The financial world is no stranger to rapid regulatory changes, and Anti-Money Laundering (AML) regulations are no exception. During our recent webinar Navigating New AML Regulations, experts shared their insights on key AML trends, challenges, and how financial institutions can better align with the latest rules.
Keeping Pace with AML Regulation Trends
The webinar playback features AML experts Sarah Beth Felix and Heather Allen Cody, both of whom brought extensive experience to the table. Sarah Beth Felix, with over 20 years in AML and sanctions, highlighted the importance of operationalizing AML threats, especially in emerging sectors like fintech, crypto, and cannabis banking.
Heather Allen Cody, Senior VP at Truist Financial, focused on machine learning initiatives and streamlining AML compliance through automation.
Both experts emphasized that financial crime regulations continue to evolve. It’s crucial for institutions to remain vigilant and proactive when interpreting new advisories from regulatory bodies like the Financial Crimes Enforcement Network (FinCEN).
FinCEN’s Focus on Emerging Threats: The Timeshare Fraud Case
One key topic Sarah Beth addressed was the recent FinCEN notice regarding timeshare fraud linked to Mexican cartels, specifically the Jalisco Cartel. She stressed that while many institutions may dismiss such advisories as irrelevant, it’s important to assess each new advisory carefully. Even seemingly niche cases, such as timeshare fraud, can expose vulnerabilities in an institution’s AML systems.
Sarah Beth encouraged AML officers to test their systems regularly. This can include running sandbox environments to simulate emerging fraud scenarios. As she pointed out, simply saving advisories in a folder without action can leave institutions vulnerable to new typologies of financial crime.
Rethinking Risk Assessments: A Must for Compliance
One of the standout points made during the webinar was the importance of conducting thorough risk assessments. Heather highlighted that, for the first time, FinCEN is requiring institutions to carry out formal risk assessments, moving beyond traditional compliance measures. This means focusing on both transactional risk, as well as customer access channels.
Heather and Sarah Beth both stressed that many banks are missing the mark by conducting superficial risk assessments that fail to address actual threats and vulnerabilities. The key is to focus on understanding the real risks that your institution faces based on customer profiles, transaction patterns, and geography. “A risk assessment should be a negotiation tool with your board, showcasing areas where additional resources or technology may be needed,” Sarah Beth explained.
Harnessing Technology: The Role of AI and Machine Learning
Heather discussed the growing interest in artificial intelligence (AI) and machine learning (ML) for transaction monitoring and fraud detection. However, she warned that institutions should not see these tools as a way to reduce headcount. Instead, AI and ML should complement human oversight by automating repetitive tasks, freeing up resources for deeper investigation into complex fraud cases.
Sarah Beth echoed this sentiment, pointing out that AI is only as good as the data it’s trained on. Institutions need to ensure they have clean data and that their staff is adequately trained to interpret AI outputs.
Preparing for New EU AML Regulations
In the global context, the European Union’s (EU) new AML regulations are set to enhance cross-border information sharing and place stricter controls on financial institutions. Sarah Beth shared her excitement over the EU’s move to create a supranational AML body to oversee national regulators. She noted that this approach could serve as a model for the U.S., where inconsistencies between different regulatory agencies often lead to enforcement gaps.
For U.S. institutions, it’s essential to keep an eye on how these new EU rules might impact cross-border transactions and relationships with EU-based financial partners.
Handling Politically Exposed Persons (PEPs) Amidst Political Shifts
With global elections on the rise in 2024, the risks related to Politically Exposed Persons (PEPs) are expected to increase. Heather advised financial institutions to revisit their approach to PEP screening, especially as political landscapes shift in foreign markets. Though the U.S. doesn’t mandate the automatic designation of domestic PEPs, Heather stressed that institutions should still remain vigilant and adjust their due diligence practices accordingly.
Sarah Beth added that institutions should not rely solely on external lists for PEP monitoring. Institutions in politically active regions or near large universities, for example, may be at higher risk for foreign PEP transactions and should develop internal systems to address these risks.
Real Estate and Money Laundering: The Next Frontier
One emerging area of AML regulation is real estate. Heather spoke about how real estate agents and brokers are now subject to more stringent AML regulations, especially regarding high-value transactions and those involving virtual currencies. Sarah Beth expressed frustration with how the U.S. has been slow to implement robust regulations in this sector, especially when compared to Canada and the EU. Still, both experts agreed that the real estate market is a prime target for money laundering, and more attention is needed to address the risks in this area.
For additional information, view our blog overviewing FinCEN’s New Real Estate and Investment Adviser Rules.
Final Thoughts: Back to Basics
Both experts agreed on one fundamental point: it’s time for institutions to go back to basics. Whether it’s updating risk assessments, ensuring frontline staff is trained on AML alerts, or leveraging technology effectively, financial institutions must take a proactive approach to AML compliance. “We’re not getting fewer regulations,” Heather quipped, “so it’s on us to make sure we’re prepared for what’s next.”
As AML regulations continue to shift and evolve, staying informed and adaptable is critical for compliance professionals. This webinar served as a timely reminder that effective AML programs aren’t just about checking boxes—they’re about understanding the deeper threats and vulnerabilities lurking beneath the surface.
To dive deeper into AML regulations, you can access the full recording below. Also view our timeline of key BSA/AML regulations.
For assistance in strengthening and streamlining your current AML processes, view our complete AML compliance software solution. Our solution consists of a variety of modules, that can be used as one integrated solution, or stand-alone modules, including:
- Identity Verification and KYC Compliance
- Watchlist, Sanctions and PEP Screening
- Transaction Monitoring
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Contact us today to hear from a risk expert on how Alessa can help you comply with new AML regulations.
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