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Compliance & Risk

Financial institutions most concerned about beneficial ownership rules & cryptocurrencies, new report shows

Gina Jurva  Manager for Thought Leadership in Corporate & Government at Thomson Reuters

Gina Jurva  Manager for Thought Leadership in Corporate & Government at Thomson Reuters

Financial service firms are finding it difficult to keep up with a rapidly changing regulatory & threat outlook, according to the Thomson Reuters Anti-Money Laundering Industry Report

As 2022 begins, financial institutions worldwide are closely tracking rulemaking initiatives coming from the U.S. Treasury Department’s anti-money laundering (AML) unit as it creates new and amended regulations implementing the Anti-Money Laundering Act of 2020 (AMLA) including the Corporate Transparency Act (CTA).

Yet, in addition to the AMLA and the CTA, financial services firm leaders have a multitude of other issues keeping them up at night — from changing regulations to sanctions screening to the quality of their data as they continue to on-board new customers, often remotely, at a rapid pace.

In the 4th edition of the Thomson Reuters Anti-Money Laundering Industry Report we sought out to learn the specific industry pain points more than two years into a global pandemic. The results were clear: keeping up with a rapidly changing regulatory and threat landscape continues to be challenging for many financial service firms. However, those firms that implement a new, and technology-driven approach to digital identity verification methods, for example, are finding opportunities to catch bad actors even as they pivot to mobile banking and other methods of financial activity.

Methodology

The purpose of the report is to provide a sounding board for financial services organizations, helping them compare, contrast, and evaluate their own anti-money laundering and customer due diligence (CDD) efforts.


You can download a copy of the 4th Annual Thomson Reuters AML Industry Report here.


This year’s report reveals several consistencies from past years but also flags changes and trends. Those trends were gleaned from the responses of 261 decision-makers related to AML and CDD compliance activities who come from large financial institutions (more than $500 billion in assets under management) and small (under $1 billion in assets under management), and everything in between. Respondent also represented a wide range of organizations from commercial banks to retail, private banks/wealth management firms, money service businesses, and more.

Industry trends & challenges

In regard to top industry trends respondents cited such well-known challenges such as discerning upcoming changes to beneficial ownership screening and disclosure requirements, navigating the evolving cryptocurrency regulatory environment, and assessing virtual currency risks. Respondents also indicated an overall concern around the use of technology to manage AML risk, including automation, data solutions, and more.

Of course, the AMLA is causing the deepest consternation among the financial institutions we surveyed. The single most challenging issue in complying with the act stems from the new beneficial ownership disclosure requirements with 46% of survey respondents reporting significant challenges in complying with that provision. An equal percentage (45%) reported difficulties imposed by the expansion of AML laws to codify jurisdiction over virtual currency activities. And more than one-third (35%) of respondents noted challenges associated with the development of regulatory solutions that place an increased focus on emerging technologies.

Technology & regulator activity concerns

Financial services companies of all sizes are increasingly turning to technology solutions for gathering and managing AML and CDD information and processes, according to the report. Indeed, AML professionals are facing increased pressure to stay up to date on processes related to customer risk rating — a key component in calculating whether to on-bank a customer based on the financial institution’s risk appetite. A typical risk score will include information about customers’ businesses, occupations, salaries, and the type of banking products they traditionally use.

There was some positive news for the financial services industry in the report as well. Only 10% of respondents experienced a regulatory action related to AML and CDD compliance. Further, survey respondents reported that it has becoming less of a challenge to remain compliant with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In fact, in 2021, the percentage of companies that were at least somewhat challenged by Dodd-Frank plummeted to just 11% — roughly half as much compared to the previous survey.

In a recent webinar, Jim Richards, founder and principal of RegTech Consulting; and Todd Ehret, a Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence, both warned that regulators may have been less active in their enforcement actions as of late, largely due to the COVID-19 pandemic. Yet there are some warning signs ahead that 2022 could bring a wave of investigations and enforcement actions against financial firms, such as the Securities and Exchange Commission’s recent action against JP Morgan Securities.

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