Last year was tumultuous for
No one would mistake AML compliance
My analysis of enforcement actions across Bank Secrecy Act (BSA) and sanctions programs in the past year suggests that banks continue to be challenged across three areas.
The first is ineffective governance, oversight and internal controls including gaps in supervision, management and the implementation of compliance policies. The second is around data governance, specifically problems with data reconciliation and lifecycle management that result in inaccurate or incomplete information to detect and report and suspicious activities. The final pain point is outdated risk management tools, which require organizations to recognize when they have antiquated and ineffective systems that aren't sufficiently integrated and feature poorly tuned models.
Many banks' initial response to consent orders arising from regulatory action is to address the immediate problem with tactical fixes — clearing backlogs or addressing issues with suspicious activity reports (SARs) — rather than taking a step back to address the root causes of non-compliance. In 2023 alone, 4.3 million SARs were filed with the Financial Crimes Enforcement Network, yet many banks still faced substantial penalties for failing to meet BSA/AML requirements.
Often, the root cause is an insufficiently mature organizational risk culture across all business units. Creating this culture takes time, executive support and investment that targets the causes of compliance failures, with a focus on aligning efforts in the front office, risk, operations, technology and compliance functions.
Such a culture recognizes that AML compliance isn't just the compliance team's responsibility. It should start from the moment the bank's employee talks to a client and last until the client is offboarded. With a compliance mindset, there need to be proper controls embedded in both business and technology processes to ensure strong risk management.
Banks can complement this culture with strategic investments that can enhance their core AML capabilities and address existing deficiencies, particularly with regard to technology. The first step is getting their data house in order. Sourcing, aggregating and appropriately categorizing data should be priority one. Investments that ensure data hygiene, management and controls are critical.
Artificial intelligence will help. By enabling faster, more efficient data analysis and offering a comprehensive view of clients and transactions, AI improves accuracy and reduces costs. While it's not a panacea and won't replace human judgment or institutional knowledge, AI will empower compliance teams with more accurate, actionable information. In fact, 59% of financial services firms are already testing or implementing AI solutions for risk and compliance functions, according to
By establishing this culture and creating streamlined, consistent processes supported by technology and proper governance, banks can reduce human touchpoints (and human error) and enhance efficiency, especially during the client onboarding process.
Much of the conversation around AML failures centers on regulatory fines, but the consequences of non-compliance extend far beyond this. The impact often includes a significant drop in share price and the loss of clients, on top of the cost of immediate corrective actions, all of which have lasting effects.
Ultimately, AML compliance will remain challenging because there is no magic bullet. The decisions that banks and their leaders quietly make in this space will either come back to save them or haunt them. But banks are in the business of managing risk and by cultivating the right culture and making smart investments they can minimize the risk of facing scrutiny for non-compliance.
