is still uncertain how regulators will respond to AI but in the best scenario the leaders in adoption would reap the benefits and in particular win in a market that is getting more and more competitive.

What Are the Biggest Risks that FIs Must Prepare for in 2024?

Geopolitical uncertainty and the associated sanctions have been a fundamental part of the compliance landscape in the past few years. And the compliance pressures of these sanctions are set to continue their current trajectory.

“Over the past couple of years, we have witnessed a significant surge in screening obligations for financial institutions across the globe, largely driven by elevated levels of geopolitical uncertainty and the subsequent uptick in sanctions activity. With ongoing conflicts showing few signs of abating over the coming months, we expect these challenges to intensify in 2024.”

Stella Clarke, Chief Strategy and Marketing Officer at Fenergo

2024 is set to bring significant challenges to compliance departments across every level of financial services. But they don’t need to be navigated alone.