Key trends that are shaping the financial crime compliance landscape in 2022

Navigating this landscape has never been more complex, from a dramatic increase in dynamic and targeted sanctions following geopolitical tensions, to the rising cost of compliance and keeping up with regulatory demands and expectations. As we look ahead, LexisNexis Risk Solutions sees six key trends that will shape the financial crime compliance landscape this year.

Increased cost of compliance
In 2022 and beyond, financial institutions are shifting towards greater investment in technology, rather than exponentially increasing labour to automate manual processes that tackle anti-money laundering (AML) and financing of terrorism (CFT), which could save on overall compliance costs. Financial crime compliance costs jumped 18 per cent from 2019 to 2020, largely driven by increased labour costs. However, financial institutions that allocated a larger share of financial crime compliance costs to technology experienced a smaller year-on-year compliance cost increase and fewer pandemic-related challenges.

Meanwhile, the “Great Resignation” trend of 2021 has caused concerns over a compliance skills gap within financial services. With more than 40 per cent of the global workforce considering leaving their employer in 2021, financial institutions may face increased difficulty in employing experienced compliance professionals.

The rise of cryptocurrencies
The use of cryptocurrencies has boomed, fuelling concern from the Financial Action Task Force (FATF) and other regulatory bodies over crypto-related financial crime. A total 5.6 million crypto storage apps were downloaded in January of 2021, making up 31 per cent of all downloads made in 2020. By the end of July 2021, major crypto thefts, hacks, and frauds totalled US$681 million. The year 2021 saw the highest ever reported ransom (US$70 million) for universal decryption keys as the US government set its sights on combating ransomware.4

The crypto ecosystem is facing increasing regulatory scrutiny in efforts to prevent illicit activity and ensure financial crime controls, such as sanctions, are adhered to.

Adoption of ISO 20022 payments
The urgency to implement a new global standard has increased over the past few years, due to the emergence of new payment methods from payment service providers, and other disrupters, with the goal to achieve a fast and seamless experience for end users. SWIFT will enable ISO 20022 messages for cross-border payments and cash reporting businesses starting November 2022.

Financial institutions can expect the adoption of ISO 20022, a new common standard for payments messaging, to not only increase the speed of payments, but also reduce costs for compliance teams. The richer, more detailed messages will improve sanctions screening through targeted matching and help organisations detect and prevent financial crime.

Growing use of artificial intelligence (AI)
The use of AI and its subsets (such as advanced analytics, natural language processing and robotic process automation) will continue to drive efficiency in parts of financial crime compliance, such as the automation of the first level review process. This will allow human workers to focus on higher-value tasks, such as investigating true matches.

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The banking sector saw the greatest satisfaction with their use of AI in comparison to other industries, with 79 per cent of executives surveyed in the RELX Emerging Tech Executive Report 2021 agreeing that AI impacts their industry very positively.

Transitioning to the cloud
We expect to see more companies moving their operations to the cloud, including their financial crime screening operations, taking advantage of the performance, security and analytics capabilities this infrastructure offers.

COVID-19 put significant pressure on banks to adopt cloud technology with the shift towards remote working and skyrocketing customer demand for online services, accelerating financial institutions’ digital transformation. Australia’s Infrastructure as a Service (IaaS) market climbed to AU$1.36 billion in 2020, up 38 per cent from the previous year’s spend of AU$988 million. The Australian market is on track to reach AU$3 billion by 2025.

This was according to data from an Australian emerging technology analyst firm, Telsyte. The study also forecasts the market to hit AU$1.74 billion this year, as over half Australian businesses who have implemented cloud computing systems report they are planning to increase spending on this during 2021. Cloud systems from Amazon, Microsoft, Google, IBM, Oracle, and Alibaba dominate the local market, making up 85 per cent of the 2020 revenue.

Challenges in trade-based money laundering
Sanctions regimes are expanding in scope and increasingly tackling issues, such as human rights violations, environmental crimes and global corruption. In trade-based money laundering (TBML), criminals take advantage of the size and complexity of international trade to transfer money between parties and evade authorities through the physical movement of goods such as over- and under-shipment of goods and services.

Most countries are failing to assess the money laundering risks of environmental crimes. To tackle this growing problem, gatekeepers, such as financial institutions and other regulated entities, and academic and law enforcement experts should collaborate with the regulators to monitor and combat TBML.

The US adopted the Global Magnitsky Act in 2016. Since then, Magnitsky-type legislation has so far been adopted in Canada, the EU, the UK, Gibraltar, Jersey, Kosovo and Australia. Through 2022 and beyond, we can expect sanctions to continue to evolve to encompass emerging global issues and for additional countries to adopt Magnitsky-like laws that enable governments to impose economic and travel sanctions against foreign individuals or entities who are involved in serious human rights, environmental abuses and corruption.

The financial crime compliance landscape never stands still. As it continues to evolve in 2022, LexisNexis Risk Solutions will continue to provide organisations with global risk intelligence that helps them stay ahead of emerging threats and manage complex financial crime regulations effectively.