• White Paper
Navigating
the Maze of
Financial Services
Compliance
Requirements
Shifting AML, KYC
Regulations Place
Burden on Companies
to Keep Pace
Increases in financial crime and the
rise of digital banking and fintech
services have created ideal conditions
for greater regulatory scrutiny and
expanded Anti-Money Laundering
(AML) and Know Your Customer
(KYC) requirements.
With regulators constantly dissecting business
activities and countries around the world adjusting
their financial crime laws, there’s a lot of pressure
on financial services companies to keep up.
Compliance costs are high, but noncompliance fines
are often higher.
Regulatory change won’t slow down because
innovation in financial services doesn’t stop — and
neither do fraudsters. That has led to new data
collection, verification and reporting requirements
around the world.
Introduction
Companies that need to meet identity
verification requirements as part
of AML and KYC are searching for
nimble systems that match the speed
of regulatory change without losing
operational momentum.
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Tech Adoption and
Crime Drive Continued
Regulator Interest
The U.S. Federal Trade Commission
reported a 70% increase in fraud
losses from 2020 to 2021.
Financial app installs surged between
2020 and 2022, with consumers
increasingly turning to digital options for
financial services.
While that’s mostly good news for financial businesses,
adoption has correlated with increases in fraudsters
trying to exploit new vulnerabilities in infrastructure
and take advantage of less experienced digital
financial services users.
Fraud incidences and costs have grown significantly.
The U.S. Federal Trade Commission reported a 70%
increase in fraud losses from 2020 to 2021. Cifas, a
nonprofit fraud prevention service in the U.K., reported
a 22% increase in identity fraud cases during that
same period.
As financial criminals become more sophisticated and
introduce new attack vectors, governments will likely
strengthen regulations and oversight wherever people
move money.
70%
Regulatory Spotlight:
Wealth Management
In the U.S., firms are required to identify and
verify the identity of beneficial owners of
customers, meaning wealth management
companies must identify those who
ultimately own an account opened in the
name of a trust, business or other legal entity.
That can be especially difficult for complex
or offshore ownership structures.
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Regulatory
Change With
Expanded Scope
Is on the Way
A 2022 survey of U.S. and U.K. financial services
compliance decision makers found 34% ranked
managing regulatory change as their top priority for the
next year. Among U.K. respondents, 95% said they are
at least somewhat worried about ongoing regulatory
changes due to Brexit.
Governments are already considering stronger
oversight in nontraditional, less-regulated sectors.
• The U.S. 2022 National Strategy for Combating
Terrorist and Other Illicit Financing lays out plans
to assess unregulated sectors and strengthen
beneficial ownership information reporting
• The Australian government issued a 2021 money
laundering and terrorism financing risk assessment
of the “non-bank lending and financing sector,”
finding a medium-level threat that warrants
additional regulation
• In the U.K., more than 70 fintech CEOs signed
an open letter in 2022 urging the government to
strengthen fintech regulations, calling out payments
alternatives such as crypto and blockchain as
needing particular attention
• A 2022 U.S. Department of the Treasury report
recommended more fintech regulation
• A 2022 International Monetary Fund report noted
efforts to regulate crypto assets have moved to
the top of national policy agendas, but different
countries take different approaches — from
prohibition to creating favorable crypto business
environments
Consumers may start pressing for more regulation.
A study of U.S. consumers at the end of 2022 found
86% are concerned that crypto and fintech firms
aren’t held to the same regulatory standards as
financial institutions.
Multinational companies know
regulatory change is not a
matter of if, but when.
34%
ranked managing regulatory
change as their top priority
95%
are at least somewhat worried
about ongoing regulatory
changes due to Brexit
Results of a 2022 survey of U.S. and U.K. financial
services compliance decision makers
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The Cost and
Burden of
Compliance
The technology, systems and staff
needed to implement compliance
programs are expensive, and leaders
say the costs are only going up.
According to one survey, 88% of compliance leaders
say costs have risen in the past five years. In another,
53% of CEOs say regulatory changes will significantly
affect their profitability in the next 10 years.
Another cost implication: Compliance takes
professional staff time away from value-added
activities. Consulting firm Oliver Wyman found that
nonrevenue-generating tasks such as compliance
take up approximately half of advisors’ time.
88%
88% of compliance leaders say costs have
risen in the past five years
Regulatory Spotlight:
Online Trading
• In 2022, the Hong Kong Securities and
Futures Commission clarified regulatory
guidance for online brokerages, including
around client due diligence, cross-border
solicitation, and face-to-face and remote
account opening.
• New regulations in Thailand require KYC
for crypto trading.
• South Korea will launch a Virtual
Currency Tracking System in 2023 to
establish sources of funds and combat
money laundering in crypto trading. The
regulation is ranked with gang violence
and drugs as policy priorities.
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The Stakes Are High
According to the Sanction Scanner, the $140 million
fine USAA Bank received for inadequate compliance
was among the largest of 2022. The $53 million
penalty levied on Bittrex for various AML and
sanctions violations was among the highest for crypto
exchanges.
New regulations aren’t just boosting costs; they’re
expanding liability. In the EU, criminal offenses defined
in the Sixth Anti-Money Laundering Directive now
include entities or people failing to take action against
a criminal activity. Similarly, the U.K. has introduced
“failure to prevent” as a corporate criminal offense as
part of its AML regulations.
Regulatory Spotlight:
Foreign Exchange
• Foreign exchange (Forex) platforms
are often regulated by a country’s
securities watchdog. In Australia, it’s
the Australian Securities & Investments
Commission. In the U.S., it’s the National
Futures Association and others, while
U.K. forex brokers answer to the U.K.
Financial Services Authority. The rules
are consistent with KYC and AML
requirements for financial institutions.
• In Japan, Forex brokers are regulated
under the Act of Prevention of Transfer
on Criminal Proceeds, which requires risk
assessment, KYC data and document
collection, and customer due diligence.
The financial cost of compliance
violations is significant.
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Regulatory Spotlight:
Banking
• According to a 2022 Kroll survey, 71% of
compliance leaders in Brazil and Mexico
are concerned about stricter KYC and
AML regulations. The Central Bank of
Brazil updated its AML guidance for
financial institutions to require more in-
depth customer risk profiles, source of
funds review, politically exposed person
updates and ongoing monitoring.
• Nearly half (46%) of U.S. compliance
leaders at financial services firms in 2022
said they have significant challenges
complying with the Anti-Money Laundering
Act of 2020 provision requiring disclosure
of beneficial ownership.
Managing
a Changing
Regulatory
Landscape
The current pace of regulatory change
calls for flexible technology solutions
that allow multinational companies to
quickly adapt to new requirements.
Addressing IT requirements is essential to an
efficient identity verification program. However, not all
companies have those capabilities.
In one study, a third of financial services firms report
they have reasonable systems but need upgrades for
regulatory technology solutions, while 16% have no
confidence in their IT infrastructure. In other words,
nearly half of financial services companies were
uncertain about their ability to quickly implement a
solution that meets a new AML or KYC regulatory need.
New regulations change how companies verify
identity. Maybe it’s new documentation, different
reporting requirements, watchlist screening or greater
assurance based on new liability. Whatever the need,
companies with a global presence face challenges
keeping up with new compliance requirements without
losing time in market.
Technology that allows companies to adjust
verification workflows to match the needs of a new
market in real time can overcome those challenges. If
a regulatory body changes compliance requirements,
such as introducing the need for physical
documentation or new reporting, the right verification
platform can quickly adjust.
An agile identity verification platform is designed
to respond to new needs. Whatever the regulatory
change — whenever or wherever it occurs — a
global identity platform can keep financial services
companies compliant anywhere in the world.
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The world’s
identity
platform.
Trulioo is a registered trademark of Trulioo Information Services Inc. in the United States, the European Union,
Canada and other countries.
Trulioo is the world’s identity platform, trusted by leading
companies for their verification needs. The Trulioo integrated,
automated platform provides unparalleled global coverage for
business and person verification and a comprehensive suite of
in-house capabilities.
Combining its state-of-the-art technology with expert verification
knowledge across diverse markets, Trulioo enables the highest
verification assurance levels, optimizing onboarding costs and
fostering trust and security in the global digital economy.
Contact us
The Trulioo global identity platform provides
the agility financial services companies
need to keep pace with evolving AML and
KYC regulations around the world. With one
platform leveraging a global network of more
than 450 data sources and with access to
more than 12,000 verifiable ID documents,
companies can achieve high match rates,
monitor watchlists worldwide and achieve
regulatory compliance anywhere.
Not all AML, KYC and business verification
challenges are the same. The Trulioo platform
helps financial services companies meet their
regulatory needs with nimble verification
workflows, artificial intelligence and machine
learning, and deep industry expertise.
The Trulioo global identity platform helps
companies expand across borders, adjust
to changing market conditions and meet
customer expectations for security and
convenience.