Compliance So Far In 2020

April 2, 2020 10 minute read

Plenty has happened in three short months, so we thought we’d take a look at what’s happened and how it aligns with our report on compliance in 2020.


What we said:

The US will use a range of sanctions as tools of ‘first resort’ in dealing with geopolitical problems. Others, especially the EU, will be less ‘gung ho’.

What’s happened:

For the most part, this seems to be the case. The US has enacted sanctions in Zimbabwe and furthered its sanctions program in Venezuela, Syria, Iran and North Korea. However, we’re yet to see any significant divergence here by the EU. While Instex was attempted as a workaround for EU nations to trade with Iran under the Joint Comprehensive Plan of Action (JCPOA) it had largely disappeared. But the program has seen new life thanks to the need for medical supplies in Iran. US sanctions are meant to have provisions to allow medical transactions to go through to sanctioned entities on a human rights basis but they still present a challenge to those who are trying to move medical goods.

Part of the caution with Instex is due to the continued supremacy of the dollar in the financial system. OFAC has continued extra-territoriality thanks to the influence of the dollar. And despite the current crisis, the US has made it clear that it will be inflexible with regards to the Iran sanctions. But perhaps this is the exact time the US should be holding firm on its sanctions policy and highlight how dire the consequences of being sanctioned are.

There’s a desire for divergence. And while the pandemic is perhaps a reasonable environment to avoid the US sanctions program, it’s unclear whether that will be enough on its own to push nations to operate around US sanctions. But without a strong economic alternative to the dollar, it seems unlikely that any western nation is going to try and diverge from adhering to the US sanctions program.

Money Laundering

What we said:

Compliance professionals need to pay close attention to the fluidity of criminal behaviors and respond accordingly. More agile transaction monitoring will be vital.

What’s happened:

Well, we weren’t wrong! The coronavirus becoming a pandemic wasn’t on any financial institutions (FI) radar. And with it, we’ve seen a spike in all sorts of financial crime. Specially accredited lending companies, like those under CBILS, are busier than ever trying to parcel out the cash made available through various government schemes to the right businesses. FIs must stay alert to make certain that bad actors are unable to exploit the financial system to access that money. It can be done through accurate KYB strategies and a thorough understanding of who customers really are and understanding any threat they represent through adverse media.

Fraud, a common money laundering predicate crime, is on the rise. Quantum Prevention CV Inc was recently caught selling a fake coronavirus cure, having the right insight is vital to being able to prevent businesses like this from exploiting overwhelmed lenders and accessing money meant for providing financial support to smaller businesses (SMEs) that are losing revenue, and seeing their cash flow disrupted, as a result of the COVID-19 outbreak.

While pinpointing criminal activities like those undertaken by Quantum Prevention CV Inc is important, compliance officers must also be aware that financial behavior has changed. Online purchases have surged so there could be very different scenarios to detect alongside the increased workload. Not to mention the increase in various cyber crimes.

Compliance officers need to make sure that their transaction monitoring rules are finely attuned to the new realities of money movement and make sure that they’re capable of detecting the criminals who will undoubtedly be using the chaos as a smokescreen.

Regulatory Landscape

What we said:

Compliance professionals need to remain attuned to rapid regulatory change, especially around virtual assets, as well as to the ongoing challenge of diverse national and regional responses. Firms will need guidance from advisors who understand innovation and diverse geographies.

What’s happened:

Behaviors are changing and with the increasing popularity of digital assets, compliance officers need to stay keen on how cryptocurrencies move. Suspicious behavior will become increasingly harder to detect as customers panic about an economic slowdown.

The chance of an impending recession is at the forefront of many conversations on the global economy at the moment. Nations who have taken to prudent financial regulation have enough controls in place to cope with expected variations, but nothing about what’s happening at the moment is expected. Economic suffering seems to be a certainty rather than a possibility.

That suffering has always seen reactionary regulation put in place. It’s likely that a push to protect consumers and small to medium enterprises (SMEs) will come into force with regulatory oversight especially in Asia-Pacific where there’s a significant burden of corporate and personal debt. Protection could come in the form of debt relief so as to redirect more critical resources elsewhere.

Navigating what could soon be a new world of regulatory requirements is going to increase the burden on compliance teams. So finding methods to ease their workload is key to improving efficiency.


What we said:

2020 is likely to be a very positive time for regulatory engagement, especially in the safe environments of “regulatory sandboxes.” If you are in fintech, get involved.

What’s happened:

Singapore and other APAC countries are still running their sandboxes without issue. But while other regulators are moving into holding patterns to protect their staff and consumers, new initiatives are cropping up in response to significant government money. The sandboxes are still running but it’s likely that applications for the next cohort won’t be as rapid as they’ve been in recent years due to the economic slowdown.

Defining the priority of regulators is also a difficult task. They protect the consumer, but how they do that is up to interpretation. Regulators are not concerned with closing the gap between fintechs and FIs, but to create a level playing field between them for the industry. A potential global recession would see governments reprioritize regulators to focus on economic stability and sustainable approaches to growth and recovery. For now, it’s unclear whether that would also lead to regulatory concessions or delayed regulatory impositions.

Regtechs and digital solutions are being built apropos of nothing in response to the crisis. Governments are bundling out cash but they’re also struggling to create useful systems for it. If you can build the tool that connects legitimate customers to government stimulus money, then you may just find yourself procuring a significant contract in a few months.

Now is a great time to highlight how brilliant and innovative you and your teams are. Keep doing the daily grind on your main product if you work in fintech, but don’t be afraid to branch out and seize the innovation opportunities which are appearing.

Sandboxes aren’t the only way into delivering innovative products to customers. They offer relaxed regulatory oversight in a controlled environment, but companies that push their products out into a difficult situation and manage to thrive are better for it.

It’s worth noting that crisis is a time for opportunity – many influential tech firms have started during economic crises. The recession also kickstarted the entire fintech industry – the crisis destabilized trust in the banks and highlighted the lack of competition in the industry. The Financial Conduct Authority (FCA) was founded to replace the previous regulator in the UK and given the mandate to push competition – it worked. The sandbox initiative the FCA rolled out went global and became a leading light in the financial world.

However, sandboxes are not essential to delivering innovative products, they simply make it easier for startups to learn how to operate in a tough regulatory environment. It may seem like a bleak time for the industry, but in actuality, it’s a time to shine and show how you can bring an innovative and useful product to market.

Industry Trends

What we said:

Fintechs should think carefully about how they position themselves vis-à-vis the bigger, older FIs and what that means for their compliance approach. Good compliance matters in all scenarios, whether as partners or competitors.

What’s happened:

Fintechs have seen decreased attention due to the lack of lending capabilities overall during the crisis. The pandemic has seen a strong need for lending-solutions in the market and there’s a strong opportunity for fintechs to act as a disintermediation layer between FIs and customers for lending. But fintechs can also use this opportunity to work together with FIs and create powerful services for customers.

However, while that may be appealing to customers, it doesn’t mean that good compliance practice can be neglected. As markets move and customers choose new services, it’s important to make sure that compliance procedures are always followed. Good compliance always matters, no matter what. It means that companies can achieve sustainable growth through good market practice.

But that’s just banking. For other FIs it’s important to recognize that fintech is able to fill a lot of gaps. Gaps that are difficult for legacy FIs to patch. This is where APIs can see real effect, however, APIs need to be useful and data-agnostic so as to interact with FIs in a useful way. If it requires an endless amount of calibrating and integration it’s unlikely to be beneficial to FIs that may need an API to work across several business units all with slightly different data setups.

Future Dates

What we said:

2020 will be an interesting year to watch. Countries around the world will need to pay attention to the outcomes of these new regulations and evaluations.

What’s happened:

It’s quite safe to say that 2020 has definitely been an interesting year. Not just because of the pandemic that’s dominating headlines, but because new legislation is forming, especially in the US and UK. Compliance teams need to remain on top of all of this due to its effect on customer behavior.

The start of the year saw MAS initiate new regulatory procedures for FIs across Singapore, since then Australia and Singapore have lifted data restrictions between the two nations. But the most likely region to see a strong regulatory response to the pandemic is the EU. Italy has become the focal point for the coronavirus in Europe and the EU has had previously powerful responses to tragic events; the Bataclan attack saw the creation of 5AMLD as a direct reaction. It’s possible that further regulation will be formulated once the pandemic passes.

There’s still plenty to come in 2020: 6AMLD isn’t going away, FATF has a comprehensive plan of action to follow up on and regulators everywhere are going to have a strong response to the pandemic to prevent damage to the consumer.

FATF has three strategic initiatives that really caught our eye, firstly, tackling the illegal wildlife trade has become a priority. Case studies into the financial flows and economic impact of the illicit trade will be published in June. Secondly, pushing for and facilitating effective national level supervision. Often financial crime is aided by having supervision fall down at a high level, so FATF is working to create supervision programs based on the AML/CFT risks from a national perspective. And finally, FATF is reviewing its core mutual evaluation and follow-up processes. This review could see a drastic shift in how compliance expectations are managed globally.

Our 2020 predictions are shaping up to follow the year quite accurately so far. If not in the way that we expected. It’s impossible to predict the future but at least with regulatory behavior, you can often have a fair idea of how things will change. Read up on our compliance report 2020 to make sure that you’re not surprised by any regulatory changes you didn’t see coming here.