In past years, the rising pressure for financial crime professionals, whether they work in AML, fraud prevention, or cybersecurity. It is getting harder and harder to keep up with growing compliances.
For businesses looking to safeguard themselves from fraud, keeping up with compliance trends is crucial. Here are the top compliance trends to watch out for in 2023.
Growing Compliance Trends in 2023
1. Financial Crime Extending to Other Industries
Financial services is the most highly regulated industry, especially in the areas of crimes like money laundering, bribery and tax evasion, and other types of crimes.
Regulatory bodies all across the world are making new controls to make it harder for criminals to conduct crimes. This has pushed criminals to use other industries to conduct money laundering crimes.
Some other industries include:
- Real estate
- Luxury goods
- Precious metals
- Gems and Jewelry
- Casinos gambling, and others
With growing awareness of financial crimes, regulators are mandating KYC and AML regulations across all high-risk industries.
The U.S., EU, UAE, and India are leading the industry in this space. Fincrime risk assessments for a variety of potential crimes, such as fraud, money laundering, corruption, and others.
2. SWIFT Migration to ISO20022 Will Drive Enhanced Screening
SWIFT’s migration to ISO20022 payment standard for cross-border payments and reporting has been in operation since March 2023.8.16.
With this sudden change, the new payment messages will have richer and more structured data than current MT formats.
Most FIs are currently facing issues with payment screening match accuracy, resulting in a deluge of false alerts while carrying a risk of missing true alerts.
As SWIFT shifts to new standards, FIs will have to enhance their screening process and matching rules by adopting targeted screening of cross-border payments.
3. Instant Payments Require Monitoring
Instant payments have become the norm in several companies. Beneficiary accounts are being credited within a few seconds, so it increases the risk of fraud.
IMPS in India, Faster Payments in UK, and Osko in Australia are the best examples of Instant payments.
EU laid out the foundation in 2017 for instant Euro payments within EU countries. The speed of payments is a crucial factor that is loved by fraudsters. This forces FIs to implement real-time screening and fraud detection systems.
The financial industry is looking to shift money laundering checks to monitoring to create reports for law enforcement to a real-time mode to identify payments that seem suspicious.
FIs need to strike a balance between fraud prevention and customer experience. Achieving the highest level of accuracy and reducing fraud levels has to be the priority of financial institutions.
4. Adoption of Data & AI Solutions for Compliance
A lot of financial institutions struggle with fraud prevention relying on legacy solutions. Manual processes and fragmented data don’t paint the complete picture and are inaccurate in preventing fraud.
Crimes are getting more complex, higher volume and velocity of payments and growing regulatory obligations make it challenging to prevent crimes.
Regulators advice financial institutions to use advanced technologies which has led to a rapid growth of RagTech solutions. The number of FIs that have implemented new technologies is still small but they have shown promising results.
In coming years, the implementation of data-driven AI solutions will keep on rising, such as:
- Biometric-based smart identification, verification, and authentication.
- Natural language processing (NLP)-powered contextual screening and adverse media checks.
- Network graphs for criminal linkage and corporate structure/beneficial ownership.
- Machine learning for detection of fraud, money laundering, bribery & corruption, human trafficking, environmental crimes, and others.
5. Focus on Crypto Crime Prevention
Another compliance trend that’s on the rise is crypto crime prevention. This year’s crypto market was plagued by multiple storms and endless regulatory framework developments.
The crypto industry is still recovering from the impact of serious crimes that took place in 2022.
While the overall transactional value of crypto is much smaller compared to fiat currency, the rising adoption of crypto paired with an increasing rate of crime has begun to scare regulators.
During 2022, FATF also expanded the Travel Rule recommendation to include VASP reporting requirements.
The EU also approved the MiCA Regulation in 2022 to protect businesses against crypto-based money laundering and other crimes.