In late January, we published the sixth annual Thomson Reuters State of Regulatory Reform 2016: A Special Report. Top-line takeaways from this 36-page report reveal potentially diverging transatlantic positions on regulation from the world’s two leading financial centers: while UK rule-makers may be easing their stance in 2016, an uncertain U.S. election year outcome is having the opposite effect, with a pro-Wall Street view being politically unpopular.
Internationally, anti-money laundering (AML) controls, regulations and practices in “the age of the Islamic State and its trafficking of criminal proceeds” will also be a key issue. The 2016 special report delves into the rising pressures placed on government regulators to defend and change their existing rulebooks. The U.S. Treasury Department, for example, is working on a new rule requiring banks to better know their customers (KYC) and the sources of their money. Similarly, financial institutions in European Community member states are being mandated not only to know more about their customers’ money, they will be asked to treat the politically high-profile individuals within their domestic jurisdictions in the same way they would treat and scrutinize the financial transactions of a political leader of a foreign country in a politically risky environment.
On the whole, our regulatory intelligence-gathering from many of the world’s financial centers – including London, Hong Kong, Singapore, Perth, Toronto, New York, Washington, D.C. and beyond – foresees 2016 will be another unforgiving year for compliance professionals. In the special report, Thomson Reuters Regulatory Intelligence journalists analyze likely global regulatory trends and gather expert perspectives for the year ahead.
Individual accountability and a culture of compliance
Again, where the UK shows signs of an end to “banker bashing” in favor of a more pragmatic approach to financial regulation, U.S. banking culture and conduct will be placed under the microscope due to an uncertain election year and a politically unpopular Wall Street.
Banking culture reform will be a focus for U.S. financial regulation in 2016, along with systemic risk reduction across the entire financial system.
British regulators are keen to emphasize that their more market-friendly approach is not a return to “soft-touch” market regulation. Pillars include stress on individual accountability and a market-friendly approach. This strategy may have unintended consequences, however, as the UK’s new senior management regime could alter decision-making processes at the top of banks.
Financial-crime compliance on the front lines
The Islamic State – responsible for financing attacks like those in Egypt and Paris as well as insurgencies in Iraq and Syria – is adding urgency to financial-crime compliance and giving banks a role on the front lines. As the U.S. embarks on mutual assessment with the international Financial Action Task Force (FATF), regulators already are facing pressure to strengthen:
- Know your customer (KYC) due diligence
- Anti-money laundering controls (AML)
- Counter-terrorism financing (CTF)
- De-risking and anti-discrimination
Authorities are urgently seeking new ways to uncover and exploit transactions linked to Islamic State militants. They are blocking the financing of terrorism and using transaction data in military operations.
“New initiatives in jurisdictions such as the UK, together with the urgent need to cut off terrorist financing, mean there have never been as many opportunities for collaboration with law enforcement agencies, with the Financial Action Task Force (FATF) and with the 198 countries committed to implementing the FATF Recommendations.”
– David Lewis, executive secretary of the Financial Action Task Force
Though the FATF assessment for the UK will likely be postponed through 2018, the UK is getting a head start with a requirement giving money laundering reporting officers greater personal liability. Firms in both Canada and Australia can expect major changes for AML/CTF frameworks this year as authorities act on FATF recommendations from 2015 assessments.
In Asia, European and U.S. regulations will dominate the agenda. Firms will have to contend with the growing extraterritorial impact of foreign regulations while managing stuttering economic growth. Most Asian jurisdictions remain on track to implement G20-driven rules but global regulators and policymakers will also seek to increase cooperation with the region to ensure it has sufficient clout in wider regulatory matters.
Technology-fueled threats keeping pace with advancements
The rapid evolution of FinTech – most often lauded for opportunity – also poses significant risk. Robo-advisors, for example, will face closer regulatory scrutiny in 2016. Wherever there is a “buyer beware” caveat, “seller beware” is not far behind.
The “Internet of Things” (IoT) will leave unwary firms open to cyber attacks. Regulators, particularly in Asia, are keen to establish and enforce a baseline for cyber security controls and updates. Investment in Advanced Cyber Threat Analytics (ACTA). will be invaluable for firms looking to improve cyber risk management.
Expert views and insights
Thomson Reuters Regulatory Intelligence asked industry professionals to weigh in on this year’s trends.
The role of MLROs in 2016
Five money laundering reporting officers (MLROs) shared their views with us on key challenges in their roles for the year ahead. Front-of-mind issues included greater personal liability, the impact of enforcement and sanctions, know your customer (KYC) risks, and crucially, how MLROs can make a difference in the fight against financial crime and terrorism in their respective theaters of operation.
Regulatory volume and consequences
Thomson Reuters Regulatory Intelligence also asked compliance professionals to comment on a “conciliatory” remark by UK FCA acting chief executive Tracey McDermott, from a speech given last October. Here are some of their thoughts:
Download our report for more information on key regulatory actions worldwide.
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