From AML to cybersecurity: The evolving challenges of bank compliance in 2023


In 2023, the banking sector faced key compliance challenges with fines for lapses in AML, KYC and related regulatory areas reaching a staggering $6.6bn.

According to Fenergo, this figure represents a significant increase from the $4.2bn recorded in 2022, highlighting the growing emphasis on financial compliance and the severe consequences of failing to adhere to regulatory standards.

The importance of navigating these risks extends beyond mere legal compliance. For banks, it is a strategic necessity to protect their financial health and reputational standing. The ability to effectively identify, assess, and mitigate these threats is critical in safeguarding against operational disruptions and legal repercussions.

In this high-stakes environment, the adoption of advanced solutions, particularly automation technology, is becoming increasingly important. These tools are not merely operational aids but strategic assets that streamline compliance processes and facilitate adherence to the constantly evolving regulatory landscape.

Compliance risk management, especially in areas such as KYC and AML, is crucial for minimizing the risk of money laundering and terrorist financing and ensuring regulatory compliance. KYC compliance focuses on verifying client identities and assessing their financial behavior, while AML efforts are aimed at preventing money laundering through transaction monitoring and analysis.

These measures serve multiple roles in banking risk and compliance, including reducing operational risk by preventing illegal activities, mitigating legal and regulatory risks to avoid fines and reputational damage, and safeguarding the financial system and society from financial crimes.

The banking sector is currently facing six primary compliance risks that require urgent attention. These include AML compliance, with banks facing severe fines for non-compliance; Customer Due Diligence (CDD), which involves understanding customers’ activities and risk profiles; data privacy and cybersecurity, essential for protecting sensitive client information; consumer protection compliance, ensuring fair dealings with consumers; sanctions compliance, involving adherence to international sanctions; and regulatory reporting compliance, requiring accurate and timely submissions of regulatory reports.

For banks, managing these risks is about more than just legal compliance. It’s about building trust and maintaining the integrity of their operations.

A banking risk assessment is a comprehensive process that involves identifying significant risks, estimating their likelihood and potential impact, and developing strategies to mitigate them. This process is crucial for ensuring the bank’s secure functioning and protecting stakeholder interests, covering various risk types such as compliance, credit, market, and operational risks.

Banks must also consider broader macroeconomic and geopolitical factors that could impact their business, emphasizing the importance of a holistic approach to risk management.

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