What is AML Ongoing Monitoring?
AML ongoing monitoring is an essential aspect of anti-money laundering (AML) compliance because it involves updating customer information regularly to identify changes in risk factors. This process includes checking client names against the sanctions list, as well as checking the connections of politically exposed persons (PEP), and adverse media.
The significance of ongoing monitoring of AML efforts cannot be overstated. This reflects the company’s unwavering commitment to avoiding any involvement in or association with money laundering or terrorist financing. Ongoing monitoring entails a thorough examination of the customer’s reputation as well as its consistency with expected behavior patterns. Unlike initial screening, ongoing AML monitoring can be performed daily depending on the client’s risk level. This practice enables you to determine whether your company’s client’s behavior is consistent with the client’s initial risk assessment and to understand your client’s (KYC) process. By reviewing updated sanctions lists, media reports, politically exposed persons (PEPs), and watch lists, this system effectively manages your company’s business relationships.
Jurisdictions Requiring AML Ongoing Monitoring:
The requirement for ongoing monitoring of AML compliance varies by jurisdiction. While some jurisdictions have stringent regulations requiring continuous monitoring, others may have more lenient standards. Here are a couple of examples:
- Under the Bank Secrecy Act (BSA) and its implementing regulations, the United States requires financial institutions to establish and maintain an effective anti-money laundering (AML) program, which includes ongoing monitoring of customer relationships. These requirements must be met by institutions such as banks, broker-dealers, and money service businesses.
- The EU’s Fourth Anti-Money Laundering Directive (4AMLD) and subsequent Fifth Anti-Money Laundering Directive (5AMLD) emphasize the importance of ongoing monitoring. Customers of financial institutions and designated non-financial businesses and professions (DNFBPs) must be subjected to ongoing due diligence.
- UAE law requires ongoing monitoring of customer onboarding for AML purposes for a set period, such as a year. The specifics of this requirement may differ depending on local laws and regulations.
- The Monetary Authority of Singapore (MAS) expects financial institutions in Singapore to maintain an ongoing monitoring program. The duration and intensity of monitoring may vary depending on the customer’s risk level.
AML Trends 2023
Let’s take a look at the trends in the future of AML ongoing monitoring.
Increasing Use of Artificial Intelligence (AI) and Machine Learning (ML) Technology:
AI and AML are merging as AI supports AML processes and vice versa. AI improves the accuracy and efficiency of AML systems and can help AML in a variety of ways. AI integration can aid in the resolution of digital challenges in the financial industry by reducing the need for human intervention and streamlining AML processes. AI in Fintech is expected to reach $61.30 billion by 2031, growing at a 22.5% CAGR from 2022 to 2031. Self-improving ML solutions are ideal for AML compliance and fraud monitoring, continuously enhancing rules to boost security while reducing fraud losses and false positives.
Enhanced Crypto Regulations:
Fraudsters are increasingly taking advantage of cryptocurrencies’ anonymity, leading to an increase in cryptocurrency theft. According to a report from blockchain analysis firm Chainalysis, cyber criminals stole a record $3.8 billion in cryptocurrency in 2022. The majority of cryptocurrency scams take place on social media platforms due to challenges in regulating crypto. Countries such as the United States and the European Union plan to implement strict cryptocurrency regulations in 2023, to restore trust in the crypto sector following events such as the failure of FTX. In 2023, strengthening cryptocurrency laws will be a major anti-money laundering (AML) issue.
Metaverses Pose AML Challenges:
The emergence of metaverse solutions, such as Facebook’s Metaverse, opens up new avenues for financial institutions. Criminals can use these platforms to launder money, mirroring traditional money laundering methods. In the metaverses, users may also encounter identity theft and financial fraud. The use of advanced AML solutions can assist in monitoring the user’s actions and transactions, which can reveal money laundering activities. As these solutions become more widespread, more regulations may be enacted to protect businesses from fraud and money laundering.
Strict Regulations in Real Estate
Due to high property prices and financial transactions, real estate remains an appealing way to invest. According to Transparency International, Russians linked to corruption invested £1.5 billion in the UK property sector in 2022. Over the last five years, the US real estate sector has seen more than $2.3 billion in investment. The Serious Corrupt Practises Authority’s Politically Exposed Persons (PEPs) have contributed at least £4.4 billion to UK property investment. Europol discovered that 68% of criminal organizations in the EU use real estate to launder money. The US has taken steps to improve compliance with AML regulations, such as enacting the KLEPTO Act and revising geotargeting laws.
Also Review: AML checks when buying a house
Enhanced UBO Scrutiny
New FinCEN rules will make it more difficult to verify and protect Ultimate Beneficial Ownner (UBO) and Know Your Customer (KYC) information. These measures, which are set to go into effect in 2023, are intended to increase transparency and allow financial institutions (FIs) to better manage risks. Companies must strengthen their anti-money laundering policies by improving their ability to identify both legal and practical rights, as failure to comply with UBOs exposes them to potential fraudsters with the power to exploit them.
Cooperation Between Regulators and RegTech Firms:
In 2023, there will be an increased demand for collaboration between regulators and RegTech firms. The global AML software market is expected to reach $1,770 million by 2023, with a compound annual growth rate (CAGR) of 15.2%. Regulators enforce financial regulations, while RegTech firms provide services to make compliance easier. Collaboration between these entities is critical for countering evolving fraudulent tactics and detecting anomalies quickly. This collaboration will be critical in improving AML (154) practices and preventing financial crimes
FedNow Real-Time Payments Rail:
The FedNow Real-Time Payments Rail will change the way money service businesses (MSBs) operate by mid-2023. This technology allows for faster transaction processing, resulting in improved service speed and customer satisfaction. However, it also attracts con artists looking to make a quick buck. Organizations that take this approach must implement standardized anti-money laundering (AML) controls for direct payment processing, such as payment verification, onboarding, and new account monitoring.
AML Fines and Penalties 2023
In the future of AML ongoing monitoring regulatory authorities will be less tolerant of AML violations. Fines and penalties are increasing, providing businesses with a robust financial incentive to improve their AML ongoing monitoring practices. The fact that penalties have exceeded £1 million demonstrates the gravity of these errors.
Let’s take a look at some of the most significant AML fines and penalties in 2023. According to various media reports,
- Crown Resorts faces a $450 million alleged fine for AML violations
- The UK Gambling Commission allegedly fined William Hill £19.2 million for failures regarding social responsibility and anti-money laundering (AML)
- FCA allegedly fined Guaranty Trust Bank UK Ltd. £7.6 million for failure in AML systems and controls.
- In Touch Games, was allegedly fined £6.1 million by Gambling Commission for social responsibility and AML failings
- FCA allegedly fined Al Rayan Bank £4 million for AML failing.
- The Federal Reserve fined Deutsche Bank (DB) and its US affiliates $186 million for failing to address AML shortcomings identified by the regulators
- Singapore’s central bank allegedly fined S$3.8 million ($2.83 million) on financial institutions like Citibank, DBS, OCBC, and insurer Swiss Life for violating anti-money laundering and counter-terrorism financing requirements.
- The Dubai Financial Services Authority (DFSA) has fined Mirabaud (Middle East) Limited $3,022,500 (AED 11,100,131) for deficient anti-money laundering (AML) systems and controls from June 2018 to October 2021.
- The Bank of Lithuania has allegedly fined TransferGo €310,000 for AML deficiencies, citing problems with customer identification procedures.
The countries that topped the AML fines in 2023 are shown in the infographic
AML Enforcement Actions 2023
In 2023, global regulators will continue to strengthen measures aimed at reducing illicit financial activity. As per media reports, here are some major regulatory changes that take place this year:
- Adoption of FATF Recommendation 16 (Travel Rule) on a Global Scale to improve transparency in cryptocurrency transactions
- To regulate the cryptocurrency market, the European Union is implementing the Markets in Crypto Assets (MiCA) rule.
- To strengthen AML efforts across member states, the European Union is considering the establishment of a new EU authority for Anti-Money Laundering (AML).
- Switzerland has proposed new anti-money laundering regulations, focusing on increasing accountability for lawyers and consultants in reporting risks and improving oversight of legal entities such as trusts. Following consultation, the Swiss government plans to present these rules to parliament in 2024.
- The United States is implementing updated regulations concerning Beneficial Ownership Information Reporting under the Corporate Transparency Act (CTA).
- Kenya has introduced a new Anti-Money Laundering (AML) bill that will empower supervisory bodies to monitor and enforce AML and counter-terrorism financing regulations. The bill also seeks to align existing provisions with the Financial Action Task Force (FATF) standard.
- The Senate has given the green light to the Company (Amendment) Act 2023 in Jamaica, aligning the country with global commitments to combat money laundering and terrorism financing.
- Singapore introduces the Collaborative Sharing of Money Laundering/Terrorist Financing Information and Cases (COSMIC) platform to improve cooperation in combating financial crimes.
- In collaboration with the Hong Kong Monetary Authority (HKMA) and the Hong Kong Association of Banks (HKAB), the Hong Kong Police Force (HKPF) has launched the Financial Intelligence Evaluation Sharing Tool (FINEST), a secure platform for sharing corporate data related to suspected financial crimes among banking institutions, to improve cooperation, improving due diligence, and strengthening the fight against financial crime in Hong Kong’s banking sector.
- The UK is revising reporting obligations for businesses, with a focus on material discrepancies.
- The UK Economic Crime and Corporate Transparency Bill, currently under review, aims to prevent illicit use of corporate entities, enhance the UK’s response to economic crime, and improve business support through Companies House.
- The UAE has taken strict actions to combat to combat money laundering. It has announced plans to establish specialized federal prosecution bodies focused on economic crimes and money laundering, aiming to enhance oversight and combat illicit financial transactions.
- Canada is committed to combating money laundering and terrorist financing by collaborating across government, public and private sectors, and international borders. The strategy for 2023-2026 focuses on operational effectiveness, addressing legislative gaps, improving governance, and contributing to international efforts in this area, to adapt to evolving threats and strengthen the country’s anti-money laundering and counter-terrorist financing regimes.
- On July 11, 2023, the United States Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) settled actions against a broker-dealer and its parent company for failing to file numerous Suspicious Activity Reports (SARs) due to compliance failures, highlighting the ongoing regulatory emphasis on broker-dealer Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance.
How to Avoid AML Fines and Penalties in 2023?
Are we ready to accept technology and innovation as allies in the fight against illegal activities such as money laundering, or will we stick to traditional approaches that struggle to keep up with criminals’ ever-adaptive tactics? The ability to adapt, collaborate, and constantly refine our strategies is critical to the future of AML’s ongoing monitoring.
The businesses must follow the law to avoid penalties in 2023. This can be accomplished by appointing a money laundering reporting officer (MLRO), training employees, assessing company risks, implementing customer identification programs (CIP), conducting customer due diligence, using transaction monitoring tools, maintaining customer records, and prompt reporting of suspicious activities (link to the blog 153).
What is the Future of AML Ongoing Monitoring?
The future of AML’s ongoing monitoring entails a shift towards a more effective strategy that prioritizes genuine suspicious activity over false positives. This transformation is made possible by technological advancements such as artificial intelligence (AI) and machine learning, which improve detection capabilities. Through data enrichment and network analytics, comprehensive customer understanding will be revealed, revealing indirect and hidden risks. Cross-industry collaboration and secure data sharing will be critical in combating financial crime.
According to projections, the AML market will grow from $3.18 billion in 2023 to $16.37 billion in 2033. Businesses should prioritize AML ongoing monitoring in 2023 and beyond, leveraging technology and industry collaboration to create a safer and more transparent financial ecosystem. The future of AML’s ongoing monitoring has arrived, and it is up to us to shape it for the better.
Will we rise to the occasion and truly transform the efficacy of our efforts, or will we become entangled in the complexities of compliance? Only time will tell, but the decision is ours.