Over the last decade and a half, a combination of legislative and regulatory overhauls, cutting-edge technology, and shifting geopolitical landscapes are among the various trends that have shaped the AML/CFT industry into what it is today. On the occasion of Integro Advisers’ 15-year anniversary, a panel of distinguished experts were invited to sit down with our founder for a special edition of the Integro Talks podcast to reflect on the sweeping changes, current challenges, recent innovations and best practices.
The Evolution of AML Regulations
One of the most notable shifts in the world of AML/CFT compliance over the last 15 years has been the wave of new regulations around the world, and particularly in the United States, aimed to curtail money laundering and the flow of illicit funds. As Alberto de la Portilla noted, “We’ve seen a continual tightening of regulations and stricter governance globally and in the U.S., laws like AMLA (2020 Anti-Money Laundering Act) have raised the standards on transparency and oversight and implemented tough enforcement measures. Add to that, the current political environment in the U.S. and how it’s creeping into banking regulations. In Florida, for example, banks are now subject to new reporting requirements when denying, suspending or terminating bank services to a customer. To remain essential and effective, compliance programs must become more robust,” he said.
Since 2009, compliance frameworks have shifted towards greater proactive risk management. AMLA and the Corporate Transparency Act ushered in stricter requirements for financial institutions and the creation of a central repository to collect and store data on ultimate beneficial owners of domestic LLCs, corporations, and other entities. Globally, there has been increased cooperation among financial intelligence units, guided by the Financial Action Task Force, leading to a more unified and coordinated approach to combating financial crime around the world.
The Rise of Artificial Intelligence in AML
Perhaps the most transformative element in modern AML compliance in recent years has been the integration of artificial intelligence (AI) and machine learning into AML/CFT programs.
“AI has revolutionized how we monitor transactions and detect suspicious activity,” said Gonzalo Sanchez, Senior Adviser at Integro Advisers. “The technology allows us to sift through massive amounts of data much faster than human analysts ever could, while also improving the accuracy of our alerts.”
AI-driven systems have enabled financial institutions to automate the detection of suspicious activities, and so far, the consensus is that they are effectively reducing false positives during transaction monitoring and enhancing the efficiency of investigations. But it remains somewhat cost-prohibitive although the market is beginning to embrace AI. This shift by financial institutions towards new technologies is not just about cutting costs in the long run but ensuring a higher level of vigilance in identifying potential risks that can surface in the blink of an eye in today’s world.
New Risks and Global Sanctions
Financial crime has not remained static either. The rise of cybercrime, cryptocurrency, and more enhanced money laundering schemes has forced the industry to continuously adapt. The introduction of comprehensive global sanctions programs, such as those targeting Russia, Iran, and North Korea, recent updates to Cuban and Venezuelan restrictions, and the potential for further OFAC actions after the upcoming elections in the U.S., adds additional duress to compliance units.
“One of the biggest challenges we face today is navigating the sanctions regimes imposed by different countries,” said Glenda Núñez, President of the Financial Institution Advisory Group. “U.S. compliance standards have a huge impact internationally, especially in correspondent banking, where even the smallest misstep can lead to significant fines.”
Núñez pointed to recent developments in Latin America, where sanctions related to Russia’s activities in the region have posed a significant compliance challenge. The panel agreed that financial institutions must now be more agile and responsive, constantly updating their systems to comply with ever-evolving global sanctions regimes.
The Shift to Remote Work: New Challenges for Compliance
Another major change over the past few years has been the shift to remote work environments, a trend accelerated by the COVID-19 pandemic. This transition has fundamentally altered how compliance teams operate.
“The pandemic brought with it a seismic shift in how financial institutions manage risk,” said Alba Préstamo, Independent Banking Consultant. “Teams had to pivot almost overnight to a remote model, and that has had profound implications for everything from transaction monitoring to employee training.”
Remote work has introduced new data security concerns amid the need to maintain the ‘Know Your Customer’ (KYC) standards in a digital-centric world. However, institutions that have embraced digital solutions, like secure cloud platforms and virtual KYC tools, have been able to maintain compliance while adapting to this new normal.
The Five Pillars of BSA/AML Compliance: A Modern Update
During the podcast, the panel discussed how the basic tenets of a BSA/AML compliance program—often referred to as the five pillars—have changed since 2009. These pillars include:
- Internal Controls including policies procedures
- Independent Testing of the compliance program
- BSA Officer’s role and responsibilities
- Board and staff training
- Customer Due Diligence
Alberto de la Portilla highlighted that each of these areas has evolved to address the growing complexity of financial crime. “For example, customer due diligence (CDD) has shifted from simply checking a customer’s identity to conducting an ongoing, risk-based assessment. Financial institutions are going beyond just ticking boxes—they need to understand the full picture of their customers’ activities.”
Moreover, internal controls have become more sophisticated, with many organizations using advanced analytics to ensure that compliance systems remain up-to-date with the latest regulatory changes.
De-risking and Re-risking: Navigating a New Financial Landscape
One of the more controversial trends discussed during the episode was the phenomenon of de-risking, particularly in regions deemed to pose higher risks for money laundering and terrorism financing. De-risking involves financial institutions cutting ties with clients or entire countries to avoid the compliance burden and potential fines associated with doing business in risky jurisdictions.
The panel agreed that this practice has led to unintended consequences, particularly for Money Service Businesses (MSBs) and smaller banks. “De-risking has created a vacuum, pushing some legitimate businesses to turn to underground channels for financial services, which increases the risk of financial crime,” said Gonzalo Sanchez.
Now the pendulum has shifted in the wake of increased demand from foreign banks after jurisdictions were unfairly blemished while foreign central banks and financial regulators around the globe have stepped up governance and supervision within their countries. The concept of re-risking is gaining traction as institutions reconsider certain regions and sectors that were previously de-risked. Advancements in technology also make it easier to manage these risks in banking and finance.
Looking Forward: The Future of AML/CFT Compliance
As we look ahead, the panel agreed that regulatory compliance will only become more complex and critical. The mainstreaming of new technologies, like blockchain, the increasing sophistication of financial criminals, and the expansive complexities around OFAC sanctions, necessitate that AML programs remain agile and forward-thinking. Financial institutions will need to continue investing and adjusting their internal controls, as needed.
“The only constant in this industry is change,” said Glenda Núñez. “The firms that will succeed in the future are those that see compliance not just as a cost, but as an opportunity to innovate and improve their overall risk management.”
Want to learn more about the sweeping changes in AML/CFT compliance over the last 15 years? Hear all the insights directly from our panel of experts.
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