8 compliance trends and predictions for 2023

2023 compliance trends

The last few years have been difficult to predict when it comes to looking at compliance trends. From the fallout of the pandemic and Brexit, to the war in Ukraine; it has been a tumultuous time for regulated businesses.

What’s more, 2022 saw a greater impact of dirty money moving through the world’s financial centres. And a spate of sanctions and increased scrutiny were just the beginning. Fraud washed through the usual channels, but greater focus was placed on the property and luxury goods markets – such as super yachts and private jets.

2023 will continue to see increasing pressure on financial crime professionals. Whether that’s anti-money laundering, fraud, sanctions, or cybersecurity. 

In this blog, we share our views for what’s in store for compliance trends and discuss our predictions for 2023.

Impact of the EU’s AML Reforms

Many EU states agree that more needs to be delivered to combat AML. Fraud sees no boundaries when it comes to numerous jurisdictions. The recent proposals put forward by the European Council are certainly a step in the right direction. But only if they can be delivered. Europe needs to play a bigger part on the global stage as fighting anti-money laundering crime cannot survive in, or rely on, the current system.

There have been numerous directives over the last few years, but the Council needs more ’teeth’ in the implementation of the regulation.  For example – blacklisting those companies that do not follow the rules.

Meaningful reform is welcomed, including initiatives such as promoting information sharing across all sectors; whilst public registries needing to be interoperable and more transparent are all positives. 

The proposals are on the table, but all parties need to commit and act. We have been travelling this journey for so many years now, with so many different directives. It would be great to see the tables turn in 2023, with all of us making real progress. 

Economic downturn will drive more fraud

Previous data suggests that fraud and cybercrime increases during times of recession. This isn’t confined to banking. It reaches across other sectors such as rental, loans, online shopping, mortgage and investment fraud as well. 

As a global recession looms, the need for stronger identity verification is called for. Criminals will leverage deepfake technology to commit a greater number of fraudulent transactions. Biometric facial recognition certainly helps to combat these deepfakes and we will undoubtedly see a rise in usage across most sectors.

We predict that there will be an increase in identity fraud in 2023 with the mortgage industry and digital banking being significant targets. 

Geopolitical conflicts impact on sanctions enforcement

With the continued conflict between Russia and Ukraine, 2023 will see global partners working together on a greater scale to make regulatory enforcement easier. Larger fines and greater enforcement will be implemented if sanctions violations persist 

To counteract this, firms should reassess their appetite for risk. Measures must be put in place to manage this risk and technology used to flag sanctioned individuals to combat the risk of fines.

Compliance will go beyond regulated businesses

We have already seen increased focus on the high value art market as criminals look beyond financial services to hide or wash their ill-gotten gains. 

Non-financial industries like jewellers and traders and even telecoms are under review by the regulators, mandating KYC and AML reporting for some transactions. 

The telecoms industry is already taking steps to eliminate SIM card fraud in particular with enhanced KYC verification. This also applies to the increased number of digital payment transactions that are conducted through mobile phones. 

2023 to see a greater adoption of RegTech and AI solutions to deliver compliance

Legacy systems continue to plague many regulated businesses. Fragmented data and overly manual processes to manage the financial crime risk within a compliance function can hamper productivity and the achievement of cost efficiencies. 

With the predicted increase in financial crime, complexity of cases, higher volumes and velocity of payments, and increasing regulatory obligations, the challenges are only compounded.

Financial crime will never be eliminated. Regulators will increase their reviews and will favour those businesses that have adopted technology to prove the effectiveness of their processes. Regulators are continually increasing their support of advanced technology and RegTech solutions to improve effectiveness and efficiency. 

2023 will see greater implementation of data-driven, API and AI driven solutions, including:

  • Biometric facial recognition identity and verification solutions for authentication
  • Contextual screening for adverse media checks, and PEPs and sanctions monitoring
  • API technology to consolidate data from numerous sources to prove criminal linkage, within corporate structure/beneficial ownership discovery
  • Compliance platforms to automate lengthy remediation projects based on risk appetite and GAP analysis

Plugging the talent gap in compliance

Compliance functions not only require individuals with technical compliance skills, but also individuals who are flexible and creative across the fast-changing industry environment. 

2023 will see companies continuing to face increased challenges in finding skilled compliance professionals amidst a limited talent pool. Particularly as compliance teams are facing heavier and increasing workloads, as financial crime and, consequently, regulation increases. 

In addition to a solid understanding of, and ability to assess and interpret, regulatory guidelines, increasingly compliance staff need to possess greater digital and analytical skills. 

RegTech platforms will play an increasingly important role in plugging the gap and making compliance more efficient. It’s not a question of continually throwing more resource at the problem and leaving positions unfilled. But using technology to deliver automation for those time-consuming repetitive tasks in order that the highly skilled professionals can focus on the more complex cases. 

Crypto crime prevention and scrutiny to increase

Regulatory framework developments were significant in 2022, as were the unravelling of serious crimes, which are only set to continue. 

The growing crime rate within the sector has caught the attention of the regulators. With the FATF and the EU extending regulations, such as the MiCA (Markets in Crypto Assets) Regulation in 2022, there will be continued focus to protect against crypto-based money laundering and other crimes.

2023 will see more jurisdictions joining the bandwagon and following the FATF guidance and mandating stronger obligations around crypto transactions.

Further regulation

As in previous years – regulation will continue to evolve in 2023. Compliance must ensure that its systems and processes keep up with the fraudsters and their new methods of washing dirty money or fraudulently obtaining funds. The EU is overhauling some of existing regulation, including MiFID II and the Alternative Investment Funds Manager Directive. 

Also, major new regimes such as the Markets in Crypto-Assets Regulations and the Corporate Sustainability Reporting Directive are expected to take effect in 2023 or 2024. And the UK’s new Consumer Duty applies from next July, while the Financial Services and Markets Bill proposes substantial changes to the mechanisms of regulation.

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