2020 has been a whirlwind of a year for financial services firms, to say the least. Many things have changed, new challenges have been faced and we all seem to be adapting to this 'new normal', but are we?
As our headline confirms, the first six months of 2020 has seen fines of $706 million for anti-money laundering failings already sweep past the total figure of $444 million issued in 2019. What does remain a surprising constant beneath this are generally the same recurring failings identified in firms since 2015:
- Customer due diligence
- Compliance Oversight and Monitoring
- Monitoring of Suspicious Activities
- AML Management
This indicates firms continue to face challenges to review, overhaul or update their existing systems. Perhaps there is less focus on the identification of where their underlying AML risks are, which means they face potential barriers to bring about the right changes to their systems & controls and reduce their risks more effectively.
As new risks emerge for firms to increase their focus on and respond to effectively, they must also be confident the recurring failings described above and viewed by regulators as “business as usual functions and activities” can clearly demonstrate they remain vigilant and are proactive in responding to threats accordingly, with little room for error.
The fines issued from global regulators demonstrate there is very limited tolerance, with significant penalties already imposed on firms who have fallen short of delivering effective controls, exposing unacceptable levels of anti-money laundering failings.
Recent research has identified a significant increase in enforcement action by regulators globally, with a large proportion of fines being levied across Europe but with a reduction in the US compared to previous years, especially in “mega fines” - could this be a market firms look at more closely to learn from as the large institutions start to respond correctly?
Britain has seen fines of $47.61million so far in 2020 but this pales into relative insignificance against the eye-watering $560.61 million imposed in Sweden. This isn’t just about the headline fines either, as an example the impact of the $386 million for Swedbank had a major impact on their share price and its reputation in the marketplace, which can cause more lasting damage.
In summary, the expectation of global regulators has not changed, they have simply identified a greater number of firms failing to meet the requirements. The recent penalties clearly show how regulators globally have adopted a no-nonsense approach to anti-money laundering failings – making it clear that recurring ineffective controls for mitigation of financial crime will not be tolerated, even in times of crisis such as the COVID-19 pandemic, firms shouldn’t expect an easy ride or expect the regulator to turn their focus elsewhere.
This is in line with the EBA's statement published in April 2020, setting out expectations for preventing money laundering and terrorist financing.
Ultimately, the message is firms should ask themselves, while they face and respond to emerging risks are they confident, their existing systems and controls in place can continue to mitigate financial crime risks during this and any other difficult period, irrespective of competing priorities, as failure to do so will result in serious consequences both financial and reputational
Authored by Sasha Jones
