AML in the US Market – Navigating the Path for Growth or Sinking Boat?

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Recent incidents of bank collapse, hefty fines, and sanctions against the crypto market have highlighted the gaps between the strictness of the regulatory environment in the US and common risk management standards. While the expectations are clear, banks and financial service providers are still struggling to effectively manage risks, particularly in Anti-Money Laundering (AML). Despite multiple fines and sanctions, some institutions have failed to improve their controls rapidly.

One such example is Deutsche Bank, which recently faced a $186 million fine from the Federal Reserve for insufficient AML progress. This reflects the ongoing challenge faced by financial institutions in executing Financial Crime risk management controls efficiently. However, some institutions have found a solution in advanced AI technology which has enabled them to meet regulatory expectations with greater efficiency and responsiveness.

The Role of Regulators

Regulators play a critical role in shaping the AML landscape and ensuring compliance with stringent standards. However, there is a concerning distance between the efforts invested by financial institutions and the actual outcomes achieved. Institutions often prioritize appearing compliant over truly trusting their own controls. Albert Einstein’s famous quote, “Insanity is doing the same things and expecting different results,” rings true here. 

Even regulators recognize the need for a less conservative approach, incorporating new technologies to improve AML practices. The mutual interest in maintaining a stable and efficient financial system binds all stakeholders, including regulators.

Root Cause Analysis – How Did We Get Here?

Twenty five years ago, banks were the primary players in the financial sector. The September 11 attacks and the subsequent “Patriot Act” exposed a critical problem – banks lacked a comprehensive understanding of AML compliance and their crucial role as “gatekeepers” defending society against bad actors. In response, standards were raised, and banks adopted stricter controls, with the US becoming a global leader in the fight against financial crimes.

The pivotal moment came with the HSBC Deferred Prosecution Agreement in 2012, where regulators emphasized a zero-tolerance approach to failures in Financial Crime controls. Since then, compliance standards have only become more stringent, and banks have made several upgrades to their AML practices. However, despite these efforts, satisfactory outcomes remain elusive in many cases.

In the next blog post, we will delve into how to move forward from this challenging situation. By acknowledging the current state of affairs and understanding the roles of regulators and financial institutions, we can pave the way for more effective and efficient AML practices that rebuild trust in the financial system. Stay tuned for our exploration of potential solutions and a path toward growth in the fight against financial crimes.

Written by: Yaron Hazan, VP Regulatory Affairs at ThetaRay
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