U.S. and UK financial crime regulators recently released multi-year strategies with a number of commitments to fight money laundering, sanctions evasion, fraud, and other illicit financial activity.
It’s safe to say that the regulatory resources and attention devoted to financial crime compliance and enforcement will only increase in the coming years, and it’s more essential than ever to ensure your controls are effective. What should compliance officers take away from these updates?
The U.S. Treasury Department’s FY 2022-2026 strategic plan highlights several financial crime objectives and plans.
First, Treasury has an objective to "Increase transparency in the domestic and international financial system."
Anti-Money Laundering Act of 2020 (AMLA) implementation
Treasury’s Financial Crimes Enforcement Network (FinCEN) will focus efforts primarily on implementing the AMLA, which tasks FinCEN with numerous requirements, including creating a national beneficial ownership registry.
Many have noted FinCEN is severely overburdened and understaffed, but that may change going forward. To implement the AMLA, FinCEN will get a major resource infusion under President Biden’s recently proposed FY 2023 budget, to the tune of a 65% increase in appropriated funding and a near doubling of FinCEN’s staff, potentially making it a much more muscular regulator.
Compliance officers should also track the development of FinCEN’s whistleblower program under the AMLA, which was recently called a "4th line" of defense by FinCEN’s Acting Director. Similar whistleblower programs have become extremely effective enforcement measures in recent years – for comparison, in FY 2021, the U.S. Securities and Exchange Commission reported issuing more whistleblower awards than in all prior years combined and receiving a record-breaking number of whistleblower tips.
Think about proactively looking at how your financial crime compliance program addresses whistleblowing reporting and a stronger AML enforcement regime. And watch for further updates on this program from FinCEN!
Other strategic plans
For compliance officers at fintechs, FinCEN said it also aims to strengthen its supervision of money services businesses (which includes many fintechs) and banks lacking a Federal functional regulator.
Many will also welcome FinCEN’s intent to "support adoption of digital identification" by industry members to lower customer identification and verification compliance costs.
Compliance program effectiveness
Finally, pay attention to the effectiveness of your financial crime controls and stay alert to the dangers of not scaling compliance programs and anti-financial crime technology with customer and revenue growth. Treasury reiterated that "a strict check-the-box compliance approach" may limit AML compliance program effectiveness.
Second, Treasury has an objective to "Modernize the development, implementation, enforcement, and maintenance of U.S. sanctions."
In the coming years, you can expect Treasury to bolster its sanctions data, analytical and technological capabilities. Treasury fully recognizes it faces growing sanctions work and higher stakeholder demands, noting the U.S.’s greater use of sanctions and nearly 1000% increase in sanctions designations since 2000.
In the short term, Treasury’s sanctions function will receive resource boosts in the President’s proposed budget, including 13 more Office of Foreign Assets Control staff to handle increased sanctions enforcement, investigations, and private sector engagement.
The UK’s Financial Conduct Authority (FCA) recently issued its strategy for 2022-2025, continuing its aim of being “more assertive.”
The FCA has an objective of "Reducing and preventing financial crime."
Compliance officers should anticipate the FCA being more proactive in supervising firms’ financial crime systems and controls, particularly at the authorization gateway. The FCA will focus “on the effectiveness of systems and controls,” just as in the U.S. And, in the near term, based on the FCA’s Business Plan for 2022-2023, you can expect the FCA to reject, withdraw or refuse more applications for financial crime reasons.
For firms dealing with virtual currencies, compliance officers should note the FCA is focused on the connection between cryptocurrency and illicit financial activity, and will supervise cryptoasset firms’ compliance with the Money Laundering Regulations.
Finally, the FCA emphasized its concern with fraud and the resulting harm to consumers and market integrity. Practically, the FCA will step up efforts to prevent investment fraud and authorized push payment fraud in particular, as part of fighting fraud broadly. The FCA also plans to assess anti-fraud systems and controls at a small number of firms, while developing a broader anti-fraud supervision approach. Certainly an area to keep an eye on!
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Will AI + Automated Testing Eliminate the Third Line of Defense?U.S. and UK financial crime regulators recently released multi-year strategies with a number of commitments to fight money laundering, sanctions evasion, fraud, and other illicit financial activity.
It’s safe to say that the regulatory resources and attention devoted to financial crime compliance and enforcement will only increase in the coming years, and it’s more essential than ever to ensure your controls are effective. What should compliance officers take away from these updates?
The U.S. Treasury Department’s FY 2022-2026 strategic plan highlights several financial crime objectives and plans.
First, Treasury has an objective to "Increase transparency in the domestic and international financial system."
Anti-Money Laundering Act of 2020 (AMLA) implementation
Treasury’s Financial Crimes Enforcement Network (FinCEN) will focus efforts primarily on implementing the AMLA, which tasks FinCEN with numerous requirements, including creating a national beneficial ownership registry.
Many have noted FinCEN is severely overburdened and understaffed, but that may change going forward. To implement the AMLA, FinCEN will get a major resource infusion under President Biden’s recently proposed FY 2023 budget, to the tune of a 65% increase in appropriated funding and a near doubling of FinCEN’s staff, potentially making it a much more muscular regulator.
Compliance officers should also track the development of FinCEN’s whistleblower program under the AMLA, which was recently called a "4th line" of defense by FinCEN’s Acting Director. Similar whistleblower programs have become extremely effective enforcement measures in recent years – for comparison, in FY 2021, the U.S. Securities and Exchange Commission reported issuing more whistleblower awards than in all prior years combined and receiving a record-breaking number of whistleblower tips.
Think about proactively looking at how your financial crime compliance program addresses whistleblowing reporting and a stronger AML enforcement regime. And watch for further updates on this program from FinCEN!
Other strategic plans
For compliance officers at fintechs, FinCEN said it also aims to strengthen its supervision of money services businesses (which includes many fintechs) and banks lacking a Federal functional regulator.
Many will also welcome FinCEN’s intent to "support adoption of digital identification" by industry members to lower customer identification and verification compliance costs.
Compliance program effectiveness
Finally, pay attention to the effectiveness of your financial crime controls and stay alert to the dangers of not scaling compliance programs and anti-financial crime technology with customer and revenue growth. Treasury reiterated that "a strict check-the-box compliance approach" may limit AML compliance program effectiveness.
Second, Treasury has an objective to "Modernize the development, implementation, enforcement, and maintenance of U.S. sanctions."
In the coming years, you can expect Treasury to bolster its sanctions data, analytical and technological capabilities. Treasury fully recognizes it faces growing sanctions work and higher stakeholder demands, noting the U.S.’s greater use of sanctions and nearly 1000% increase in sanctions designations since 2000.
In the short term, Treasury’s sanctions function will receive resource boosts in the President’s proposed budget, including 13 more Office of Foreign Assets Control staff to handle increased sanctions enforcement, investigations, and private sector engagement.
The UK’s Financial Conduct Authority (FCA) recently issued its strategy for 2022-2025, continuing its aim of being “more assertive.”
The FCA has an objective of "Reducing and preventing financial crime."
Compliance officers should anticipate the FCA being more proactive in supervising firms’ financial crime systems and controls, particularly at the authorization gateway. The FCA will focus “on the effectiveness of systems and controls,” just as in the U.S. And, in the near term, based on the FCA’s Business Plan for 2022-2023, you can expect the FCA to reject, withdraw or refuse more applications for financial crime reasons.
For firms dealing with virtual currencies, compliance officers should note the FCA is focused on the connection between cryptocurrency and illicit financial activity, and will supervise cryptoasset firms’ compliance with the Money Laundering Regulations.
Finally, the FCA emphasized its concern with fraud and the resulting harm to consumers and market integrity. Practically, the FCA will step up efforts to prevent investment fraud and authorized push payment fraud in particular, as part of fighting fraud broadly. The FCA also plans to assess anti-fraud systems and controls at a small number of firms, while developing a broader anti-fraud supervision approach. Certainly an area to keep an eye on!
