Regulatory penalties for global financial institutions see sharp decline in H1 2023

Regulatory fines slapped on global financial institutions saw a staggering 88% dip in H1 2023 compared to the same period last year. This significant decline was unveiled in a report from Fenergo, the top-tier provider of digital solutions in client lifecycle management (CLM).

Although regulatory penalties have shrunk globally, U.S. financial institutions were responsible for a substantial 83% of the total fines, amounting to $157m. This came even as they made up just 10% of the global regulatory infractions. In terms of sheer numbers, regulators around the world imposed 97 fines during the first half of 2023. These penalties, amassing $189m, were mostly for non-compliance with Anti-Money Laundering (AML) protocols, Know Your Customer (KYC) mandates, client due diligence (CDD), and sanctions infractions.

In a comparative glimpse, H1 2022 saw the collection of a whopping $1.58bn in fines across EMEA, North America, and the Asia Pacific. The latter half of the year typically witnesses an escalation in enforcement actions, yet recent data underscores a persistent trend: the gradual reduction in fines. This trend’s pinnacle was back in 2020 when the penalties exceeded a colossal $10bn.

Contrary to the global pattern, U.S. financial institutions experienced a 44% reduction in the total penalty value in 2022 compared to 2021. The current year has seen the U.S. regulatory bodies actively investigating eminent financial entities, with substantial settlements involving giants like Coinbase, Wells Fargo, and BlockFi. A record-breaking fine was issued by the U.S. Federal Reserve and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) to Wells Fargo, demanding a payment of $97.8m in H1 2023.

Sharing his insights, Fenergo Head of Financial Crime Policy Rory Doyle said, “Banks should not assume that regulators are taking their feet off the accelerator. Especially in the U.S., regulators are demonstrating a focus on scrutinizing larger institutions for serious violations, instead of levying enforcement actions on many organizations, no matter the violation.”

The latter half of 2023 is already witnessing regulators amplifying their efforts. Since July, penalties and settlements worth $2.65bn have been sanctioned across China, Cyprus, the US, UK, Dubai, and Belgium. Notably, Deutsche Bank settled for a $186m fine due to AML regulatory violations with U.S. regulators.

Wrapping up his comments, Doyle said, “Disruptive financial technologies continue to expand the playing field for financial criminals and sanctions evaders. They are also adding myriad complexities for compliance teams and the regulators themselves.

“Factors like the pandemic investigations backlog may be contributing to the downward trend. But we are also observing that established institutions are pursuing a more rigorous compliance posture and use more automated compliance processes, both out of regulatory necessity and as competitive advantage against other banks.”

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