Beyond the basics exploring trends shaping AML compliance in 2024

Introduction

As we move into the second half of 2024, the landscape of Anti-Money Laundering (AML) compliance continues to evolve, driven by technological advancements, regulatory changes, and emerging financial crime tactics.

The field of AML compliance is fundamental in safeguarding the integrity of our financial system, and therefore requires constant innovation and adaptability. In this Whitepaper we will look at what AML is, why it is important and what controls businesses should put in place to effectively prevent money laundering and other financial crime. It will also look at the key trends shaping AML compliance in 2024 and offer expert insights into the future of AML detection.

What is AML compliance and why is it important?

AML is the set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. The UK economy is one of the most targeted in the world by financial criminals – especially via the property sectors. The United Nations estimates that the amount of money laundered globally each year is between $800 billion and $2 trillion, while according to the National Crime Agency (NCA) money laundering costs the UK economy £100 billion annually - that’s potentially around 12% of the entire global problem.

Therefore, in the UK, AML compliance is a critical aspect of the financial regulatory environment. The AML framework is robust, with strict regulations and enforcement measures all designed to detect, deter, and prevent money laundering and other financial crime.

What are the AML rules in the UK?

The primary legislation governing AML in the UK includes:

Proceeds of Crime Act 2002 (POCA) – this is the primary legal basis for confiscating proceeds from crime and includes provisions for money laundering offenses.

Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) – these implement the EU's Fourth and Fifth Anti-Money Laundering Directives (4AMLD and 5AMLD) into UK law, which set out detailed requirements for AML practices across regulated sectors.

The Terrorism Act 2000 - This includes provisions to counter the financing of terrorism, which is closely linked to AML efforts.

There is no one regulatory body in the UK for AML regulation; different regulatory bodies deal with different sectors, but the key ones are:

Financial Conduct Authority (FCA) - The FCA supervises financial institutions to ensure they comply with AML regulations, and have effective AML systems and controls in place.

HM Revenue & Customs (HMRC) - HMRC oversees AML compliance for non-financial businesses, this includes estate agents, accountants, and dealers in high-value goods.

National Crime Agency (NCA) - The NCA is responsible for investigating money laundering offenses and operates the UK Financial Intelligence Unit (UKFIU), which manages the Suspicious Activity Reports (SARs) regime.

What do regulated businesses have to do to comply with AML requirements for businesses?

Under UK AML law, as outlined above, regulated firms must take a ‘riskbased’ approach to AML, and ensure their AML processes include the following:

• Identification and verification

This involves three key elements, firstly, checking that the person is a real person, secondly, checking that the ID they are presenting is a real ID, and thirdly, checking that the person and the ID match.

This is usually done by obtaining details about the individual through personal identification documents like passports and driving licenses and cross referencing the details against publicly available information from global data providers.

• Screening

Once the verification has been completed, the risk of the person needs to be assessed, which is done by screening them against global sanctions lists. Red flags include, PEPs (Politically Exposed Persons) - individuals who hold a prominent position in public life and High-net-worth individuals – people with considerable wealth - both are at greater risk of corruption and bribery.

Others that pose a higher risk are SIPs (Special Interest Persons)- individuals with a history of financial crimes, those with sanctions, which are legal restrictions put in place to stop or limit trading, and anyone or any business with adverse media, i.e. negative coverage in the press.

• Enhanced due diligence

If the screening process identifies any of the above, further investigation needs to be undertaken - this is known as enhanced due diligence - to ascertain whether or not the individual or entity is too risky to do business with.

• Record keeping and ongoing monitoring

The checks above are just the first stage of the AML process - for a compliant programme, all check results need to be recorded and then regularly ‘re-checked’ to ensure the risk has not changed. Not only does this help continue to mitigate the risk of money laundering and other financial crimes, but also proves to regulators that obligations have been met.

• Reporting Suspicious Activities

An AML programme must also include an effective process for reporting anything suspicious to the relevant authorities – in the UK, this means submitting Suspicious Activity Reports (SARs) to the NCA with detailing any suspicions of money laundering or terrorist financing.

How is the AML landscape changing?

The AML compliance landscape in the UK is constantly changing in response to evolving threats and risks. In response, regulatory bodies must continually update regulations and best practice, while regulated firms must ensure they have robust processes in place to meet them. Here are some of the key trends shaping AML compliance in 2024:

• Blockchain and Cryptocurrency
  
  

According to data from CoinMarketCap the Global value of all cryptocurrencies in 2018 was approximately $813 billion, by 2023, this figure had exceeded $2 trillion , while the number of cryptocurrencies had increased from 1,600 to more than 23,000. Usage has grown significantly too – five years ago, there were around 100 million cryptocurrency users globally; by 2022, this had grown to more 320 million.

Thanks to the inconsistency in global regulation, the anonymity, novel applications and the borderless nature of financial activities within the crypto space the rise in financial crime targeting cryptocurrency has also been significant in recent years. According to Deloitte illicit cryptocurrency transactions reached a staggering $20.6 billion in 2022.

In response to this significant rise in the adoption of cryptocurrencies – and the increasing levels of abuse of these digital currencies by financial criminals - AML compliance and transaction monitoring must continue to evolve to ensure it is able to meet these new risks.

Blockchain technology presents unique challenges and opportunities for AML detection, including transaction traceability on a public ledger. Going forward, more sophisticated tools and techniques will have to be developed for monitoring crypto transactions, alongside greater collaboration between regulatory bodies and the crypto industry to standardise AML practices for digital currencies.

• Regulatory updates, enforcement and penalties
  
  

Updates to domestic and global AML regulations and enforcement, as well as increasingly severe penalties for non-compliance are significantly impacting the global AML landscape. In the UK, regulators have been particularly stringent in recent months, imposing record fines to ensure robust compliance. For instance, in 2023, the FCA fined a single firm £6.4m for significant AML control while HMRC issued £3.2 million in penalties to hundreds of businesses for breaches of AML rules between July and December 2022 (GOV.UK) .

These increases in penalties highlight the importance of maintaining rigorous AML systems and controls to avoid significant financial and reputational damage.

• Global collaboration
  
  

As the digital economy grows bigger, the world becomes smaller, with international borders no longer a hindrance for financial transactions. And while these advances bring with them huge opportunities for indivuals, businesses and national economies, they also bring a while new level if risk. Therefore, the future of AML transaction monitoring will have to involve increased collaboration and information sharing among financial institutions, regulatory bodies, and law enforcement. Shared intelligence on emerging threats – both in terms of the individuals and organisations involved in financial crime as well as their methods - will significantly improve money laundering detection and prevention across the world.

• AI, Machine Learning and Big Data Analytics
  
  

The implementation of artificial intelligence (AI) and machine learning in AML compliance represents more than a trend—it signifies a major paradigm shift.

These technologies boost the detection of suspicious activities by analysing real-time data to spot patterns and anomalies indicative of money laundering. As we move through 2024 and into 2025, we can expect more advanced AI and machine learning models that self-learn and adapt to emerging threats, substantially reducing false positives and enhancing operational efficiency.

Big data analytics is already playing a pivotal role in revolutionising AML compliance, and will continue to do so as we move forward. Digital compliance experts are already helping their clients to harness big data to gain deeper insights into customer behaviour, for a more sophisticated approach to risk assessment. Big data enables much more precise detection of illicit activities by contextualising personal and transaction data within broader patterns, allowing AML processes to shift from reactive to proactive.

• Advanced Technology
  
  

RegTech is an essential part of AML compliance now and will soon become an essential part of any effective AML solution. RegTech solutions enable regulated firms to streamline AML processes through automation and integration, providing scalable and flexible approaches to meet evolving regulatory demands.

SmartSearch’s latest innovation - the enhanced platform – includes technological developments that not only make AML easier and more efficient but can actually cut costs for businesses across their wider onboarding and customer processing operations.

Driven by the latest technology, regulatory change and customer feedback it includes a seamless new interface and several key enhancements to offer the ‘gold standard’ in compliance, including:

Triple Bureau Identification, Verification, and Automatic Screening – SmartSearch utilises global data from Experian, TransUnion, and Equifax

—the three largest credit reference bureaus in the world—and the Dow Jones Global Watchlist, which includes more than 1,100 real-time PEP and sanctions lists, updated daily to identify, verify, and screen an individual or business in seconds.

Perpetual KYC (pKYC) – the new platform not only runs initial identification, verification and screening checks, but also automatically re-runs client searches, delivering instant access to the latest search outcomes and audit trails.

User Management - by having all compliance checks on one platform – and integrating this with clients’ existing systems - users can manage the entire customer journey from one place.

Configurability and automation - SmartSearch’s solutions can now be fully tailored to each businesses’ unique needs, including a cobranded/white labelled interface, enabling them to set up bespoke processes and fully automated workflows that are able to assign, notify and create applications based on rules.

API functionality – all SmartSearch services are now available through RESTful APIs, meaning the solutions can be fully integrated with a client’s existing system within 24 hours.

Best practices for AML  Compliance in 2024 and beyond

AML compliance will continue to evolve, driven by increased threats, evolving regulations and technological advancements. Regulated businesses must proactively stay ahead of these trends by investing in cutting-edge technologies and cultivating partnerships to effectively combat money laundering.

The fastest, most efficient, and most reliable way to conduct AML compliance is via a third-party digital compliance solution like SmartSearch.

SmartSearch offers a fully comprehensive Know Your Customer (KYC) solution with full sanction and PEP screening, ongoing monitoring, and Source of Funds (SOF) checks from one platform, meaning clients need only one technology for all their AML compliance needs.

Moreover, the SmartSearch platform is continually updated and developed, with new features regularly added to comply with AML regulations, ensuring that any client using SmartSearch will never need an upgrade.