Compliance,

sanctions

& Financial
Crimes Industry
Trends 2023

www.compliancevision.com
compliancevision.com Compliance, sanctions & Financial Crimes Industry Trends 2023

Contents
03 AML violations 2023

04 Introduction
Harmonizing technological

and organizational transformation

07 PEP screening sophistication increases

Many companies are taking a more comprehensive approach to financial
crime prevention to keep up with the changing needs of their business.
This includes enhancing FRAML controls and utilizing new technologies

09 KYB solutions are adapting

such as Artificial Intelligence (AI). These systems are designed to
to satisfy market demands understand customer activity further and streamline processes to
manage financial crime risk better. Furthermore, AI is utilized for customer
ESG (Environmental, Social, and Governance)
onboarding and AML transaction monitoring tasks. As companies use
11 issues, as well as corporate credibility,

are becoming increasingly important topics

these new technologies, they must also recognize the need to instigate
cultural and organizational changes in their compliance departments.
Cross-team collaboration, increased flexibility, and a comprehensive
AML compliance programs should
understanding of the risk landscape are all necessary to ensure successful
13 incorporate supply chain risk as a key

component
financial crime prevention.

Implementing AI for financial

15 crime risk detection: A journey from

exploration to implementation

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compliancevision.com Compliance, sanctions & Financial Crimes Industry Trends 2023

AML violations 2023

At Compliance Vision we noticed
that the number of companies
What does this mean

indicating that choose to incur AML

fines and commit violations for you? Companies strive to harmonize

regularly has been steadily

increasing. Despite this, regulatory

Compliance Vision noticed an

evident sense of ‘enforcement
technological and organizational
enforcement action is still the
primary factor that drives change
lassitude.’ Compliance officers
must focus on positive
transformation
in organizations. The small fines
outcomes by stressing the
relative to companies’ turnovers Considering the difficulties of managing customer data, rising regulatory
human cost of financial crime
and lack of criminal enforcement demands, and the market’s competitive nature, companies have come

rather than the finances.

against those in senior to understand the value of a reliable infrastructure.

Companies should be open to

management roles may be the the long-term consequences of
reason for this decrease.

This involves having the correct data and team structure to ensure
well-publicized fines and
compliance. Instead of depending on outdated legacy systems and
enforcement actions, especially
However, the ex-CEO of Swedbank manual operations, many companies are now considering a more
with the first of the millennial
started a criminal fraud and comprehensive strategy combining technology and organizational
generation beginning to reach
market manipulation trial in 2022, transformation. By leveraging modern technologies, they can construct

middle age.
suggesting that firms are a more robust and adaptable base, allowing them to keep up with the
beginning to recognize that ever-changing business world.
greater accountability is
necessary. Despite this, firms are
focused on accountability and the
reputational damage that hefty
fines and executive prosecutions
can bring.

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compliancevision.com Compliance, sanctions & Financial Crimes Industry Trends 2023

What does this mean

If an audit of your organization’s for you?

As companies become
compliance was imminent, what increasingly aware of the need

areas of the compliance function for a suitable framework, they

focus on a more comprehensive

would be vulnerable? approach to combining

technological and
organizational transformation.

Firms are increasingly aware

structure, as it can either Utilizing modern technologies,
of the importance of modernizing streamline operations and reduce they can construct a robust and
their legacy systems and data
costs or lead to inefficiencies and efficient base better equipped

management to comply with extra charges. The best decisions to meet the demands of the
regulations. This has created
are made through collaboration ever-shifting business
a rising demand for qualified and leveraging the team’s environment.

compliance personnel with collective knowledge.

expertise in data science, digital Companies must be rigorous

forensics, and other related skills Compliance teams must stay in overhauling systems and
that help fight financial crime. current with the latest financial restructuring teams to reach
Compliance Vision noticed that crime technologies and methods this. There should be clear aims
companies are feeling the and acquire diverse skill sets, such and expectations consistent
pressure of digitally
as data science and digital with more significant business
transforming their legacy systems. forensics. This will make
aims while being realistic about
This showcases the importance
the already competitive hiring how quickly shifts can be
of modern systems in achieving
market even fiercer. Firms should implemented. Moreover,
good data hygiene.
consider automating AI to free up businesses should be confident
Companies must ensure that time and reduce the need to hire to experiment with novel

technology is appropriately additional staff. solutions and vendors if their

integrated into their organizational current providers cannot deliver
satisfactory services.

05 06
compliancevision.com
PEP screening
sophistication
increases
Compliance teams focus on mid-level
government officials regarding politically
exposed person (PEP) regulations, even though
analyzing global trends in how compliance
teams handle such regulations can be
intricate due to their varying nature.
confer their approach internally, and with specialists at suppliers and partners they
Mid-level government officials were the most
valued area, making it the highest-ranking
factor.
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Compliance, sanctions & Financial Crimes Industry Trends 2023
What does this mean for you?
Every compliance officer is aware of the necessity of establishing a risk-based
methodology. It is vital to analyze the diverse risk factors of PEPs
and evaluate them separately to have a simple risk-based AML program.
As many companies become more cautious, they must also assess other risk control
variables: How broad should our search settings be? Should PEP screening be done every
week rather than once a month due to political instability? Do we need to adjust the way
domestic and international PEPs are managed? A better comprehension of the political
atmosphere and the susceptibility of the PEP’s nation to political corruption will bring up
these inquiries. Compliance teams should receive advice from their national regulators,
associate with to benchmark how other equivalent firms tackle these matters.
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compliancevision.com
KYB solutions are adapting to satisfy market demands
As AML regulations broaden and business relationships become more
intricate, firms strive to bolster a crucial aspect of customer due diligence:
knowing your business (KYB). KYC is usually the focus when evaluating global
CDD regulations. Nevertheless, business-to-business relationships, which also
fall under the CDD legal scope, are equally important.
customers. It also will enable firms to merge traditionally compartmentalized
For instance, the UK's Financial Conduct Authority (FCA) and the European
Banking Authority (EBA) leave their definitions broad, requiring due diligence
on "business relationships.”
The Wolfsberg Group's 2022 Financial Crime Principles for Correspondent
Banking further demonstrate KYB's relevance among CDD practices.
The inherent liability in a correspondent relationship necessitates firms
For too long, KYB has been the elusive goal of financial
to verify the prospective business, its procedures, and its regulatory
accountability with increased due diligence.
but the technology available needs to be improved.
Our internal research predicted a market surge in electronic KYB from about
$150 million in 2020 to over $533 million by 2030, in addition to global
regulatory trends. This interest is partly attributed to a rise in tailored vendor
offerings driven by modern technology. KYB solutions address urgent industry
issues. A 2022 PYMNTS study linked inadequate KYB to considerable
giving them a complete picture of their problems.
fraud-related losses - including resources squandered on false positives.
Conversely, firms using “proactive and automated solutions” experienced
losses that were 34 percent lower. Organizations faced significant challenges
with digital business identity verification. An over-reliance on legacy solutions
and limited resources are key factors hindering firms. The report suggested,
among other things, streamlined onboarding technology that could balance
efficient ID verification with risk considerations. AI, biometrics, and REST APIs
enable businesses to streamline and integrate KYB with broader risk
management services.
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Compliance, sanctions & Financial Crimes Industry Trends 2023
APIs let firms layer approaches such as ID verification, digital forensics,
behavioral analytics, and identity clustering to ensure robust, specific risk
management. Dubbed orchestration, this multifaceted approach allows firms
to target bad actors while making processes smoother for legitimate
processes, such as KYB onboarding and FRAML monitoring, into a more
cohesive and risk-responsive package.
What does this mean for you?
compliance - everyone understands why it is imperative,
However, this is now the case, thanks to recent advances
in vendor solutions. It is vital to consider KYB within
the broader context of a move away from segregated
compliance procedures. Companies should look
for solutions incorporating corporate and risk screening,
Compliance teams do not need or want to add another
isolated solution to their compliance tech stack.
Although the European Court of Justice's challenge
to the provisions of the 5th Anti-Money Laundering Directive
(AMLD) in November 2022 was considered a setback
by many involved in improving KYB, ultimately, it will result
in enhancing the access rights to registers for those
with a valid purpose of preventing and detecting criminal
activity, including those responsible for gathering customer
due diligence. 10
compliancevision.com Compliance, sanctions & Financial Crimes Industry Trends 2023

ESG (Environmental, Social, and Governance) issues, What does this

as well as corporate credibility, are becoming mean for you?
increasingly important topics Currently, ESG is

an unregulated frontier

As the global economy places

and can lead to significant Furthermore, regulators
- many are attempting
a higher emphasis
economic losses and reputational are intensifying their focus on ESG to demonstrate their
on sustainability, firms prioritize damage for companies that fail
criteria. Examples of this include
involvement, but with
Environmental, Social,
to incorporate ESG considerations the US Securities and Exchange the absence of laws
and Governance (ESG) programs
into their risk management Commission's proposed and regulations, some
to maintain credibility with strategies. These results have amendments to rules to regulate providers are
regulators, customers,
highlighted the importance
ESG disclosures for investment performing better

and the public. This shift is driven of gaining consumer trust

advisers and investment companies, than others.

by heightened awareness
in a volatile market.
the Financial Conduct Authority's
of the risks associated with According to Nielsen, 75 percent
proposed measures
Consequently,
environmental crime,
of millennials actively consider to clamp down on 'greenwashing,’ companies should
new legislation, and the need
environmental factors when the Monetary Authority
anticipate more
to protect corporate reputations. making purchasing decisions,
of Singapore and Singapore oversight regarding
According to the report's ‘Spotlight thus making ESG programs Exchange's digital disclosure portal ESG in the upcoming
on Financial Crime’ section, increasingly crucial for firms.
for companies to report ESG data, year. They should stay
ecological crime
For organizations to be successful, and the European Banking informed of the most
is one of the most profitable and ESG programs must be Authority's Roadmap to Sustainable recent declarations

fastest-growing areas of criminal implemented with transparency Finance which outlines their in their regions in case
activity. One in four firms views it and integrity, as this will attract
approach to integrating ESG risk further investigations
as a critical predicate offense.
the business of millennials and the considerations into the banking into their patrons

The effects of environmental crime best talent.

framework over the next three years. are necessary.
are far-reaching

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compliancevision.com Compliance, sanctions & Financial Crimes Industry Trends 2023

AML compliance programs should What does this mean

for you?
incorporate supply chain risk as a key Last year's report spotlighted
component supply chain due diligence,

and by 2023 it has become an

The pandemic has caused sustained disruption to many firms, and as a result, they are now integral part of doing business.
looking to build their long-term resilience to supply chain disruption further. Even though current With China-related tensions
supply issues are expected to ease by 2022, companies are taking no chances and are paying remaining high, many firms
closer attention to geopolitical risks. This is unsurprising, as supply chains are becoming more have implemented more
complex and intertwined in the escalating geopolitical tensions between the US and China, rigorous due diligence practices
leaving them vulnerable to unexpected disruption. Regulators also increasingly focus
for connections with the country
on operational resilience, often linked with financial crime risk management.
and its jurisdiction.

To keep up with the ever-evolving global landscape, firms are adapting their practices to meet Those companies with
the changing regulatory demands. Recent events, such as the Biden administration blacklisting corporate clients must
31 Chinese tech companies, including YMTC, have further highlighted the ripple effect of supply investigate any ties to supply
chain disruptions on multiple industries. The US is also discussing similar accords with
chains involving the production
the Netherlands and Japan to prevent the export of chipmaking supplies to China.

of semiconductors, silicon
wafers, and other technology.

As international sanctions become increasingly strict, the risk of sanctions violations is rising.
Moreover, businesses should
In December 2022, Canada, the United States, the United Nations, and the United Kingdom evaluate the potential impact

imposed new sanctions on Russia and Russian entities. For instance, the UK implemented of any sudden changes in

restrictions on various services to those connected to Russia, including advertising, engineering, the supply chain and take steps
architecture, and information technology, as well as on the financial services sector.
to make their processes resilient
The United States’ updated SDN list also means non-US persons supporting SDNs can face to disruption when possible.

secondary sanctions. Regulations will likely continue to develop rapidly, which could lead

to evasion attempts. Companies must have a comprehensive and holistic supply chain risk By preparing for potential
management approach regularly updated to align with new sanctions. This should include interruptions, firms can
assessing the risk of blockchain-based currencies and performing due diligence on compliance minimize the consequences

vendors. Firms should audit their existing technology and leverage layered technologies that use if the unexpected occurs.
machine learning and APIs to ensure effective risk management.

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compliancevision.com
Implementing AI for financial crime risk detection: A journey from exploration to implementation
As AI and machine learning (ML) develop, they quickly become a cornerstone of
innovative regulatory technology. Companies are increasingly recognizing these
technologies’ advantages and rely on them for success. Allied Market Research
predicted in a 2022 report that the global fintech AI market will reach a staggering
$61 billion by 2030. AI and ML are used for fraud prevention, biometrics, process
automation, and data analysis and are no longer just speculation. This is evident
from the increasing global regulation of these technologies.
intelligent, alert prioritization to reduce false positives by 33%.
Here are some key examples
The European Union has proposed the Artificial Intelligence Act to regulate the
use of AI in areas such as public safety, healthcare, and finance
The US House Committee on Financial Services Task Force on Artificial
Intelligence has been established to address AI-related issues in the financial
services sector
The United Kingdom Financial Conduct Authority's AI Public-Private Forum and
Artificial Intelligence Discussion Paper seek to understand the potential
implications of AI on financial services
Lastly, the Monetary Authority of Singapore has launched Project Veritas to
explore the use of AI in efficient and accurate data analysis, which is essential
for effective anti-money laundering and countering the financing of terrorism
(AML/CFT) programs.
consistent with Compliance Vision’s analysis.
With financial crime trends on the rise, compliance teams increasingly need help
with the sheer volume of data they must process and analyze while facing budget
and staffing constraints. However, the advent of artificial intelligence (AI) has
presented a solution to this dilemma: fintech companies are now harnessing AI
project team gain support from key
to help streamline their anti-money laundering (AML) and know-your-customer
(KYC) processes. Andreas Braun of PwC Luxembourg recently noted the great
potential of AI in this regard, citing its ability to improve both the efficiency and
stay agile and stay caught up with rivals who
cost-effectiveness of risk management. AI is quickly becoming ubiquitous in
financial compliance, owing to its immense capability and convenience.
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Compliance, sanctions & Financial Crimes Industry Trends 2023
Companies interested in utilizing AI to improve their existing procedures can begin
with a gap analysis to identify which areas are having trouble meeting robust
AML/CFT standards. Traditional, hard-coded rules tend to generate a lot of false
positives while failing to recognize dynamic threats. Once the most significant
inefficiencies are located, businesses can investigate how to use machine learning
or AI to address them. For example, Deloitte has reported that firms can use
Additionally, if a company's gap analysis discovers detection flaws, AI can be
employed to detect hidden risks through the incorporation of behavioral analysis
and anomaly detection. Any comprehensive deployment of AI in transaction
monitoring or across an AML/CFT program needs to consider data quality,
organizational change, and other related elements. AI should be incorporated into
existing teams, processes, data, and platforms for the best outcomes.
What does this mean for you?
At Compliance Vision, our interactions with
prospects and customers concerning AI are
Compliance officers know AI's potential and
approach us with specific projects they want to
undertake. Once this is established, a proof of
concept is always the first step. This will help the
stakeholders. Moreover, many companies have
already seen success with AI, so it is essential to
could be working in a more advanced manner
without incurring similarly high costs.
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