There’s probably not an individual, company, or sector that the first half of the year coming out of COVID-19 left untouched, and anti-money laundering (AML) compliance is no exception. Like many other industries, one of the biggest changes has been the increased use of technology and the acceleration of digital trends. AML issues have been a focus of federal and state regulators and law enforcement since the Great Recession and will likely continue to be a priority issue area for the Biden Administration.
It’s only natural to wonder what further shifts we can expect in the final half of 2021, so here are some predictions for what the second half of the year has to hold for compliance and financial crime.
The concept of the “lean organization” (a firm that remains flexible and aims to achieve maximum value with minimal resources) has been around for a while — but the pandemic has shown us why we need to embrace this model. As soon as COVID-19 hit, there were immediate changes to the way we live and work. Companies had to respond immediately, whether that meant replacing full-time employees with freelancers or switching from in-person to virtual meetings. Success wasn’t about running the biggest, swankiest operations — it rested on having the flexibility to make difficult decisions and act on them swiftly.
Organizations should harness technology to become multi-skilled investigators capable of carrying out everything from KYC reviews to screening and fraud alerts. This is especially true with the passage of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) which has two key themes: (i) a conscious effort to evolve AML compliance and the Bank Secrecy Act and its implementing regulations (collectively, the “BSA”) to make the system more efficient and effective; and (ii) adapting the BSA to a new generation of threats. Thanks to the new tools available, it should no longer be necessary for employees to handle everything manually.
Did we mention technology already? It’s easily the biggest game-changer in the AML world. One of the areas technology is most likely to impact is onboarding. By making use of advanced tools, firms should be able to speed up the process, reduce errors, and tell genuine customer activity apart from fraud. The better the experience for customers, the better for the bottom line — and that will really make a difference to which firms survive this tough environment.
In the U.S., when a financial institution identifies a client or a transaction that raises suspicion, they are required to file a suspicious activity report (SAR) and submit it to the Financial Crimes Enforcement Network (FinCEN), the arm of the U.S. Treasury tasked with keeping tabs on and combating money laundering. A SAR usually contains basic information about the client and transaction, as well as a short narrative written by those at the bank in charge of worrying about financial crime. There are no definitive rules on what makes up a suspicious transaction and so firms may rely on a series of criteria. Yet, SARs are one of the primary means through which “financial intelligence units” such as FinCEN monitor the financial system, relying on the private sector to ring the alarm when something is afoul.
After the FinCEN leaks in 2020, the AML industry is demanding an increase in higher-quality SARs. This would allow firms to serve their customers better and improve safety standards in the sector with higher quality detection.
For years, industry experts have been claiming that various aspects of compliance are likely to merge closer together — including fraud, customer due diligence (CDD), and AML sanctions. 2021 might just be the year it finally happens. If so, firms would gain a clearer picture of who their customers are and which risks they face, allowing them to pick up on suspicious behavior. Then, the front office would be able to make decisions and take action.
Whatever the rest of 2021 holds, there’s no reason for firms to go it alone. At RegComp Financial, we help all kinds of financial organizations — from venture capital firms to hedge funds — to manage their compliance efforts. To bring us on board or find out more about how we can help you, get in contact today.