The stakes are high for financial institutions—as regulatory authorities across the world regularly conduct a wave of investigations into suspected non-compliance cases, and impose sanctions that often result in substantial fines, jeopardizing licenses, and significantly damaging reputations.

In 2022, the challenges of compliance will require more technology and user-centered strategies.

Concepts like, data processing, credit quality, proficiency in compliance procedures, financial crimes, customer trust, and ethical business may be challenging to tackle while dealing with compliance requirements.

The following are some of the challenges that financial institutions should aim to focus on in 2022 in order to keep up with changing regulatory requirements.

Data processing: protection and governance

Financial services providers acknowledge data as something to be protected, with governance and control within their organization and through third-party organizations.

Although the quality of data, and how it is used are the most important aspects in the protection of personal or operational information, data ‌should always be captured, monitored, processed, and shared.

Since the breaches in data sharing continue, the expectations for more stringent data privacy and security regulations are increasing at both local and global levels.

Financial institutions should learn from previous credit cycles, and apply the results learned to their operations to prevent the potential risks related to:

  • Risk layering and leveraged lending
  • Expanded delivery channels and payment options
  • New products in services and technology applications
  • Disclosures via securities or trading activities, lending to non-depository institutions, or partnership arrangements.

Proficiency of compliance operations

Efficiency and change are part of the most important factors in legal and compliance processes. Together with the quickly evolving technological improvements, the speed of change within financial organizations requires firms to adapt to emerging risks and changes within the spheres of regulatory developments and new market necessities.

As the focus of compliance regulations turns to the technology sector, the business strategies of the organizations change accordingly, giving more attention to consumer protection risks.

Eventually, the challenges to compliance will remain at the center of areas like financial crimes, ethics, and customer data protection.

The link between innovation and financial crime

Using technology is unavoidable for companies striving to deliver better service and value to their customers. It is also paving the way for advanced forms of financial crimes and fraud.

Financial institutions are faced with ‌huge regulatory pressure to constantly identify the risks financial crimes will pose to their institutions. So, compliance authorities support the adoption of AI-related tech and technological innovations to help prevent these financial crimes.

However, since the volume of data, diversity, and number of sources and control of data is hard to navigate, institutions still struggle with these issues.

Building customer trust

The customer-centered business model involves a personalized service experience, mobility between channels, data privacy, evidence of good corporate citizenship, and fair value.

This is the model needed by financial service companies to build a loyalty-based relationship with their customers and it has gained more importance in this evolving environment.

Customer data protection is also at the center of regulations, as data ownership and control are still pressing topics regarding privacy concerns in this digital era.

Ethics in business

Financial companies are also expected to identify and prevent unethical conduct as stated by compliance regulations. Monitoring, surveillance, reporting, and governance will be added to the frameworks of misconduct identification procedures.

The main points of concern will be personal data privacy, sales processes, fair treatment, incentive plans, market conduct, third-party oversight, etc.

Next steps

So how can financial institutions steer clear of the AML compliance barriers ahead of them in 2022 and beyond? A major point would be financial institutions maximizing their effectiveness and efficiency.

The following are key considerations for financial and non-financial institution compliance and risk-management professionals:

  • Fostering an internal culture of collaboration and alignment means that AML risk management and compliance departments should not be seen as an obstacle, since they primarily seek to reduce financial risk, and ensure the markets are fair, efficient, and transparent. But they should rather be seen as an active part of the overall business culture with incentives aligned across business units.

  • Shifting the mindset from a ‘check-the-box’ exercise, which in certain institutions and regions still appears to be prevalent, to a true risk-management function. Without this shift occurring rather rapidly, regulatory actions and corresponding monetary fines will continue to be seen in 2022 and beyond.

  • Dynamic risk assessments should be implemented to identify changing business circumstances and shifting risk to properly address those shifts, rather than reacting to them retroactively.

  • As lockdowns and restrictions start to ease around the world, financial institutions should take a hard look at potential risk and regulatory exposures during the global COVID-19 crisis. Now is the right time for financial institutions to take a hard look at shifts in transactional and customer behaviors that have occurred over the past months and determine their potential regulatory exposures.

  • Financial institutions should consider an independent benchmarking exercise to not only assess strict compliance with AML regulations, but also the efficiency and effectiveness of current internal compliance processes. This will help them understand their strengths and weaknesses, and refocus resources on problems that need immediate attention before they come to the regulator’s attention.

  • Data should be linked so it becomes widely accessible. The availability of data, of which most financial institutions have enormous amounts, will make data valuable and digitally accessible. To remain on the cutting-edge of AML compliance, it will be necessary to become modernized.

  • As consumer acceptance of fintech (financial technology) companies increases, evidenced by their tremendous growth over the past few years, certain activities are moving away from heavily regulated traditional financial institutions. This not only poses challenges for the fintech companies themselves, but also shifts risks for traditional financial institutions that provide banking services to fintech companies.

Final thoughts

Money launderers and cybercriminals will continue to discover innovative ways to manipulate the financial sector to carry out illicit activities.

Therefore, the priority of financial institutions should be to incorporate an AML compliance framework that would detect criminal activities like; money laundering, terrorist financing, and other financial crimes, in time.

The overall challenges financial institutions will face when initiating in-house solutions to their compliance problems are mainly due to its feasibility, to decide if it can be maintained on a continuous basis, and if resources can be invested to keep it running.

Using the best compliance infrastructure platform will help with real-time risk assessment for your business, and ensure your team, customers, and business, never run into any compliance hereafter.

Contact Flagright to get started.