Recap of the KYC and AML landscape in 2023, and what’s next for 2024
As 2023 comes to a close, it’s a good time to look back on what’s happened and look at what to expect in 2024.
The landscape in 2023
The complexity of interconnected supply chains grew
The rise of global trade and a growing number of stakeholders across suppliers, manufacturers, distributors and retailers has led to more interconnected supply chains in 2023. This made it challenging to identify and manage risks related to money laundering and terrorist financing.
To address this, companies have begun doing more comprehensive due diligence on third parties in their supply chain. This involves scrutinising their digital footprint, monitoring transactions, and implementing compliance programs.
Split among EU countries over beneficial ownership access
At the end of 2022, public access to beneficial ownership registries in the EU was revoked by the European Court of Justice (ECJ). This decision was made due to concerns about privacy and data protection in accordance with the EU Charter of Fundamental Rights.
Going into 2023, EU member states were still showing divided reactions. Some EU countries quickly closed public access to their beneficial ownership registers. Others took more time to think about how the decision would affect them. Eventually, the rest decided to keep public access to their registers. In fact, more than a third of EU countries still have them open.
Geographical alignment — and misalignment — of sanctions
The most challenging aspect of sanction strategies this year has been coordination between different countries, highlighted by changes in beneficial ownership approaches.
Sanctions are generally consistent across various countries and regions. For instance, the Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), has united the US, the EU, and other global powers. This is due to the shared objective of denuclearisation.
However, there have been instances where sanctions are misaligned. For example, the US maintained an embargo on Cuba, whereas the EU and other countries didn’t. Similarly, when it comes to Venezuela, there are differences in sanctions between the US and the EU.
This has created policy and sanctions discrepancies between the US and many other nations. For large global corporations, it’s compelled them to increase their due diligence and compliance processes to cater to differing jurisdictional requirements.
What’s expected in 2024
The new Anti-Money Laundering Authority (AMLA)
Looking ahead, a key focus for the EU is on establishing the new Anti-Money Laundering Authority (AMLA) which could significantly transform the KYC and AML landscape.
AMLA was created to fix weaknesses in the EU’s AML-CFT framework that criminals were exploiting. With a lack of coordination between EU countries, AMLA will set a coherent framework and supervise businesses at risk of money laundering or terrorism financing.
The EU has set a target implementation date in 2024, requiring banks and financial institutions in the region to prepare for changes in how the new authority operates and its impact on their AML and CFT responsibilities.
Economic Crime and Corporate Transparency Bill comes into force
While the Economic Crime and Corporate Transparency Act 2023 became law in October, its changes won’t happen right away. Instead, they’ll be implemented gradually throughout 2024.
The goal of the Act is to make AML measures stronger and improve how information about suspected economic crimes is shared. In some cases, businesses can share information to prevent, investigate, or detect economic crimes without worrying about breaching confidentiality.
The National Crime Agency’s Financial Intelligence Unit will also have more power to get information from businesses related to money laundering or terrorist financing. Importantly, businesses won’t need to submit a Suspicious Activity Report (SAR) beforehand when making an Information Order.
AI-powered compliance solutions will take centre stage
KYC tools are beginning to explore the integration of generative AI within the field, but caution is widespread. Many are understandably hesitant due to the predictive nature of Large Language Models (LLMs), which tend to produce ‘common’ answers based on the most frequent patterns.
Still, providers are venturing into this area by incorporating generative AI for report generation.
What to expect from Xapien in 2024
We recently revealed our product update featuring the latest in generative AI for producing fully-sourced, summarised reports. It builds on over five years of research, Natural Language Processing (NLP), and our proprietary disambiguation technology which sits at the core of Xapien. We demonstrated how it can be used for financial crime compliance in this demo.
Over the course of 2024, we’ll continue our relentless pace of product releases to cater to specific use cases within each industry we serve. This includes more integrations, better-than-ever performance, and an even better understanding of your counterpart.
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