AML in 2024: Geopolitics, Regulation, and Data

Increasing geopolitical instability, regulatory developments, and technological advances are set to contribute to a rapidly changing anti-money laundering (AML) landscape in 2024. Here, we look at each of these key themes in more detail.

Geopolitical instability

Geopolitical instability, particularly the Israel-Gaza war, will have huge ramifications for chief risk officers (CROs) and chief compliance officers (CCOs) this year. In contrast to the Russia-Ukraine war, which resulted in a significant rise in sanctions over 2022 and 2023, the ability of authorities to impose targeted sanctions will become much more difficult. With the sanctions against Russia, it was comparatively straightforward to identify and target bad actors and their associates; in the Middle East, the situation is more complex and ambiguous. Heads of risk and compliance will need to take a proactive approach to guiding their organisations through the conflict, with the first step of conducting a thorough reevaluation of their company’s exposure to the region, which will be essential preparatory work for when sanctions are imposed.

PEPs treatment under scrutiny

The treatment of Politically Exposed Persons (PEPs) will be another key area of focus in 2024. CROs and CCOs globally will be keeping a close watch on the outcome of the UK’s Financial Conduct Authority (FCA) review of how firms handle domestic PEPs, their families, and associates. Due to conclude by June, the review examines how firms interpret international standards set by the Financial Action Task Force (FATF). The concern, however, is that the rules are sometimes applied disproportionately based on subjective criteria, potentially leading to PEPS being excluded from some services.

For UK firms, the review may mean that firms need to adjust their approach to PEPs identification, risk assessment, and ongoing monitoring. The UK’s review may affect other jurisdictions by highlighting the disparity in how the FATF’s rules are applied between countries.

Ultimate Beneficial Ownership and company filings

From a regulatory implementation perspective, new UBO and company filing requirements will take up significant bandwidth in 2024, with several jurisdictions introducing or proposing new requirements. These include new beneficial owner information (BOI) reporting requirements coming into force this month in the US. Institutions will need to incorporate the new BOI rules into their current AML customer due diligence efforts, which will have implications for processes, systems, and risk assessments.

In the UK, new legislation, the Economic Crime and Corporate Transparency Act (ECCTA) will be phased in over the course of 2024. Among other things, it increases the power of Companies House to query and reject filings. It will also include additional identity verification requirements for all company directors.

AML and crypto assets

AML regulations for digital assets are also evolving. In the US, the Lummis-Gillibrand bill has prompted debate over the regulation of cryptocurrencies and will be closely watched worldwide. As it currently stands, the bill introduces a CEO attestation, under penalty of perjury, regarding compliance with applicable AML and sanctions laws.

In the UK, as of 2023, crypto assets sit within the scope of the Financial Services and Market Act 2000. Among other things, this means that any firm promoting crypto assets to UK consumers is obliged to register with the FCA under AML and counter-terrorism financing (CTF) requirements. Some providers have chosen to exit the market as a result. Those who choose to register will need to demonstrate they have the relevant AML systems and processes in place.

Data governance and quality

With financial institutions increasingly looking to extend the use of AI and automation in AML processes, compliance officers will need to become much more data-focused in 2024. While certain aspects of AML, such as screening, have been automated for some time, many institutions are now looking at how AI can be applied elsewhere to achieve straight-through AML processing. To achieve this goal, it is essential that institutions factor in underlying data quality and infrastructure.

 The transition to the data-rich payments messaging format, ISO 20022, which is finally happening after several years of delays, should prove a boon by providing much more detailed data. It also means a likely surge in data volumes, which will have implications for data governance processes. Involving CROs and CCOs in data governance planning and discussions will help to ensure control mechanisms are adapted in line with changing processes.

Planning for 2024

Now more than ever, it is essential that institutions focus on updating and maintaining the health of their risk assessment programmes and ensuring their efficacy and accuracy are watertight. The pace of change in AML shows no sign of slowing down in 2024. The Middle East situation will be high on the agenda of CROs and CCOs, along with a host of regulatory developments. There are also the many opportunities offered by automation, AI, and ISO 20022 to help combat financial crime and improve efficiency. To realise these potential advantages, institutions need to think first about data quality and governance, with those that get a head start set to fare best in these volatile times.