7 Industry Trends from 2019 Impacting Financial Crime Compliance in 2020 (Pt. 1)


From new regulations to record-breaking fines, several developments from last year's financial crime compliance landscape are changing the way business gets done in 2020. Here, in part 1 of a 2-part series, we look at what compliance professionals should know and how they can respond.

The global financial industry experienced several disrupting events in 2019. The political and economic fallout from Brexit and the uncertainty stemming from the U.S.-China trade wars are two examples. Now, as the first quarter of 2020 draws to a close (and we wrestle with the worldwide coronavirus pandemic), we are seeing more clearly how these events are affecting the global financial crime compliance landscape — and we can shed light on how they will further impact that landscape in Q2 and beyond.

Here, in the first of two articles, are insights that can help compliance professionals stay a step ahead throughout the year.

Increase in New Regulations

New financial crime regulations in 2019 added to the complexity of today’s regulatory landscape. Key moments included:

  • Regional uptick in new regulations in the months preceding Financial Action Task Force (FATF) evaluation of countries.
  • Response to new risks techniques brought on by the FATF that focus specifically on virtual assets and virtual asset service providers. Guidance was issued in June 2019, but provided a very short time span to align to the new global standard; that left countries scrambling to be compliant by the November deadline.
  • Supervisory ramp-up in the aftermath of money laundering scandals, as seen in the frequent amendments being added to the EU money laundering directive.

Here's what occurred in Q1:

  • The world’s most comprehensive regulatory framework for payment services, Singapore’s Payment Services Act, came into force.
  • Malaysia followed suit with revised anti-money laundering (AML) guidelines and amendments to the Anti-Corruption Act.
  • China’s continued efforts to improve the effectiveness of AML programs in the banking and insurance sectors.

Here’s what to expect in the remainder of 2020:

  • Implementation of the next phase of reforms to Australia’s AML regime
  • Amendments to the Philippines AML Act
  • Significant overhaul of crypto regulatory framework in Japan and Korea
  • Potential updates to the Hong Kong’s Securities and Futures Commission (SFC) AML guidelines in response to the fairly recent FATF guidance for the securities sector

How to respond: Compliance professionals, often with multijurisdictional responsibilities, should leverage technology to keep up with the fast-paced regulatory change. Focus on areas where you want to bolster confidence regarding regulatory requirements. By mapping all relevant regulation to your policies and controls, you can begin to understand the impact of the new changes and maintain a realistic remediation plan and defensible audit trail.

The Continued Trend of Enforcement

Enforcement actions are on the rise, and 2019 finished just shy of becoming a record-breaking year in terms of the number and value of monetary penalties. Here are some highlights:

  • Banks were the main recipient of fines, but their share is steadily decreasing in favor of the non-banking sector.
  • When it came to applying sanctions, the U.S., UK and EU counterparts took a leading role.
  • Supervisors were tough to each other, as the European Banking Authority (EBA) called out the Maltese Financial Intelligence Unit (FIAU) for breach of duty concerning its supervision of the Pilatus Bank.

Here’s what to expect in the remainder of 2020:

  • Penalties surpassing US$1 billion dollars will continue to come in as large scandals like 1MDB and Danske Bank reach the settlement stage in the course of this year.
  • The APAC region will see an uptick in enforcement action in response to the poor FATF ratings in the areas of supervision and application of preventive measures.
  • Regulators in China, Hong Kong and India started the season with a bang. Australia will soon follow as it remains a supervisory powerhouse.
  • Asian subsidiaries of overseas institutions will come under increased scrutiny of the supervisors in the region. This will expose the weaknesses in a group-level risk management framework, as evidenced in the recent case against a Swiss-based private bank with an international presence.

How to respond: If you receive a notice of investigation, do not panic. Instead, focus on a plan as that is half the battle. Maintain open and transparent dialogue with the regulator, engage experienced independent third parties early on in the process, and give thoughtful consideration to the tailored reputational management strategy to mitigate the consequences of the potential fallout.

Emphasis on Personal Liability for Financial Services Professionals

Supervisors continued to emphasize the personal liability of individual employees, including compliance personnel, for identified systemic failings. Here’s how we saw it play out in 2019:

  • The action from supervisors and employers alike varied depending on the nature and severity of the violation — from criminal charges against senior executives and lifetime bans in relation to the 1MDB scandal to the terminations, temporary suspensions as seen in in the recent SFC case.
  • Compliance professionals fell victim to the years of underinvestment in systems, processes and people and eventually ended up as the scapegoats.
  • A notable exception is the example of an Australian Prudential Regulatory supervisor who realized you have to go after the top to get the right tone from the top.

Here’s what to expect in the remainder of 2020:

  • The risk of individual liability for compliance failures — coupled with inadequate financial reward — will result in growing apprehension among compliance officers.
  • This will further reduce the ranks of capable and qualified candidates and ultimately affect the effectiveness of second line of defense and regulatory goals.

How to respond: To discharge their duties as responsible officers, compliance professionals must ensure the appropriate action is taken. Detailing the issues within their programs and highlighting them to the senior management without taking any action will fall short of eliminating their personal liability.

To learn about more changes to the financial compliance landscape, including how the collaboration between the public and private sectors played out, and the ways in which technology helped rein in costs, read the continuation of our series in the second article here.

© Copyright 2020. The views expressed herein are those of the authors and do not necessarily represent the views of FTI Consulting, Inc. or its other professionals.

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