We live in a time of significant financial change; two once-in-a-lifetime recession events have happened in just over a decade, and regulators are trying to get a grip on financial economic crime while not limiting innovation.

Unfortunately, rapid digitization due to the pandemic has sent instances of financial crime soaring. Regulators exist to protect consumers and the local economy; money laundering and its predicate crimes are an existential threat to both.

So, what can regulators do in the face of such threats? Regulatory harmonisation across jurisdictions is one key response, aligning standards for regulated businesses is vital. Doing this would provide stability and security for businesses when operating across jurisdictions and allow for easier expansion into new territories, stimulating local economies without slowing down the speed of innovation.

We’re already seeing this to some degree across the EU. The European Banking Authority has launched EuReCa, the centralised anti-money laundering (AML) and Counter Financing of Terrorism (CFT) database for Europe. This type of data sharing is only made useful by more closely aligning regulatory frameworks, which has been done through the Anti Money Laundering Directives (AMLDs) and arguments have been made for baseline standards in applying the AMLDs across EU nations. However, this takes significant effort from multiple regulators and governments across many jurisdictions to function correctly.

More importantly, regulators need to be technologically informed and encourage adoption of intelligent approaches to compliance problems. Regulators often mandate policy and processes with limited guidance on how to achieve them. By working with regtechs and fintechs to discover the possibilities afforded by modern detection techniques to understand the behaviour of real customers, regulators can create stronger guidance for businesses. A focus on outcomes and over process will result in better protection for customers and the identification of financial crime as it’s happening.