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Written by Jackie Whiting
on January 29, 2021

We have officially made it through the first month of 2021 and as to be expected, January has set the tone for an exciting year in RegTech. With a new president now in office, the spotlight is on financial regulation in the United States - what can we expect to change and evolve under new leadership? Brexit, of course, also came into effect after years of negotiation. What this means for the regulatory environment in Europe remains to be seen but we’ll keep you informed of critical developments as they happen. 

We are also getting the final tallies on the cost of enforcement fines in 2020 for regulated entities across the world and the numbers are staggering to say the least! With the introduction of the European Union’s Sixth Anti-Money Laundering Directive, we are reminded that regulations continue to intensify and for those companies still struggling with their compliance practices, 2021 may turn out to be another unforgiving year from regulators.

The good news is that there are solutions out there that help businesses satisfy even the strictest due diligence requirements of the latest anti-money laundering legislation. If you’re new to the kompany community this year, here’s a link where you can learn more about the diverse suite of Business KYC solutions we provide to our clients.  

And on that note, let’s get to our first story of our first Monthly RegTech Roundup of the new year!

PBOC Tripled AML Penalties in 2020 Compared to 2019

As originally reported by Regulations Asia, the People’s Bank of China (PBOC) issued “a total of CNY 628 million (USD 97 million) in AML fines in 2020”. For those keeping track, that is almost three times the amount issued in 2019. 

The vast majority of penalties were imposed against businesses with approximately $3 million USD imposed against individuals. Banks were the common target with nearly 600 fines amassed throughout the year, accounting for more than 50% of the total fines issued in terms of value, “and 82% in terms of number of penalties.” 

Also noteworthy is the sharp increase in fines against payment institutions last year. 

The increase in AML related penalties comes after international watchdog, FATF (Financial Action Task Force) highlighted weaknesses in China's system back in 2019. In response to these findings, People's Bank of China Governor Yi Gang said that "the country would be revising its anti-money laundering law to broaden the scope of supervision and increase the effectiveness of enforcement all while increasing the severity of punishments for offenders. "

How this will continue to play out in 2021 will remain to be seen but this indicates a positive trend in limiting money launderers’ access to the world's second-largest economy.

Anti-Money Laundering Act Requires Fresh Look at Compliance

At the start of this year the United States most significant anti-money laundering statute since the USA Patriot Act came into effect. The Anti-Money Laundering Act of 2020 (AMLA) serves as an update to the Bank Secrecy Act (BSA) so it also includes modern areas of concern that may have been previously underserved, such as the use of cryptocurrency.

With numerous elements introduced, Bloomberg Law highlights three areas they believe warrant a closer look if organisations want to ensure their compliance with this latest statute. So which ones do they say you need to know?

The Bank Secrecy Act now applies to entities involved “in the exchange of unconventional items of value” such as cryptocurrency. While the BSA technically already included financial institutions involved in the exchange of cryptocurrency, the AMLA makes this requirement abundantly clear, “expressly expanding the ambit of the BSA to businesses engaged in trade of ‘value that substitutes for currency,’ e.g., cryptocurrency.”

Antiquities dealers, including consultants and advisors now qualify as “financial institutions” under the BSA.

Small companies, or entities such as Limited Liability Corporations, also find themselves impacted by this new statute. As part of the AMLA, Congress enacted the Corporate Transparency Act, which brings a significant development where ultimate beneficial ownership disclosure in North America is concerned, specifically for Limited Liability Corporations. Now such entities are required to “disclose, among other things, beneficial ownership information to FinCEN. This information includes each owner’s name, date of birth, address, and unique number from a state-issued identification document.”

Explicitly exempted from this requirement are many large entities (think, broker-dealers and credit unions) which means smaller companies who may be acting as shell companies for money laundering purposes are the targets.

Finally, foreign entities with correspondent bank accounts in the United States will also find themselves impacted by the AMLA. “In a significant expansion of the government’s subpoena power, records from any bank account of that entity at that institution can be subpoenaed, not merely those from the correspondent account, assuming the records relate to certain types of investigations.” 

AMLA also introduces an “an increased whistleblower rewards program that, among other things, drastically raises the cap for whistleblower rewards from $150,000 to 30% of the amount collected by the government.”  

With such a detailed list of changes, impacted entities will need to brush up on their new regulatory requirements ASAP in order to stay compliant. 

Regulatory innovation advances in the face of Covid-19

A joint report from the World Bank and Cambridge Centre for Alternative Finance provided a “sweeping view of the impact the pandemic has borne on the regulation of fintech and regulatory innovation initiatives” throughout 2020.   

The report surveyed 118 regulatory authorities across 114 jurisdictions, with the study finding that the coronavirus crisis has only served to push FinTech up the agenda for regulators across the world.

Philip Rowan, one of the co-authors of the report highlighted the fundamental internal challenge faced by one out of two regulatory respondents: working from home. “If you’re a company supervisor, site visits to particular companies have become very difficult if not impossible in locations where there are strict containment enclosure/travel restriction measures.”

Pair these obstacles with a lack of access to data and insights, and a global pandemic makes for a nightmare regulators have not previously experienced. However, as the report details, these challenges have encouraged institutions and regulators alike to embrace new technology. 

Rowan goes on to specifically highlight the increased use of RegTech by regulators themselves. “He adds that this was clearly observed in developing markets where the importance of digital infrastructure around delivery of financial services remains key for those living in remote or rural areas.”

Looking forward, Rowan highlights two key takeaways as considerations which would assist regulators into the future - the continuous demand and need for skills development and the provision of technical support within regulatory bodies.

“This reflects fintech moving up the agenda and regulators clearly feel they should get up to speed in understanding the technologies, business models, products and services behind fintech in order to be able to more effectively regulate and supervise it. The development of regtech and suptech roadmaps for regulators were themes frequently raised and may assist regulators with their request for greater technical support.”

That’s it for this month! But before you go…

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