Tackling Money Laundering: Safeguarding the Financial Services Market

15th August 2023

Tackling Money Laundering: Safeguarding the Financial Services Market

Money laundering is a pervasive financial crime that poses significant threats to the integrity and stability of the global financial system. Criminals use money laundering to disguise the illicit origins of funds obtained through illegal activities such as drug trafficking, corruption, and terrorism. As a result, stringent AML regulations have been developed to protect the financial services market from being exploited by these criminals.


The fight against money laundering has evolved over time, with international efforts playing a crucial role in shaping AML frameworks. The Financial Action Task Force (FATF), established in 1989, is the global money laundering and terrorist financing watchdog, and has been at the forefront of implementing global AML standards that ‘aim to prevent these illegal activities and the harm they cause to society’. Since then, numerous countries have enacted their own AML laws and regulations to comply with these international standards, creating a complex web of rules that financial institutions must navigate.


The regulatory landscape surrounding AML is multifaceted, with numerous laws and guidelines aimed at preventing money laundering. In the UK, The FCA has investigation and sanctioning powers in relation to both criminal and civil breaches of the Money Laundering Regulations and is responsible for monitoring and enforcing compliance of regulated firms. Businesses are further required to report any suspicious activity to the National Crime Agency (NCA) as soon as the suspicion arises. In the United States, the Bank Secrecy Act (BSA) requires financial institutions to report certain transactions to the authorities to detect and deter money laundering activities. Similarly, the European Union’s Fourth Anti-Money Laundering Directive (AMLD4) sets out measures to combat money laundering and terrorist financing within its member states.

These regulations place a heavy compliance burden on financial institutions, necessitating the establishment of robust AML programs. Stringent customer due diligence, financial monitoring, and suspicious activity reporting are some of the core components that institutions must implement to remain compliant.


Financial institutions hold a crucial responsibility in the fight against money laundering. Firms must ensure to carry out customer due diligence (CDD) on counterparties before a business relationship is established. CDD is expected to be continued throughout the counterparty relationship to ensure the identification of adversaries relating to AML concerns and mitigate risks accordingly. Establishing robust internal controls, instilling continual monitoring of trade partner activity, conducting regular employee training, and implementing appropriate reporting processes are also vital to creating a culture of compliance. Financial institutions that lead by example in implementing effective AML programs can significantly contribute to reducing money laundering risks in the industry.

Central to this risk-based approach is the “Know Your Customer” (KYC) process, where institutions must gather information from various sources about their customers’ identities, Ultimate Beneficial Owners (UBOs), financial activities and risk profiles, as well as carry out up-to-date screening against watchlists to identify sanctions and monitor Politically Exposed Persons (PEPs). This enables the detection of discrepancies, potential red flags, and unusual patterns that could indicate money laundering risk.

Organisational structures of firms are also pivotal in combatting the emerging risks of AML crimes, by establishing strong compliance departments.  Certain businesses are also required to appoint a nominated officer, responsible for reporting money laundering breaches to the NCA. Firms regulated by the FCA must also appoint a Money-Laundering Reporting Officer (MLRO), of whom manages the company’s AML compliance with FCA obligations.

Non-compliance with AML regulations carries severe consequences for financial institutions. Penalties, legal ramifications, and reputational damage can cripple businesses. In some cases, insufficient AML compliance can result in prison terms of 2 years; and in the most severe actual money laundering offences, lead to 14 years imprisonment. High-profile money laundering cases serve as stark reminders of the potential fallout for those who fail to prioritise AML compliance. Indeed, credit and financial institutions were fined almost $5bn in 2022 for AML issues, sanctions breaches and deficiencies in their KYC systems, bringing the total since the global financial crisis to almost $55bn, according to Financial Times. A total of £39m in AML fines were enforced by the FCA alone in 2022.

1. Changing Regulations

AML regulations and requirement are subject to frequent updates and changes at both national and international levels. Firms must continuously monitor and adapt to new compliance standards, which can be time-consuming and resource intensive. Firms without appropriate AML programs and systems fall short in having the capacity to manage evolving demands from regulators.

2. Ad-Hoc Monitoring

Compliance professionals need to ensure they are constantly re-evaluating risks presented by trading partners. Any adversaries need to be acted on instantly to avoid non-compliance. Many firms do not have adequate monitoring tools in place to conduct continuous surveillance to identify potential illicit activities. Ad-hoc monitoring means business are unbeknown to suspicious activity as and when it occurs, meaning they run the risk of fines and penalties.

3. Inadequate Resources

Staff skill shortages, lack of training and resource deficits including manual labour, multiple silos and ineffective cross team communication lead to ineffective, inaccurate and non-compliant processes within financial institutions.  Larger companies have heightened resources to create separate AML departments to effectively delegate AML monitoring activities. However, for smaller companies with limited resources responsibility may fall onto fewer members of staff who manage several duties simultaneously, which can be inefficient and inaccurate.

4. Cross Border Management

For multinational firms, navigating the differences in AML regulations across various jurisdictions can be complex. Cross-border transactions present challenges in terms of jurisdictional compliance, customer due diligence, and sharing information with authorities from different countries. Money laundering frequently involves cross-border transactions, which can be challenging for regulatory authorities to monitor effectively. Jurisdictional complexities, information-sharing barriers, and differences in AML regulations across countries can create opportunities for criminals to exploit regulatory loopholes.

5. False Positives

AML transaction monitoring systems often generate a significant number of false positive alerts. These alerts require manual review to determine legitimacy, leading to increased operational costs and potential delays in identifying genuine suspicious activities. As a result, criminals can exploit this delay to carry out illicit transactions prior to accurate detection. High rates of false positives also spark concerns with regulators of a firm’s AML processes. With continuous heightened regulatory scrutiny, credibility of AML programmes is henceforth reduced with a large generation of false positives. In turn, this lack of reliability also generates reputational damage and erodes customer trust. 

6. Advancing Technology

Criminals are quick to adopt new technologies and methods to evade detection. Firms must continually update their AML systems to keep pace with these innovations.

The emergence of cryptocurrencies, such as Bitcoin, introduced new challenges for AML compliance. These digital assets facilitate anonymous transactions and can be used to transfer funds across borders with relative ease. The lack of traditional banking intermediaries and the anonymous nature of cryptocurrency transactions make it harder for financial institutions to trace and identify suspicious activities.

As technology continues to advance, it will undoubtedly impact the future of AML. With technological advancements in the form of regulatory and compliance software, solutions like RegTech are pivotal in combatting financial crime accurately and effectively and managing evolving AML obligations.


RegTech has revolutionised the AML landscape, created specifically to assist organisations in meeting their trading, legal and regulatory obligations. In the context of AML, RegTech plays a crucial role in enhancing financial institutions’ abilities to combat money laundering activities through leveraging automation to process vast amounts of data, carry out ongoing due diligence, identify suspicious activity instantly, centralise reporting and ultimately enhance the reliability and accuracy of managing AML obligations. Here are several ways RegTech can help fight AML.

1. Automated & Continuous Customer Due Diligence (CDD)

RegTech solutions can streamline the customer onboarding process by automating the collection and verification of customer information. Advanced identity verification tools can quickly validate identities, UBOs, cross-reference data against various databases, screen sanctions watchlists and conduct enhanced due diligence prior to commencing a business relationship, allowing firms to make informed decision about organisations they trade with. Automated CDD ensures that financial institutions comply with KYC requirements and detect potential suspicious activities from the beginning of the customer relationship. A faster onboarding experience also enhances the customer experience for new trading partners; swift onboarding creating a positive first impression and customer satisfaction

Ongoing monitoring also allows for a more comprehensive assessment, with potential money laundering activities flagged immediately and reported on, enabling law enforcement to take appropriate actions. This continuous oversight throughout the business relationship gives firms peace of mind in knowing they are working with compliant organisations and individuals, alleviating the growing burden of AML requirements.

2. Transaction Screening and Sanctions Compliance

RegTech tools can perform real-time transaction screening against various watchlists, including global sanctions lists and politically exposed persons (PEP) databases, as well as searching for against adverse media to detect any other noted adversaries in a firm’s activities and people. This ensures that transactions involving sanctioned individuals or entities are immediately flagged, preventing illicit funds from entering the financial system. Automated matching and continual re-screening also allow for accurate false positive management and monitoring, strengthening compliance controls and reducing the need for human intervention. This, reinforces a firm’s reputation to regulators and customers through enhanced credibility. With a comprehensive approach to AML compliance, RegTech’s centralised databases mitigates risks associated with cross border management, with access to data from global sources.

3. Regulatory Reporting Autaomtion & Audit Trail Management

AML compliance often involves extensive regulatory reporting requirements. RegTech solutions can automate the generation and submission of regulatory reports to relevant authorities. This reduces the burden on compliance teams, minimises human error, and ensures timely and accurate reporting. With instant alerts sent straight to users’ inboxes, detailing of noted adversaries regarding financial crime, nominated officials can report suspicious activity instantly to required authorities to allow for immediate action. RegTech solutions facilitate the creation and management of comprehensive audit trails and documentation of AML processes. This documentation is essential for demonstrating compliance to regulators during audits or investigations.

4. Resource Release

News and data in one place allow for faster decision making and a release of business resources. RegTech delivers a centralised database which identifies, monitors and reports on money-laundering suspicions; minimising the need for manual labour and allowing teams to work together effectively without the need for the extraction of data from multiple silos. By adopting a RegTech solution to manage AML, compliance teams’ expertise and knowledge is greatly enhanced with access to reliable and accurate data. RegTech systems are also scalable, unlike resource strained teams, by being able to continually handle increasing volumes of data, without reducing accuracy

5. Enhanced Risk-Assessment

RegTech empowers financial institutions to harness the power of data analytics to gain deeper insights into AML risks. It allows institutions to consolidate data from different silos and perform comprehensive risk assessments based on accurate and monitored data. By analysing historical transactional data and customer behaviour, financial institutions can identify potential patterns of suspicious activities more accurately.


As money laundering remains a persistent global challenge, the financial services sector must continue its unwavering commitment to implementing robust AML measures. By embracing technology, adopting a risk-based approach, and fostering collaborative efforts, financial institutions can play a pivotal role in safeguarding the industry from criminal exploitation. RegTech offers an array of innovative solutions that can significantly strengthen a financial institution’s AML capabilities. By leveraging automation, data analytics, and sophisticated detection technology, RegTech empowers institutions to proactively identify and mitigate money laundering risks, reduce false positives, and enhance overall AML effectiveness. As AML regulations continue to evolve, the integration of RegTech will become increasingly critical for financial institutions striving to stay ahead in the fight against money laundering. Together, we can build a more secure and resilient financial services market for a better, safer future.

The REG Network’s AML Screening feature is your first line of defence against financial crime, through Sanctions, PEPs and Adverse Media Screening. Helping to protect your business, comply with international law and regulatory obligations.

Learn more about our AML solution

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Article author:

Nathan Banfield

Nathan Banfield is the Head of Customer Success at REG Technologies. Nathan is passionate about bringing the best service to our customers and strives to help them run their business Faster, Smarter, Safer.

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