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AML fines are on the rise: are legacy solutions or repeated mistakes to blame?

Regulatory fines for anti-money laundering (AML) failures between 1 January and 30 June 2020 have outstripped those issued in the whole of 2019 by $262m, research by Duff & Phelps has revealed.

The financial consultancy firm’s Global Enforcement Review 2020 has found that AML fines issued by global regulators already amount to $706m, six months into the year, while fines issued in 2019 totalled $444m.

The penalties fluctuate in number, however, the reasons for the fines are the same shortcomings that have blighted financial services over the last five years: management of AML, suspicious activity monitoring, due diligence checks on new customers and ensuring general compliance with the rules. Due diligence checks, in particular, is an area in which financial institutions continue to fall short. IT governance, third-party oversight and staff recruitment amass relatively few fines in comparison.

Speaking to the Financial Times, Alison Wilson – a partner at Linklaters – commented that enforcement activity is commonly related to “legacy systems and controls”. She said, “banks are overhauling [them], but the number of fines in this area shows the inherent challenge in getting this right.”

Global regulators are catching up with the US

Undoubtedly, 2020 is on course to see AML fines more than double those issued last year. However, it is worth noting that the figures remain significantly lower than those recorded in 2018 ($3,297m) and 2017 ($2,136m). This is especially true of the US, which has historically led the way in imposing AML fines, but is now seeing European regulators follow suit. While the US continues to issue the largest proportion of fines – the ratio is decreasing as other regulators close the gap.

For instance, in 2018 the US issued $1,909m in AML fines, which amounted to 58% of all AML fines globally. In 2019, the US issued AML fines of $199.09m, amounting to 45% of market share as countries, such as the UK, caught up ($127.94m).

So far, in 2020, the US holds only 12% of total fines ($85.16m) as the UK’s total is over half ($47.61m). Sweden has so far issued $560.61m in AML fines between 1 January and 30 July this year following high-profile misconduct proceedings.

Nick Bayley, head of UK regulatory consulting at Duff & Phelps commented on the shift in global fines: “Despite the uptick in AML fine amounts in 2020 we are still seeing fewer massive fines being imposed in the United States. It may simply be that the very largest financial institutions may be beginning to get their AML compliance in order, at last.”

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