AML, KYC and Sanctions Fines for Global Financial Institutions Top $36 Billion Since Financial Crisis

29 January 2020

● 2019 brings an additional $10 billion in fines for non-compliance with AML, KYC and sanctions regulations as post-financial crisis impact bites
● Financial Institutions fined further $82.7 million for data privacy and MiFID violations
● Amid global trade tensions, sanctions violations make up almost 40% of 2019 fines

29th January, 2020 - Fenergo today released its findings on financial institution fines which shows that in December 2019 global penalties totaled $36 billion for non-compliance with Anti-Money laundering (AML), Know your Customer (KYC) and sanctions regulations. Fines related to AML, KYC and sanctions violations increased in the 15 months since the last Fenergo report by 160% as the ramifications from the global financial crisis bear a significant impact. The 2019 report also includes fines for Markets in Financial Instruments Directive (MiFID) and data privacy regulations such as Global Data Protection Regulation (GDPR) to the value of $82.7 million.

12 of the world’s top 50 banks were fined for non-compliance with AML, KYC and sanctions violations in 2019. By country, Switzerland was the biggest offender after a tier one Swiss bank received the biggest single fine at $5.1bn for AML breaches by the French Criminal Court. The fine exceeds the bank’s 2018 net profit of $4.9b by 4%. Italian banks were the second biggest offenders in 2019, racking up almost USD $1.5 billion in total fines for sanctions violations and GDPR breaches.

Two thirds of all fines issued by US regulators were aimed at European financial institutions for AML breaches and sanctions violations with countries such as Iran, Cuba, North Korea, Sudan, Libya and Myanmar. In APAC (.07% of the 2019 fine value) the majority of penalties were levied by regulators for AML and Know Your Customer (KYC) shortcomings in India (14), Chinese Taipei (10) and Pakistan (8).

2019 was the first year that punitive fines were handed out to tier one financial institutions for historical MiFID transaction reporting breaches. Two major fines amounting to USD $81.5 million were issued by the UK’s Financial Conduct Authority (FCA) for transaction reporting failures over a 10-year period preceding the introduction of MiFID II. The 2019 fine value is 55 times the value of all MiFID II fines issued in 2018 ($1,480,942). Only 12 fines amounting to over USD $1.1m were issued to financial institutions for non-compliance of data privacy regulations including GDPR and Personal Data (Privacy) Ordinance in Hong Kong.

Marc Murphy, CEO of Fenergo says “The rise in financial crime and increasing regulation is creating a tough battleground for financial institutions trying to stay on top of a multitude of regulatory rules across different jurisdictions. We are still seeing the ramifications from the financial crisis. In today’s climate there is no other option but to leverage next generation technology to achieve a more effective and streamlined approach to regulation that allows financial institutions to approach regulatory compliance in a ‘business as usual’ manner. This will leave room for more value-add tasks that will achieve competitive edge in the race to win on customer experience.”

Laura Glynn, Global Compliance and Regulatory Director, Fenergo says: “2019 was another record year for fines, the second biggest in history, and 2020 is shaping up to be a very busy year in this space. Our report is mainly AML and KYC based, but we have included recent fines for breaches across other regulatory areas, such as infringements under GDPR. While these specific fines in 2019 are small in comparison to the AML fines, and less numerous than anticipated, this is largely due to regulators giving financial institutions leeway to embed their controls and demonstrate efforts to comply. This honeymoon period is waning, so we expect more penalties to arise from non-compliance in 2020.”

The top US regulator by fines was the Department of Justice (DoJ) with over USD $1.3 bn in fines issued. This includes an enforcement action imposed on one of the world’s top 20 banks which incorporated a forfeiture of USD $717.2 million for the absence of an effective, global sanctions-compliance infrastructure and a lack of management oversight which resulted in sanctions violations. The fine came after a review by US regulators which discovered the institution had made 2,600 outbound U.S. dollar payments, valued at approximately USD $8.3bn, to high risk countries including Iran, North Korea and Sudan.

The rise in sanctions fines in 2019 reflects the geopolitical climate in the United States. 86% of all fines levied by US regulators since Fenergo’s last report in 2018 were for sanctions violations. Economic sanctions against high risk countries such as Iran are imposed by governments to protect national security and prevent the funding of terrorist activity. Financial institutions are required to be vigilant in identifying sanctioned entities and individuals through robust screen processes.

Rachel Woolley, Global AML Manager, Fenergo, said: “The scale of financial crime continues to grow while the methods used by criminals to launder the proceeds of crime evolve. Our 2019 fines analysis shows that many of the financial institutions penalised lacked appropriate systems and compliance infrastructures that are necessary to identify and address areas of high risk. Effective regulation technology is no longer a ‘nice to have’, it’s essential for the future of banking and the reduction in global financial crime.”

The data also highlights a trend for US regulators to impose tougher penalties on foreign financial institutions compared with domestic institutions. Since September 2018 a total of 19 fines were handed to banks with headquarters in France, Israel, Italy, Switzerland, UAE and the UK, at a total value of $4.1bn compared to just $246 million in fines issued to US institutions. Average fine values to EMEA headquartered banks were 10 times higher (USD $216m) in the same period than those imposed to US institutions (USD $20m).

To delve into the fines data and the global drivers in more detail register here to join Fenergo and presenters Graham Barrow and Ray Blake from The Dark Money Files in a webinar on February 26th.

About Fenergo
Fenergo is the digital enabler of client and regulatory technology for financial services. It provides digital Client Lifecycle Management (CLM) software solutions for Financial Institutions including Corporate & Institutional Banking, Commercial & Retail Banking, Asset Management & Asset Servicing, Private Banking & Wealth Management. Counting 70+ global Financial Institutions as clients, its award-winning CLM suite digitally transforms how Financial Institutions manage clients; from initial onboarding to KYC/AML and regulatory compliance, to data management and ongoing lifecycle KYC reviews and refreshes. Fenergo CLM empowers financial institutions to deliver a faster, compliant and digital customer experience while achieving a single client view across channels, products, business lines and jurisdictions. Fenergo is quickly becoming the KYC backbone for banks, where a common set of Fenergo KYC services are being leveraged across the bank agnostic of business vertical, product, jurisdiction or client type. This backbone trades increasing complexity for well-designed simplicity.

Fenergo’s community-based approach to product development allows clients to collaborate on solution design on a global scale. Its rules-driven solution ensures compliance with multiple global and local regulatory frameworks including AML, KYC, SFTR, Tax (CRS, FATCA, 871M), OTC Derivatives (EMIR, Dodd-Frank, MiFID II, Margin Requirements) and data privacy rules (GDPR). It supports the collection, centralization and sharing of client and counterparty data and documentation across the institution and deploys an API-first approach to advanced integration with a host of external KYC, AML and entity data providers, KYC and industry utilities. The solution is underpinned by next generation Artificial Intelligence, Robotics Process Automation and Machine Learning technologies, using advanced OCR and NLP capabilities to extract information, expedite compliance and improve operational efficiencies.

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