The RegTech Pulse
The RegTech Pulse examines the latest industry and technology trends that help organizations fight financial crime and streamline payments, so money and goods can move safely and securely around the world. Industry experts across the world join the conversation to discuss their insights and share best practices. The RegTech Pulse is brought to you by LexisNexis Risk Solutions, which helps power compliant and assured client transactions to build an interconnected and trusted financial ecosystem.risk.lexisnexis.com/regtechpulse
The RegTech Pulse
Navigating the Future of Financial Crime Compliance: Trends to Watch in 2025
This episode was recorded the week of January 20, 2025
Uncover the future of financial crime compliance and gain insights into the shifting regulatory landscape with our latest episode featuring experts Eve Whittaker and Vincent Gaudel. Learn about the dramatic rise in sanctions during 2024, the impact of global elections and the challenges posed by a surge in politically exposed persons (PEPs).
Drawing on our latest research, Top Financial Compliance Trends to Watch For in 2025, the conversation highlights the growing reach of regulators, increasing concerns around bribery and corruption, public-private partnerships the opportunities AI presents, and increasing customer experience demands. As we look forward to 2025, discover how you can best navigate these turbulent times.
Download the full infographic here: risk.lexisnexis.com/global/en/insights-resources/infographic/financial-crime-compliance-trends
DISCLAIMER: The information provided in this podcast is for informational purposes only and is not intended to and shall not be used as legal advice. The views and opinions expressed in this podcast are solely those of the speakers and do not necessarily reflect the views or positions of LexisNexis Risk Solutions. LexisNexis Risk Solutions does not warrant that the information provided in this podcast is accurate or error-free.
Welcome everyone to the RegTech Pulse podcast, where industry experts discuss the latest trends in financial crime compliance. I'm your host, julia Thorne, and today I'm pleased to be joined by Eve Whittaker and Vincent Gordell, who are going to be joining me as we look back on the year that was 2024, and also what 2025 might hold in the world of regulation and financial crime compliance. So thank you so much for both for joining. For those of our listeners who don't know each of you, could you just give us a little introduction of yourselves, your role? Maybe, eve, starting with you?
Speaker 2:Sure. So my name is Eve Whittaker and I'm a market planning director in the financial crime compliance division and I work with our teams in the UK and I and the Germany, Austria, Switzerland regions.
Speaker 3:Perfect and Vincent. Yes, sure, hi everyone. Thanks for having me on the podcast. So my name is Vincent Godel. I work as an SME really a regulatory expert in the field of FCC, so that includes international sanctions and AML. Working within the market planning team together with Eve and other folks in the region.
Speaker 1:Thanks, guys. So every year, lexisnexis Risk Solutions release our predictions for the top trends to look out for in financial crime compliance and we're going to be covering off those five trends during the course of this episode, but maybe starting by looking back on 2024, vincent, I'll start with you. What were some of your key takeaways? Big news stories that you think kind of summed up the year that was 2024?.
Speaker 3:Yeah. So if we look at sanctions first, we also have a regular infographic, like we keep. Obviously we keep track of sanctions updates and big trends in the world of sanctions, and I'm just finalizing the number at the moment. But 2024, in short, was another very busy year. If you look at what we call the major sanctions regulator so that includes the United Nations, the US with the OFAC, eu and UK it's really a very high, intense sanctions activity that we observed since 2022. It's really a very high, intense sanctions activity that we observed since 2022. And actually for last year, for 2024, we have recorded an increase of those four sanctions lists by more than 4,300 entities, which is actually 14% more entities than what has been added in 2023. So basically, the growth of sanctions lists is not losing momentum. It continues to accelerate.
Speaker 3:But there is an interesting takeaway within that overall number of 4,300 entities being added to those lists is that this growth is really not evenly spread across the four lists. There is really a decoupling in the increase of those lists, primarily between the UN list and the other more national, unilateral sanctions. The UN list is actually very stable over time. We have seen very minimal number of updates throughout the year. It's been the case for a couple of years, but 2024 was no exception and overall, a very minor number of addition to the UN list. What we see instead is really intense national use of sanctions, and primarily by the US. If we look at 2024 numbers, actually 72% of the new additions were driven by OFAC actions, by the US actions, and, in terms of pace of updates, almost 50% of the actions were driven by OFAC. So there is really really strong leadership from the US in terms of sanctions and the other ones are more or less aligned with what the US is doing.
Speaker 1:And Eve. When we were talking about planning this podcast, we were talking about a lot of election activity. Obviously, this week we saw Donald Trump go into the White House after last year's election, but there was a lot more election activity around the world. Could you expand a little bit on that after?
Speaker 2:last year's election, but there was a lot more election activity around the world. Could you expand a little bit on that? Yeah, certainly 2024, as well as being a very sanctions heavy year, was a very busy year in terms of general elections. I think something like upwards of 40 countries had some form of general election, so there's a huge amount of activity taking place in that area. Obviously, the US was one of the more high profile of those elections, but a lot of major economies around the world so, including the UK, india, south Africa there's been a huge amount of activity and what we've seen in particular as well, in a lot of these general elections, the incumbent powers were overturned, so we've got a lot of new members of parliament coming into their seats.
Speaker 2:We've got a lot of new leaders in position, and this obviously has implications for potential foreign policy and that might well shape what we see through 2025. But, in a more practical sense, for regulated institutions who are performing due diligence and screening, it means there are a lot of new politically exposed persons who are going to be added to lists, and so it's been a lot of effort in terms of making sure that the lists that are being used for screening up to date so that they're keeping up with all of that new election activity and making sure that all counterparties and so on are effectively screened against them as well to fully understand the risk. So places a practical burden on institutions, for sure, but I think also sets the precedent for a very interesting 2025 ahead where we can expect to see new governing policies and see how that kind of continues to shape out, and so Yves, you mentioned there around PEPs being one particular impact on those lists.
Speaker 1:Looking to 2025, Vincent, in terms of the impact on sanctions lists, watch lists, what do you see coming to the fore in terms of list updates or sort of changing regulations, I suppose?
Speaker 3:Just to echo on what you were saying, I think something that is really interesting like a great part of those elections were snapped elections, like it was not predicted. Usually, when you talk about like volatile list activities, we have in mind or I have in mind sanctions, like unpredicted sanctions developments, but that can happen with PEPS as well. So that's really something to have in mind, because when there are changes that affect the listings, that has really impacts for institutions, as it was pointed out. So really, like the operational burden to keep pace with the changes has been heavy both on the sanctions front and AML front. Now, the other side of the coin, yeah, with new PEPs, with new political direction, we are seeing now the beginnings in the US, but in the EU we had some political changes as well.
Speaker 3:There is a likelihood that foreign policies will change as well. So we don't know exactly what Trump's policy will be like. We have seen a couple of like a handful of for now fairly minor changes, but we can expect some very significant foreign policy changes which will, in turn, impact the entities being listed. For those of us in the sanctions compliance community that have been around in the previous term of the Trump administration, there were some pretty significant changes to the US list when Trump took office. There was the withdrawal from the Iranian nuclear deal and that resulted in a massive relisting of Iranian entities. That was really another painful episode for sanctions compliance professionals. So this type of radical changes in foreign policy orientations should not be excluded for sure.
Speaker 1:And Vincent, one of the trends that we highlighted in that infographic was around expanding regulatory reach, and I wonder if you could expand excuse the pun on some of the ways that regulation might be changing or how the arms of those regulators may be getting longer.
Speaker 3:So what immediately comes to mind when we talk about expanding reach of regulations is, first, the use of secondary sanctions or similar mechanisms, like really for regulators to apply an extraterritorial dimension to their sanctions. So there was an interesting set of developments last year with the US really applying secondary sanctions pressure in scope of the Russian measures. It's interesting because we have seen earlier this month like early January 2025, that tool being used against a foreign financial institution by the US. So it was actually a bank from the Kyrgyz Republic that was listed by OFAC under those secondary sanctions mechanisms. So now it's not just a threat, you have an actual action on those authorities. There are some similar attempts on the EU side as well, but not as clearly extraterritorial measures as the US, obviously. But really that trend really exemplifies and illustrates the willingness for regulators to make sure their sanctions are effective and they are really prepared and showing teeth to tackle sanctions evasion wherever it occurs. So that really illustrates the expanding reach of regulators. It's also pretty evident when you look at enforcement decisions. You see companies from every sector being enforced against. You see, from last year, very diverse sectors settling with OFAC over violations of different programs and really that trend, which is already very true in sanctions that no industry is immune from regulatory reach and all industries should care.
Speaker 3:We start to see a similar dynamic in the AML world as well. So it's not for every industry but we see a broadening and expanding reach of AML regulation as well. We have a current focus on what is called under FADF standard as the designated non-financial businesses and professions, so those professions are called the gatekeepers. It includes really legal professions, company service providers and the likes. Those professions are becoming more and more under scrutiny from an AML standpoint and we see some initiatives in different places, like Australia has recently released a regulation to expand AML requirements to those professions. Because currently, if you look at the FIDEF assessments, it's one of the key weak spots, like internationally speaking, like the ability of countries to really regulate and supervise those professions. That is lagging overall and it's a key priority for the FATF going forward. So that's another facet of the expanding reach of financial crime regulation as a whole, Really kind of connecting the dots on AML exposed professions. That makes sense.
Speaker 2:Yeah, I have to agree there's certainly been a huge expansion in the scope of regulatory pressure and that obviously increases both the number of organisations that are now subject to very stringent measures but also the efforts that various institutions need to go to are expanding, and I think one really high profile example that we've seen kind of throughout 2024 coming into force at the start of 2025, is the introduction of the SIPA regulations. So this is quite a European specific impact, obviously, but I think the efforts that organisations have had to go to to be ready to support instant payments within that secure European payment area has been quite substantial and is another example of that kind of uptick in effort that's expected. But there are, I think, some other interesting implications to that super regulation coming into force. So there are two pillars to that that I think are kind of interesting to dive into and that might influence how we see 2025 shaping up ahead.
Speaker 2:One is kind of this idea that you've created this secure zone within which payments could be transferred, with all the banks conducting regular, daily screening of their own customers and therefore being able to send payments within that area without directly screening the payment itself, and this sets a really interesting precedent because it's the first time really, that we've seen financial institutions be able to place some level of reliance on the due diligence that's being performed by another institution, as opposed to being solely responsible for conducting both halves of that due diligence piece.
Speaker 2:And this, I think, sets a really interesting precedent for potentially being able to collaboratively address financial crime in the future, which is a topic that it feels like we've been hearing a lot about in the space now how important it is for us to be able to co-rely on the information of other institutions.
Speaker 2:No one institution has the full picture of risk and therefore being able to potentially share information in the future or at least in the meantime, be able to collaboratively rely on counter due diligence, is really important and, I think, potentially has really interesting implications for how we can start to tackle financial crime prevention in the future. Which is really interesting. That is, of course, that although this secure zone exists for European institutions specifically, a lot of the organizations impacted by that regulation are still needing to adhere to other international standards, which means that in reality, they're kind of implementing this new daily screening approach of all of their customers but at the same time, still conducting payment screening against other international lists. So once again, that compliance effort is actually going to be really significant. So an interesting precedent being set, although perhaps not having quite the practical implications of reducing workload that were anticipated.
Speaker 1:So another trend that we talk about in terms of links to the regulation trends are around this increasingly concerning area of bribery and corruption, thought to cost the global economy $3.6 trillion globally. Eve, maybe one for you. Why is this, on an ongoing basis, such a tough area to tackle and maybe what should the audience listening in do to consider when it comes to thinking about how they can help in the fight against bribery and corruption?
Speaker 2:Bribery and corruption certainly is a significant issue and one that is notoriously difficult to tackle, I think, because it can be a little bit ambiguous to define and catch hold of the behaviours and so on and risks that are associated with it. So there are many regulations in place that are aiming to directly tackle bribery and corruption. We have things like the OECD's Anti-Bribery Convention, which is in place, as well as specific regulations in a number of countries, and a lot of regions have been expanding the remit of their anti-bribery and corruption laws to try and make them more effective. So things like making it a corporate offence, like a criminal offence, for corporates to fail to detect effective bribery controls and so on, and so we are seeing, I think, an increased regulatory effort to try and address that, but it does still remain a challenge.
Speaker 2:One thing that has been observed is that almost all of the penalties that the FCPA have levied involve some kind of third party, which puts a huge emphasis on things like supply chain due diligence and being able to very thoroughly assess all of the counterparties that you're working with across a supply chain, and there's a wider trend, I would say, in an increased focus on things like supply chain due diligence and third party due diligence that's picking up across the space.
Speaker 2:In general, the EU have brought in, for example, acts around due diligence that obligate corporations to dive into more detail, and that expands beyond just looking for bribery and corruption. It takes into account things like environmental risks, social risks, human rights risks and so on, but I think is also a really effective way to try and root out the kind of bribery and corruption that can also often be associated with those kinds of activities. So very, very thorough due diligence a full supply chain and third parties is certainly one of the ways that we can start to identify and counteract this. I think, in addition to that, beyond just upfront due diligence of the supply chain, a continuous monitoring of behaviour, looking at perhaps transactional analysis, but also the dynamic risk profile of counterparties, is also one of the most effective ways to attempt to capture that kind of activity.
Speaker 3:Yeah, there's really a strong development of those regulations across the board and really like building up these supply chain decisions and I think it's really like the missing pieces compared to what we already had in mind. More from a financial standpoint, the scrutiny on politically exposed persons. So once corruption was committed, that politically exposed person might need to launder the proceeds right, and that's where the financial sector plays a huge role in really detecting when it deals with politically exposed persons and really apply an adequate level of due diligence on those persons, because corruption risks they are real for these prominent public figures. So I think there is really a complementary role from international corporates to really be vigilant with their supply chain and the financial sector to make sure financial transactions involving PEP make sense compared to their expected financial resources, so to speak. And we really see the requirements and the AML requirements on PEPS being strengthened in the latest AML regulation in the EU primarily, and I think it's really a complementary way to address corruption. That is important to maintain.
Speaker 3:And the last thing, and I think could be another interesting tool that is being used by specific countries, so typically the US and UK. They also go after corruption through international sanctions. This is something that the EU has been trying to implement but has not yet come up with an actual sanctions program. But the US is a very regular user of sanctions against corrupt officials, and the UK as well, so it's kind of the tool of last resort, so to speak. But there is a possibility to freeze the assets of corrupt officials, and that's something that we observe steadily, and particularly last year we've seen quite a number of designations by the US and UK against corrupt officials from different countries. We've seen former officials from Angola or even from European countries actually from Latvia, from Ukraine being subject to asset freezes. So it's an important issue. As you were saying, it's really a systemic issue and we need to really use all tools available to limit the possibility for corruption to happen.
Speaker 1:So, speaking of tools, now that we talk about ways that we can help sort of fight some of these challenges that we're seeing, it's 2025. We can't talk about trends without talking about AI. One of the stats that we talk about in the trends piece is that 50% of financial institutions are using or are planning to use AI and 70% believe that AI will lead to more revenue. So, eve, obviously you've got a bit of a background in AI. I wonder if you could talk about how it's really impacting the compliance space and what you see happening there.
Speaker 2:There's no doubt that artificial intelligence can have a massive impact on the compliance space, the financial sector in general, I think it's having a huge influence on, but within the compliance space specifically. There's huge potential there. We know that it's a very data rich area and that one of the key difficulties that a lot of institutions have is working with that data. There's so much of it, it's often in very disparate places, it can be very hard to manage, and artificial intelligence offers a real opportunity to actually be able to harness that wealth of data and start to draw real insights from it that can help to improve risk detection but also massively improve the efficiency of compliance processes. So it gives institutions the ability to really scale and manage the expanding number of records that they have to screen, do things like, reduce false positives and therefore make that workload more manageable, while also potentially being more accurate in risk detection because of being able to analyze so much more data without needing to rely on manual efforts in particular. So there's doubtless huge potential that artificial intelligence can bring, and I think it's become quite a familiar term over the last few years. The more familiar people get with that technology, the more reliable it will become and the easier it will be for organizations to effectively implement it, and I think we can also expect, as it becomes a more broadly adopted technology, for the costs of implementing AI to start to come down as well, making it more accessible for a broader range of institutions.
Speaker 2:So certainly, I think that's a trend that we're going to see continuing for years to come is the adoption of AI, and it offers a lot of opportunity, I think, not only in terms of being able to manage risk effectively, but also in potentially allowing for more accurate risk decisions to be made, which can therefore open the door to better financial inclusion. So, if we're talking about leveraging models to make risk decisions, they can often be more nuanced by capturing more data points, and this means that, rather than needing to make blanket decisions about perceived high risk areas, organisations can start to be more nuanced about precisely where risk may sit, and this might therefore open the door to financial access for broader groups of people, which is a really exciting prospect. Of course, on the flip side of that, there is the potential for bias to be perpetuated within AI models, which is why a really strong, responsible adoption of AI is really important, which I'm sure, vincent, you agree with.
Speaker 3:Completely agree with everything you said and obviously the potential is huge. But, yeah, the condition to really reap the benefits is to do it in a responsible manner and yeah, really I think you should not like for any technology, it's not a silver bullet. Right, there is potential there, but you have to implement it by understanding what you do, right. So it has been true for a while with compliance technology, we know about those requirements to validate the models, to keep an oversight on those screening technologies, for example. That requirement will obviously hold true for AI models as well obviously hold true for AI models as well. So it's really key for financial institutions and other businesses that want to integrate AI into their compliance programs to have the right set of human resources internally to oversee how models are performing.
Speaker 3:As you talked about bias, I think it's a perfect example where you want to monitor how bias are avoided, because ultimately, those tools can impact very important decisions to include or exclude someone from financial services. So it's really important to keep a good oversight on that. I'm not sure if every FI already have the right set of human resources to administer those complex models, but I think the shift is happening now and, yeah, we'll certainly see some significant benefits, both on the effective implementation of a risk-based approach, something that we are trying to power with technologies for quite some time, but also, as you said, on the efficiency of those controls and like reducing the overall cost and burden of those compliance controls.
Speaker 1:so, yeah, exciting times ahead and we've talked a lot about. I think it's a nice way to kind of bring up the final point or the final trend, which is around customer expectations and customer experience, because we've talked a lot about, from a regulated perspective, what needs to be done, from a financial institution or a corporate, what needs to be done, but there's also a very clear focus on customer experience and customer impacts. And I also a very clear focus on customer experience and customer impacts, and I wonder if both of you wanted to give a little bit of information on, maybe, how some attitudes are shifting or how there's more of a priority in terms of allowing for financial inclusion, like you just touched on a little bit earlier yeah, I think it's interesting to observe basically a trend to place the customer back at the center of those processes, right.
Speaker 3:right, for different reasons actually, because now there is an increasing competitive pressure across providers of financial services, so the incumbent banks are faced with competition from fintech etc. And basically it means that customers are less and less eager to suffer the frictions, right, they don't wait for agents to have access to services, et cetera. So that forces banks to do a better job at applying the right level of pressure. It also makes sense really to think about customer experience, customer expectation, because it's basically about really applying the principle of risk-based approach, right, so if a customer doesn't present particular risk, you should not apply undue friction.
Speaker 3:So, yeah, it's really about moving away from the legacy box-sticking approach and really the formal approach to compliance and really focusing efforts in situations of risk. And that's really where the customer-centric approach can help Up to the point that really an innovative, efficient approach to compliance can become a competitive advantage. Right, you can really easily identify areas where you can go, whereas your competitors might choose to de-risk a particular sector or types of activities. With the good compliance resources, you can make informed decisions and go in areas that you deem as within your boundaries of risk tolerance. So yeah, I think it's really an interesting shift and a welcome change.
Speaker 2:Yeah, I have to agree. I think that the idea of the customer-centric approach also being a risk-based approach makes perfect sense. It puts the customer at the heart of the journey while also fulfilling an effective compliance program right, which is great to see. I do think it's interesting when we think about the possibility of compliance as a competitive advantage. We talked earlier about how important it is for organizations to be able to collaborate, potentially even to share information and data in the future, to really get that full picture of risk. So I suppose there's a balance to be struck there between the competitive edge that compliance can offer not outweighing that need for collaboration to ultimately actually prevent risk, which is the ultimate goal that we all want to be working towards. So I do think there's probably a balance to be struck there between the two. But certainly it's great to see the industry moving away from what we call the box tick approach and certainly more towards a more true prevention of financial crime that puts the customer at the centre as well, who we're all trying to protect.
Speaker 1:I agreed. So, wrapping things up, then, we've covered a lot of topics today. We've talked about AI, changing regulations, the importance of collaboration, partnership, bribery and corruption, and then increasing customer expectations, and I think, if we consider all of those trends together, each of you, what would be your key takeaway, I guess, in terms of challenges not only challenges, but opportunities that you see maybe presenting themselves in 2025?
Speaker 2:I think we can certainly all agree that 2024 was quite a complex year in terms of the introduction of lots of sanctions programmes, lots of political activity, as we've talked about today, and I think it's fair to assume that a lot of that complexity will continue into 2025. I think there'll be quite a lot of change and potentially new programmes that compliance professionals need to address as we move through the year. But, that said, the increasing regulation, the shifts in dynamics within the market also create a really interesting environment for innovation. I think we're starting to see the adoption of lots of new technologies in the space that can make individuals more efficient, make teams more efficient, but also allow for much more effective capture of risk, which is again the ultimate objective here. So I'm really excited about what 2025 will bring.
Speaker 3:Yeah, I agree with that, and I will just complement by saying one word that comes to mind is the word urgency. I think it's urgent that we innovate effectively. The level of risks are already super high and, as you were saying, if we can expect the complexity and the level of risk to go to, only grow right. So I think innovation is urgent, effective innovation and really innovation that help improving the way we combat and disrupt criminal networks. This is really needed now. So it's really urgent that that technology is adopted and that we collectively, as an industry, do better to fight against financial criminals, adversaries and all those murky actors that operate out there.
Speaker 1:Amazing. Yves Vincent, thank you so much for joining me today. It's been great to talk to you about these trends and what options it might present for 2025. You're welcome. It's been a pleasure Pleasure about these trends and what options it might present for 2025.
Speaker 3:You're welcome, it's been a pleasure, pleasure speaking with you and thanks everyone for listening.
Speaker 1:If anybody listening wants to download that infographic, we will include a link in our show notes. This was the RegTech Pulse podcast brought to you by LexisNexis Risk Solutions. If you like this episode, you can find previous ones on all listening platforms and on risklexisnexuscom. Thank you so much for listening and we hope to see you again soon.
