Approximately 5% of the world's Gross Domestic Product (GDP), or around $800 billion, is suspected to be laundered through the global financial system each year.
However, the clandestine nature of money laundering makes it difficult to estimate the total value; and even though it's not easy to trace or uncover, it's still one of the most pressing issues faced by financial institutions across the globe.
We are going to provide a high-level overview of the world's financial crime market, divided into a five-part series looking at different geographical regions – exploring the trends, developments, and regulatory shifts expected in 2024, and how the industry is preparing and responding to these.
We begin this series with the United Kingdom and Europe.
Jurisdictions with Strategic Deficiencies
In 2023, there were updates to FATF’s watchlist. Among these changes, Bulgaria and Croatia were added for “strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing,” Albania was removed, while Gibraltar kept its status and continues to be closely monitored.
Banks and financial institutions operating in these areas will face increased scrutiny and must take the necessary safeguards to ensure compliance in 2024, including accurate risk assessments and enhanced due diligence measures.
Digital Finance: Regulation and Trends
The European Union’s Markets in Crypto Assets (MiCA) regulation was activated in June 2023 and is due to take full effect by December 30, 2024, making it the first major jurisdiction in the world to introduce comprehensive, tailored rules for the sector.
The new measures aim to facilitate legal certainty for businesses and attract more investment to the region, applying to 27 countries that collectively represent nearly one-fifth of the global economy. Those considered non-compliant could potentially face million-euro penalties as high as 12.5% of annual turnover.
MiCA could also have an impact beyond the EU’s borders as these pioneering standards could quickly become the global norm, with future laws using the regulatory categories MiCA creates as a point of reference.
Other European legislation that became effective in 2023 includes:
- Information accompanying transfers of funds and certain crypto-assets – Adopted to ensure that the Financial Action Task Force (FATF) requirements on wire transfer service providers, and in particular the obligation on payment service providers to accompany transfers of funds with information on the payer and the payee, applied uniformly throughout the Union and;
- Market infrastructures based on distributed ledger technology – To allow for the development of crypto assets that qualify as financial instruments and for the development of distributed ledger technology while preserving a high level of investor protection, market integrity, financial stability and transparency, and avoiding regulatory arbitrage and loopholes.
Need help? Our FCA team specializes in helping FinTechs with risk assessments, independent reviews and audits, and implementing robust compliance frameworks.
Fraud: The UK’s Fastest Growing Challenge
Figures from 2023 show that fraud continues to be one of the most prevalent crimes in the UK.
The 2023 Half Year Fraud Report from UK Finance revealed that 77% of all Authorized Push Payment (APP) fraud came from online platforms such as fake websites and social media. Meanwhile, 45% of fraud-related losses started via telecommunications, including scam calls and texts.
A chilling report from NordVPN also suggests that over 160,000 stolen payment card details for the UK are listed on the dark web, more than anywhere else in Europe.
The advancement of technology and AI only adds fuel to the fire by providing fraudsters with more sophisticated social engineering methods to ruthlessly target their victims, creating an even bigger challenge for the financial crime sector at the forefront of the fightback.
In response to this evolving threat, the UK Government introduced a new strategy in May 2023, setting out over 50 measures to decrease fraud and cybercrime by 10% by 2025. You can access the Fighting Fraud: Breaking the Chain report here.
Additionally, the Government collaborated with 12 major tech companies to launch an Online Fraud Charter at the end of 2023.
This pioneering initiative aims to crack down on online scams, fake advertisements, and romance fraud; and encourages tech companies to intensify their fraud prevention efforts by improving verification processes, swiftly removing fraudulent content, making it easier for users to report fraud, and enhancing cooperation with law enforcement.
For those working in compliance, it's recommended that risk assessments are kept up-to-date and dynamic software solutions are deployed to enhance fraud detection capabilities, considering the growing threat of identity theft and payment fraud.
Sanctions and Export Control: Navigating Complex Geopolitical Shifts
Between Russia-Ukraine, Israel-Palestine, and other brewing conflicts around the world, 2023 will certainly be classified as a year of global conflict.
Widely considered unimaginable just a few years ago, high-intensity conflict not only in Europe but also involving the UK and Europe, as they fulfill their duties as allies, threatens global peace now more than ever.
One thing is for certain: Political appetites are changing, and fast.
In response, we have seen a high level of coordination between sanctions authorities across jurisdictions and unprecedented economic sanctions imposed to avoid armed combat, with financial institutions essentially being asked to stop war.
A new UK Trade Sanctions Unit (OFSI) was established to crack down on firms evading sanctions. The FCA and OFSI have an operational agreement to share information about suspected sanctions breaches, and the EU added a layer to Russia’s current regulatory sanctions framework.
A tailored compliance program that accounts for geographical nuances and supply chain intricacies, coupled with a proactive approach to finding and addressing sanctions exposure with screening systems that can identify deviations and behavior patterns effectively, should be critical focus areas for compliance teams in 2024.
Want to learn more about our screening and entity enrichment solutions that can be tailored and calibrated to your firm’s sanctions risk? Fill out our contact form, and let’s start the conversation.
AMLA: Who Will Win the Race?
While European legislators have agreed on the shape of the new anti-money laundering agency (AMLA), national governments have yet to decide on its location or the rulebook it will follow – is it to protect the financial system, protect the security of Europe, or reduce the harm of crime and terrorism?
There are also a few disputes, namely, how football and the super-rich will be treated, as well as the registers of information relating to the identification of beneficial owners, with a shock ruling that this information should not be public by the Court of Justice of the European Union (CJEU). You can read more on this here.
This has delayed AMLA's establishment beyond the original deadline and could mean the new regulation will only take effect later this year, a blow for the bloc.
Adding to this, as with the establishment of any new agency, is the time needed for said agency to start performing. Combined with AMLA's intended scope, this will be a formidable challenge to overcome before we see any real progress made.
Either way, it's one to keep an eye on, and it will undoubtedly be interesting to see how (and where) this lands in 2024.
With increased supervision across risk-management disciplines in the UK and Europe, there will be no shortage of work for organizations to tackle in 2024.
Banks and financial institutions must prioritize compliance, invest in technology, and form secure partnerships to combat sophisticated criminal activity this year.
With our range of solutions, including tailored managed services, expert financial crimes advisory, and cutting-edge software, we can equip you with the right mix of people and tools, to help mitigate risk and ensure adherence to regulations in 2024 and beyond.
Contact us today to discover how we can collaborate to safeguard your institution against evolving financial threats while supporting operational efficiency.
And remember to stay tuned for the following four segments of our series!