4 Things to Know About Financial Crime Regulations

Financial crime regulations have changed rapidly in recent years–from Switzerland to Singapore, from Brazil to Bahrain. In this blog, we identify and summarize four major developments which are driving regulatory changes across the world to help companies to prepare for future regulatory interventions.

1. Financial crime regulations are not standing still

Laws and regulations often change very gradually over decades, but this has certainly not been the case for the financial crime monitoring requirements imposed on global businesses. New regulations seem to be being proposed all the time–just last month, for example, Switzerland’s government announced draft regulations to improve beneficial ownership transparency and improve its enforcement of sanctions breaches.

Further regulatory change is expected in the coming months and years. The European Union has been particularly busy in updating its financial crime regime with a suite of Directives in the last five years, and a further package of measures was approved by the European Parliament in March 2023. Soon, EU member states will once again need to update their own regulations to ensure they remain compliant.

MORE: Sanctions update: What UK and EU updates mean for global companies

2. Regulations are sharpening the teeth of enforcement agencies

A common criticism of some countries’ regulatory frameworks is that, while the regime appears robust on paper, it has not been backed up by successful enforcement actions against companies. As a result, recent regulatory reforms have specifically targeted obstacles to improving regulators’ enforcement records. Some of the new regulations have been driven by comments in an evaluation by the Financial Action Task Force (FATF), which often makes recommendations for how countries can improve their enforcement.

For example, France introduced an Action Plan in 2021, which included giving more powers to its Financial Investigation Unit when they have suspicions about possible criminal activity. Since then, FATF has praised France for its “very good results” of a 93% conviction rate for prosecutions of alleged financial crime.

Likewise, the emergence of a long backlog of suspicious activity reports needing to be investigated led to the resignation of the head of Germany’s authority in 2022. The Finance Ministry created a new agency in the same year with investigative powers that are aimed at improving the country’s record on enforcement.

This has been borne out by an increase in the total fines flowing from global enforcements against companies for involvement in alleged criminal financial activity. Banks and other financial institutions were fined nearly $5 billion for financial crime breaches in 2022, according to Fenergo. This represented a 50% increase on 2021. The impact on companies is that the regulatory and financial risks of a compliance breach are only increasing.

3. Combatting financial crime is becoming a truly global priority

Historically, the United States government’s regulations against bribery, corruption, and other financial crime held the most influence around the world, and companies were more likely to face enforcement action by the US for their global activities, rather than by their home country’s regulator. This is no longer the case, and the last five years have seen major regulatory reforms in regions which traditionally had a weaker reputation for regulation and enforcement. This includes:

• Middle East: Many countries in the Middle East are seeking to diversify their economies to reduce their reliance on oil and gas, and this usually means opening to foreign investment from global businesses. Countries have reformed their regulations in a bid to reassure these companies that they are managing risks. For example, the UAE developed its first strategic plan in 2020, while Saudi Arabia’s 2021 amendment to its Anti-Bribery Law made stringent requirements of private companies.
• South America: Operation Car Wash rocked Brazil’s reputation for financial crime and has rarely left the headlines over the last decade. The government has responded by dramatically increasing its focus on anti-financial crime measures. For example, it carried out its first National Risk Assessment for money laundering and terrorist financing in 2021, which led to the introduction of stronger policies for the higher-risk precious metals sector.
• Asia-Pacific: Many states in this region have become global financial hubs, and they are seeking to strengthen their regulatory framework to mitigate risks, while encouraging foreign investment. Singapore’s Parliament approved a new digital platform in May 2023, which will allow banks to securely share information on transactions and customers.

MORE: How companies can mitigate this rising regulatory risk

4. Technology is likely to be the next regulatory requirement

Recent announcements from various national regulators hint at technology becoming a core part of their expectations for how global companies approach financial compliance and due diligence. This has not escaped global businesses’ attention, and in Kroll’s 2023 Financial Crime Survey most executives surveyed predicted regulators will look more closely at how they use technology for compliance in 2023-24.

Recent examples of regulatory involvement in technology include:

• The Netherlands enforcement agencies partnered with major banks in 2020 to form a transaction monitoring facility to counter financial crime. It is designed to identify unusual patterns in payments that individual banks may not be able to identify if they did not share their data.
• In May 2023, Singapore’s Parliament approved a similar digital platform for banks to securely share information on suspicious transactions and customers, which will launch in 2024. It is designed so that the data can be integrated into data analytics tools.

The regulators’ next step is expected to be imposing new requirements for companies to use sophisticated technological tools themselves to monitor for potential criminal activity. As a result, companies are investing in technology that can help them to identify suspected risks from large, authoritative, and up-to-date datasets, and even automate parts of the due diligence process.

However, this is not simply about mitigating risk, but firms have found that technology brings opportunities for them to rely less on resource-intensive manual searches, and instead make risk-based decisions more quickly, accurately, and cost-effectively than ever before.

Understand the changing regulatory landscape

With all the moving pieces, it can be hard to keep up with new regulations to stay on top of any financial risk—let alone keep up with the best ways to mitigate this risk and protect your company. To dive deeper into countries’ and regions’ emerging regulatory frameworks to tackle financial crime, and learn how your company should respond, explore our “Due Diligence Checklist”.