Financial institutions have been hit with noncompliance fines worth $36 billion globally since the Great Recession

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From the financial crisis to the end of 2019, financial institutions (FIs) racked up fines worth $36 billion globally for noncompliance regarding anti-money laundering (AML), know-your-customer (KYC), and sanctions regulations, according to findings from Fenergo.



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Fines related to MiFID and GDPR accounted for $82.7 million of that total. Noncompliance fines have increased 160% since the last report by Fenergo on the subject 15 months ago. Twelve out of the world’s 50 top banks were fined last year, and two-thirds of fines issued by US regulators were aimed at European FIs.

Here’s why noncompliance is such a large issue, and why it will become more difficult to remain compliant moving forward:.

Financial regulation has increased since the financial crisis, and it’s becoming more difficult for FIs to keep up. Since the 2008 financial crisis, regulators have toughened their stance toward FIs globally regarding customer safety and competition.

For example, PSD2 was introduced throughout Europe two years ago, while the UK also launched its separate Open Banking regulation. Moving forward, we’ll see new regulations come into effect, like the California Consumer Privacy Act (CCPA), and nearly 10% of countries have yet to implement their drafted cybercrime legislation. In fact, FIs spend up to 10% of their annual revenue on dealing with regulatory matters, which will likely increase as the regulatory environment becomes more complicated. 

Additionally, moving from paper-based manual processes to digital ones leads to changing compliance needs. Many FIs have used a number of manual processes within their operations, such as insurers manually managing claims and banks physically onboarding new clients.

However, in the digital age of finance, such processes are now handled by emerging technologies like AI and machine learning, which come with their own regulatory requirements. So, despite moving away from manual processes prone to human error, this switch also comes with its own hurdles and difficulties.

To ensure compliance and stay up to date on regulatory changes, FIs should seek out partnerships with regtechs. Managing compliance entirely in-house is an outdated approach in today’s financial services industries, which has led the regtech segment to boom: In Q3 2019, regtechs globally scooped up $511 million in funding, up from $310 million the previous quarter, per CB Insights.

With the need for better compliance processes increasing as the industry moves further toward a digital era, more FIs will likely team up with regtechs to avoid hefty fines from regulators. HSBC, for example, teamed up with regtech Ayasdi in 2017 to make its compliance process more efficient, while Santander has opted to work with ComplyAdvantage.

And while regtechs offer suitable solutions for FIs, their main barrier to success is trust — and they need to be able to prove their solutions to potential clients, as there’s a lot at stake for FIs if compliance fails.

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