Financial crime compliance has gained heightened significance against the backdrop of geopolitical disruptions stemming from conflicts such as the Russia-Ukraine and Israel-Hamas tensions. The ongoing wars have raised concerns about the potential surge in money laundering and other financial crimes supporting these conflicts.
Cybercrime has become a major concern, particularly in hacking and spreading disinformation, with an estimated global cost of $9.5 trillion in 2024. Financial criminals increasingly exploit digital assets and dark web marketplaces, necessitating the evolution and strengthening of financial crime compliance to combat more sophisticated fraud.
Real-Time Monitoring and Trade Compliance: In 2022, global real-time transactions increased by 63.2%, emphasizing the need for enhanced monitoring, especially amid changing regulatory frameworks due to geopolitical shifts. Real-time monitoring is crucial for identifying potential fraud and enforcing sanctions.
"More efficient real-time monitoring is expected to continue helping with both these factors this year," says LexisNexis Risk Solutions.
Data and Analytics as Strategic Assets: Data and analytics play a pivotal role in compliance management, leading companies to invest heavily in sophisticated analytics for effective decision-making. Predictive analytics are increasingly employed for forecasting risks related to financial crimes, such as money laundering, and aiding in tracking transactions and Know Your Customer (KYC) processes.
"Companies could see more value in bringing all their processes and departments onto one common digital platform for smoother processes and insights," notes LexisNexis Risk Solutions.
Wildlife Trafficking's Resurgence: Wildlife trafficking, currently the fourth-largest illegal sector globally, has rebounded to pre-pandemic levels, fueled by a network of cross-border players. The illegal trade involves corrupt governments, financial systems, logistics companies, and organized crime rings, posing risks of funding other financial crimes and causing health and environmental issues.
"50% of maritime seizure weight in 2022 was rhino horn, elephant ivory, and pangolin scales," with India, China, Indonesia, and Malaysia being major players.
Sanctions and Evolving Compliance: The Russia-Ukraine conflict led to numerous sanctions, creating a complex landscape with frequent updates. The dynamic nature of international sanctions poses challenges for companies and financial crime compliance, emphasizing the need for continuous risk assessment and automated compliance checks to avoid breaches.
Ultimate Beneficiary Owners (UBOs) Identification: With the rise of shell companies and fraudulent accounts, identifying the true UBOs of an organization has become vital to prevent terrorist funding and money laundering. In 2024, banks and financial institutions are expected to rely more on data analytics and automation to efficiently gather customer data and identify UBOs.
Artificial Intelligence in Financial Crime Compliance: Artificial intelligence, including chatbots and advanced systems, plays a crucial role in assessing risks in real-time, reducing costs, and improving efficiency. While endorsed by the Financial Action Task Force (FATF), the implementation of AI tools may face challenges due to high costs and integration complexities.
Compliance Costs vs. Customer Experience: As compliance costs rise, businesses face the dilemma of prioritizing customer experience or meeting regulatory requirements. Financial crime compliance professionals express the need to prioritize customer experience, but this presents a balancing act, particularly in countries dealing with surging inflation.
In 2024, the financial landscape is marked by evolving trends in real-time monitoring, data analytics, wildlife trafficking, sanctions, UBO identification, AI integration, and the ongoing challenge of balancing compliance costs with customer experience demands.
