7 Global Compliance Trends. What Business Leaders Need To Know

Chapter 1

Introduction

The 2008 global financial crisis put a spotlight on regulatory compliance. In the years that followed, failures in regulatory compliance at financial institutions across the globe led to fines exceeding $300 billion. But compliance woes are still relevant today. Research by McKinsey discovered that senior leaders are more comfortable with their credit & risk management strategy than their compliance risk. Many cited their discomfort with the unclear and evolving state of compliance standards.

The regulatory landscape is constantly changing and compliance teams are struggling to agree on the most effective approach, and ownership of compliance is weak compared to their counterparts. Compliance has always been a crucial aspect of business operations, but technology advancements are leaving organisations facing new and evolving challenges. From navigating local laws to preventing cyberattacks, staying compliant requires businesses to take a strategic and proactive approach.

This article will explore the key compliance concerns that business leaders need to successfully navigate to build a resilient business.

Chapter 1

Artificial Intelligence (AI)

AI tools have been used in various sectors for years across a range of use cases, most notably in the financial services sector for customer service, risk modelling and biometrics recognition. However, 2023 saw this trend accelerate across many industries.

AI is an area of computer science that learns to organise and interpret information to make predictions allowing it to work and perform tasks like humans. With the increasing usage of web-based services, many financial services firms recognised that it provided a better method of handling data and its ability to simplify and speed up traditional processes making them more efficient. However, the rapid progression of Generative AI (Gen AI) allowed many businesses to develop and implement solutions more quickly and efficiently than their counterparts.

The increasing digital footprint saw an explosion of data. Banks began to collect large volumes of unstructured data such as messages, emails and text. Leveraging this data allowed them to deploy AI into a range of different areas such as credit risk scoring, risk reviews and suspicious transaction monitoring to fuel their strategic decision-making processes.

With resources remaining stretched and budgets tight all while workloads increase, compliance teams will look to deploy AI across a range of disciplines including detecting fraud and money laundering, assessing regulatory risks, and forecasting compliance risks.

There's no doubt AI will reshape the compliance landscape in the years to come, but its integration comes with its own challenges.

Firstly, organisations should assess the benefits of adopting AI such as cost savings and efficiency gains while understanding that over-reliance on AI can pose a greater threat. We’re unable to put the breaks on AI, instead, we must move forward with adequate guidelines and regulations for the use of Gen AI in the workplace.

Secondly, with the uncertain economic outlook, more businesses are becoming reliant on AI. This raises questions about executive responsibility and the potential outcomes of AI integration. Instead of seeing AI as a replacement for human jobs, the collaborating paradigm recognises that humans and AI working together have complementary strengths. AI's strength is its ability in data processing and automating repetitive tasks. Humans bring creativity, empathy and a nuanced understanding to the table. When working together, they form a powerful partnership that can continuously deliver exceptional results.

AI is changing the quality of products and services the banking industry offers. Not only has it provided better methods to handle data and improve customer experience, it has also simplified, sped up, and redefined traditional processes to make them more efficient.

Jania Okwechime (PhD)
Associate Director Risk Advisory at Deloitte

Chapter 1

Cryptocurrency

Cryptocurrency has burst onto the scene in the last few years, causing much compliance-related confusion in its wake. Last year saw several cases of criminal and civil action against a multitude of crypto-asset firms including Kraken, Coinbase and FTX.

Recently the Financial Conduct Authority (FCA) introduced new rules on the marketing of crypto products. Within the first 24 hours the FCA issued 146 alerts to businesses for poor and inadequate performance. Not surprisingly, the UK government are set to introduce plans to regulate crypto-assets through the Financial Services and Markets Act, with secondary legislation expected to advance rulemaking.

A decentralised cryptocurrency is both risky and volatile to market changes. Not to mention that it has a reputation for being used for market manipulation, money laundering and the funding of illicit activities. Yet despite crypto’s history, it continues to grow in popularity with more businesses excited about incorporating cryptocurrency into their portfolio offerings.

Recently, payment giant Visa doubled down on its cryptocurrency solutions. The latest offering allows users to withdraw cryptocurrencies like Bitcoin directly from a wallet to a Visa debit card. The integration allows users to exchange crypto for fiat and is accepted at 130 million global merchants where Visa is accepted.

The debate about cryptocurrency will continue long into the years ahead. Money is changing and as the barriers between digital assets and traditional finance become more intertwined, the shift will create new and more complex risk, regulatory and compliance obligations aimed at safeguarding client assets and cryptocurrencies.

Chapter 1

Export controls and sanctions

The world is interconnected and geopolitical tensions have led to an increase in sanctions and export controls. Since Russia’s invasion of Ukraine in February 2022, many Western nations imposed several sanctions on the regime. The Office of Financial Sanctions reported that more than 90% of Russia’s banking sector had been sanctioned as a result.

Sanction complexity is also increasing. The new standard for sanctions extends to other areas such as cryptocurrencies and busineses. In 2023, the UK’s FCA discovered that financial firms' systems and security controls lacked governance, oversight, skill retention, resourcing, screening capabilities, customer due diligence, know-you-customer processes and breach reporting.

Companies engaging with sanctioned entities can result in extensive fines, business interruption, and a tarnished reputation. For instance, Standard Chartered Bank was fined £20.47 million by the UK Government’s Office of Financial Sanctions Implementation (OFSI) for breaching restrictions on loans to Denizank – almost wholly owned by Russia’s Sberbank at the time.

As we venture through the years to come, new trends and trade sanctions compliance will unfold. Business leaders must take a proactive approach and build resilience into their due diligence and compliance strategy.

Chapter 1

Environment, Social & Governance (ESG)

2024 will be "warmer than 2023", says the World Meteorological Organisation's secretary-general Petteri Taalas. “Extreme events such as heatwaves, drought, wildfires, heavy rain and floods will be enhanced in some regions, with major impacts.”

ESG initiatives will continue to dominate compliance teams' minds. While climate change will increase demand for products such as renewables and electric cars and dampen demand on others, there will be immense pressure from all sides for business to slash their carbon emissions.

It is our conviction that companies that perform well on ESG are generally less risky, better positioned for the long term and possibly better prepared for uncertainty.

Vincent Triesschijn
Director of Sustainable Investment at ABN AMRO

Increasing pressure from employees, customers and the general public has led many organisations to factor ESG initiatives into their operational and investment strategies. Just as well at a time when regulators are enhancing and accelerating ESG rulemaking, with initiatives such as anti-greenwashing expected to trigger hefty financial penalties.

Greenwashing is on the rise and some organisations have pursued growth tactics by misrepresenting their sustainability credentials. However, financial penalties in the UK are relatively low when compared to Asia. But with regulators focused on protecting investors from losses, misrepresentations and false advertising, It’s anticipated non-compliance will bear significant financial penalties more frequently as regulators look to launch more cases targeting deceptive environmental claims in investment.

In 2022, the UK's Competition & Markets Authority (CMA) launched an investigation into Asda, Asos and Boohoo regarding consumers being intentionally misled by greenwashing claims by businesses as they look to attract eco-conscious buyers.

Although no fines were issued, as consumer preferences shift towards more eco-conscious products, MPs are considering a new law that would impose fines of up to 10% of a business's global turnover if they were to breach conditions.

ESG is complex – there's no denying that. As the UK and our counterparts continue to focus on ESG, a generation of citizens who are defined by social consciousness and a desire for equitable representation are a driving force for change. Compliance teams must maintain awareness and governance of these issues for them to be effective and avoid any financial, reputational or legal risk in the coming future.

Chapter 1

Financial crime

Fraud and money laundering remain a top priority for compliance teams. It's estimated that £10 billion of illegal funds are laundered through the UK each year, with fines for anti-money laundering breaches reaching £53 million in the UK in 2023. Organisations that received penalties included Equifax Limited, Guaranty Trust Bank and Bastian Capital.

Today, organisations not only have to contend with the latest technological advancement but also the complexity and sophistication of illegal activity that it brings as fraudsters and criminals look to exploit the latest loopholes and technological advancements.

With the global economy slowing and technology readily available, regulatory bodies are intensifying their focus on financial crimes, including money laundering and terrorist financing. The global nature of financial transactions poses significant cross-border compliance challenges. Organisations must navigate a complex web of international regulations and ensure consistent compliance across all jurisdictions in which they operate. This requires a deep understanding of varying regulatory landscapes and the ability to implement flexible compliance strategies that can adapt to different regulatory requirements.

The FCA recently committed to ‘increase the volume of our proactive assessments of firms' anti-money laundering systems and controls" and to "develop further data-led analytical tools to use in our anti-money laundering supervisory work” as well as strengthening its data and monitoring capabilities to cover market abuse.

Navigating the evolving landscape of financial crime and AML compliance requires a proactive and comprehensive approach. The exchange of information between busineses and governments will greatly improve the prevention of fraud, money laundering and identity theft.

As busineses tackle the latest compliance challenges, compliance and risk teams need to stay informed about regulatory changes and adopt innovative solutions that will maintain resilience and safeguard against financial crime in the years to come. Regulations are ever-changing, but with adequate due diligence processes in place, most organisations will be able to avoid costly fines and damaging their reputation.

Chapter 1

Beneficial ownership transparency

Transparency in ownership structures is a growing regulatory priority to combat money laundering and tax evasion. Many countries including the UK are implementing or enhancing public beneficial ownership registers, providing greater visibility into who ultimately owns and controls businesses.

The latest requirements will complement the UK's growing regulation by requiring private companies to report detailed information on their beneficial owners, helping regulators track illicit financial activities more effectively.

Chapter 1

Supply chain monitoring

In today’s interconnected global market, third-party supply chain management has become crucial. With companies outsourcing production and logistics, effective oversight of third-party suppliers is essential to maintain compliance and manage risks. The need for transparency and traceability is paramount, as regulatory standards vary across regions and recent high-profile supply chain disruptions have highlighted the importance of due diligence and continuous monitoring.

The future of supply chain will rely heavily on data integrity and how that information is mined and managed to increase supply chain agility and resiliency.

Joe Armstrong
EY US Oil and Gas Supply Chain and Operations Leader

Compliance teams are turning to the latest advancements in technology to overcome these challenges such as blockchain and artificial intelligence. Blockchain provides transparency and traceability, ensuring products can be tracked from origin to end consumer. This technology facilitates compliance with regulatory requirements by offering verifiable records. AI, on the other hand, with its predictive analytics, helps anticipate and address potential compliance issues, enabling proactive risk management.

Effective third-party supply chain management is a critical component of modern business strategy. By utilising the latest innovative technologies and robust management practices, businesses can mitigate risks, maintain operational continuity, and build trust with consumers and regulators.

Chapter 1

Compliance digitisation

As compliance trends continue to unfold, busineses and compliance teams alike will be required to stay informed and proactive. Naturally, they represent the organisation's crucial shield, the first line of defence in safeguarding the business against any form of crime and potential financial, reputational and legal damage – and implementing comprehensive compliance strategies that address these evolving challenges will be key to success in the coming year.

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Edward Downey
Founder at World Logistics Network

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