An incredible 99% of organizations globally say they’re re-evaluating their risk appetite due to the economic environment, and that “the already-hot employment market for compliance staff is likely to get hotter still”, partly due to the growth of ‘super apps’ looking to hire compliance professionals.

Financial institutions, digital banking & fintech, wealth management, investment (retail), capital markets, money service businesses, crypto exchanges, and insurance were the sectors covered in the report from ComplyAdvantage that was released last week. The survey questioned 800 C-suite and senior compliance decision-makers in the US, Canada, UK, France, Germany, Netherlands, Hong Kong, Singapore, and Australia.

Compliance boom

Some 58% of global financial institutions say they plan to hire more compliance professionals (in the UK the figure was higher at 69%), while 59% of organizations say their compliance teams are preparing for an increase in financial crime as a result of the uncertain global economic environment. Concern about investment scams or tax fraud was voiced by 41% of firms, with 31% worried about phishing. Cyber security was acknowledged as a pain point for 53% of firms.

The report warns that not just hardened professional criminals, but now also “previously legitimate actors, some of which will cross the line into financial crimes”, pose regulatory threats, partly due to the pressures of the cost of living crisis.

But while compliance is a major growth area for most businesses, 48% say that knowledge of the regulations would be a concern.

“There are clear indications of ‘enforcement fatigue’ in this year’s survey. More than ever, compliance officers will need to keep their businesses focused on good outcomes by emphasizing the human, as opposed to financial, cost of financial crime.”

Iain Armstong, Regulatory Affairs Practice Lead, ComplyAdvantage

“There are clear indications of ‘enforcement fatigue’ in this year’s survey. More than ever, compliance officers will need to keep their businesses focused on good outcomes by emphasizing the human, as opposed to financial, cost of financial crime,” says Iain Armstong, Regulatory Affairs Practice Lead, ComplyAdvantage.

Crowdfunding and extremism

Of particular note, 87% of respondents say they have seen an increase in the use of decentralized finance (DeFi) platforms in the past year, in particular crowdfunding sites, to fund extremism.

“Compliance officers working for firms offering decentralized finance services must be aware of the emerging regulations in the cryptocurrency and crowdfunding space to ensure they have adequate, effective, scalable financial crime control solutions in place. This will include transaction monitoring rules tailored for the unique typologies and behaviours they should screen for,” says Alia Mahmud, Regulatory Affairs Practice Lead, ComplyAdvantage.

Impact of Russian invasion

Whereas going into 2022 organizations were more concerned about China, following the invasion of Ukraine at the start of 2022 the focus has now shifted to Russia, with 53% of organizations saying the invasion has forced them to change their business model and 50% resorting to asset freezing. And 46% expressed “concern” about Russia, contrasting with 37% saying the same about China.

“With new fraud and money-laundering tactics emerging all the time, agility and investment in the latest risk detection technologies have never been more critical.”

Vatsa Narasimha, CEO, ComplyAdvantage

“During the 2007-09 Great Recession, financial institutions reported a significant increase in the level of financial crime. Our survey shows firms – driven by the expectation of an economic downturn – expect it to rise this year too,” saya Vatsa Narasimha, CEO, ComplyAdvantage. “However, the digitalisation of business and transactions since 2008 – accelerated by the coronavirus pandemic – means the financial crime landscape looks very different today. With new fraud and money-laundering tactics emerging all the time, agility and investment in the latest risk detection technologies have never been more critical.”

Crypto

A growing regulatory focus on NFTs, stablecoins, and DeFi regulation is reflected in firms’ responses, with 60% saying they plan to accept crypto as a payment method/rail in future and 59% seeking out their own crypto licenses. Virtual assets risk monitoring was identified as an area for improvement by 43% of firms.

2022 reportedly saw an acceleration in the convergence of ransomware and cryptocurrencies, most notably through Deadbolt, a group attacking network-attached storage (NAS) devices and vendors.

The Markets in Crypto Assets Regulation (MiCA), due to in the coming two years, will provide some clarity on the matter in European markets.

AML

The EU pledged in December last year to “protect EU citizens and the EU’s financial system against money laundering and terrorist financing” by drawing up a new EU AML rulebook.

The overhaul of the European Union’s Anti-Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) package will trigger the largest overhaul of regulation in that area in European history and has been described as “a tectonic shift” in the EU’s approach to fighting financial crime, the report says.

The new AMLD6 directive is aimed at removing loopholes in the domestic legislation of member states by harmonizing the definition of money laundering across the EU.

Meanwhile, the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act in the US will expand the definition of a financial institution for purposes of reporting suspicious transactions, anti-money-laundering programs, and other related measures.