2023 AML Compliance Report: How are your peers coping with regulatory challenges?
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Today's read is ~7 minutes
Penneo conducted a survey to pinpoint the major issues encountered by financial, compliance, and tech leaders and their approach to dealing with them.
Between the end of 2022 and the beginning of 2023, we spoke to over 100 professionals across Northern Europe to identify the main obstacles experienced by regulated organizations when adjusting to legal news and changing compliance needs and their planned activities to tackle them.?
The findings outlined in our 2023 AML Compliance Report are intended to foster the dialogue around shared challenges and give compliance experts insights on potential solutions.
Below we'll give you a sneak peek at our survey results. We hope it will shed some light on how other professionals like you are responding to an ever-evolving regulatory landscape.??
About the survey and the respondents
The poll of participants included compliance experts from AML-impacted organizations who joined the discussion by sharing their opinion on the topic anonymously.
The industry segments most survey participants belong to are audit and accounting (38%) and financial services (23%).?
The majority of the respondents work with AML/KYC compliance (24%), financial reporting (24%), and audit and risk management (17%).
More than half of them (54%) work in small firms with up to 50 employees, while almost a third of respondents (28%) are employed in big organizations with a headcount of over 500 staff members.
The challenges: what are the main issues experienced by compliance professionals?
1 in 3 respondents identified keeping up with changing regulatory requirements as the major challenge in their daily work life.?
The problem typically gets worse hand in hand with the company’s growth and expansion to new markets. For example, a small firm operating in a single location will have lower compliance costs (intended as the expenses for personnel, infrastructure, and operations) than a global enterprise working across several jurisdictions. And that’s the situation reported by 46% of respondents, whose business operates outside national borders.
For 27% of the study participants, the talent shortage is the biggest issue.?
Along with the challenge of recruiting experienced compliance professionals, a growing portion of the company budget is being devoted to the periodic training of in-house staff.??
In this context, the lack or insufficiency of properly instructed employees and the resources needed to upskill them are identified by 38% of respondents as the main blockers in responding to regulatory news.?
Adapting to organizational changes and requirements updates is increasingly harder when outdated processes, practices, and systems are in place. Legacy technology, manual processes, and change-adverse employees can be major obstacles to the introduction of novelty, no matter how visible and game-changing the benefits deriving from it. Ultimately, the less digitalized and automated a process is, the more complex it will be to make adjustments to it where required by law or otherwise needed.?
That’s why it’s quite alarming to notice that 40% of the companies taking part in the survey handle KYC processes manually, and only half of them are considering automating some of the related tasks.?
The lack of automation is likely the cause of some of the most frequent problems encountered during the KYC process - such as poor data quality and consistency.?
When asked about the main issues faced when getting to know their customers, 1 in 4 professionals partaking in the survey mentioned how the significant amount of personal data requested from clients could seem intrusive and burdensome, raising doubts about the relevance of its collection.
The time needed to explain to customers the reasons behind identification, risk assessment, and due diligence procedures adds up to the already long and time-consuming onboarding process. Similarly, the amount of time spent collecting information prevents companies from dedicating enough time to analyzing and monitoring customer data - which is the biggest challenge for one-third of respondents.
Proposed solutions: how are your peers planning to tackle compliance challenges?
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To deal with these issues and better the customer journey, process digitalization appears as the best solution for 34% of survey contributors, who identify it as the most effective way to ease the KYC burden for clients.
When requested to rank their key AML compliance investment areas for the next 1-2 years, the majority of the companies involved (42%) placed the increase of compliance professionals as the primary priority, followed by the training of the existing workforce.?
Adopting digital tools for KYC-process optimization and enhancing data processing systems and practices are also essential fields of interest.
More generally speaking, 30% of respondents deem better management of regulatory compliance risks as the most pressing matter to give attention to in the short and long term.?
Cost optimization and competitiveness are considered priorities by 20% and 27% of respondents, respectively.?
Finally, 1 in 4 respondents plans to focus on improving their digital agility, intended as the ease and speed at which an organization can adapt its processes, integrate new technologies, and achieve successful digital transformations.
Although 27% of respondents include business innovation among the top goals to pursue over the next 12-24 months - organizations typically face a series of issues when launching tech initiatives.?
Common barriers when moving forward with digital investments are the new tool’s interoperability with existing technology and processes (27%), and underinvestment or under-prioritization when getting stakeholders’ buy-in and budget approvals (19%). Moreover, 1 in 5 companies would lack confidence in software missing social proof or with scarce adoption by peers and competitors (19%).?
Recommendations influence buyers’ behaviors to such an extent that nearly one-fourth of respondents admitted they prefer to wait and see how other professionals and companies in the field react to regulatory changes and new compliance needs before making a decision and, oftentimes, emulate their choices.
Still, the majority of experts joining the survey (42%) would proactively search for a digital tool that can address the loose ends caused by new legal requirements.?
The options available on the market are growing hand in hand with the increasing demand for tech solutions automating business processes. It’s easy to feel overwhelmed by the number of alternatives, especially considering that many software offer similar functionalities.?
When asked about the key differences to watch out for while selecting the best solution for their company, price and ROI consistently rank as the most important factors (31%).?
1 in 4 respondents considers compatibility with existing software and integration possibilities as decisive characteristics. Customization options, strong cybersecurity and data privacy, and ease of use are also mentioned as pivotal differentiators to look out for to ensure a successful transition when outsourcing business-critical activities.?
Concluding remarks
Ensuring constant compliance is a task that requires a great deal of commitment, time, and effort. And this is particularly true for industries subject to AML legislation, as that's one of the fastest-moving areas of financial regulation and probably the one that sees the greatest number of violations (and fines).?
On the other hand, anti-money laundering and cybersecurity efforts will likely remain high on the agenda among politicians and regulators for the years to come.?
Considering the ever-evolving criminal landscape, the more recent events affecting the global economy, the pace of changes in the law, and the heightened regulatory expectations - modern companies should be well-equipped to react to legal news and ensure ongoing compliance.?
In other words, being prepared to respond to changes in the regulatory landscape is a must for any business.?
Through our survey, we’ve tried to understand the day-to-day obstacles that the industry is facing and consider some of the solutions available to help alleviate these challenges.?
Significant focus areas for the majority of respondents will be the increase and upskilling of compliance staff to secure readiness in responding to regulatory updates.?
More generally, improvements in the management of AML compliance processes will be a domain of interest, as emphasized by our survey poll.?
In this context - the adoption of new technology to automate and optimize KYC processes was highlighted in the plans of most organizations participating in the study.?
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