Money Won’t Solve AML Risk Control Issues: A Holistic Strategy is Key .... and Technology Alone Isn’t a Panacea.

In the world of financial crime prevention, it's no surprise that institutions like Starling Bank face severe fines for inadequate AML controls. The issue of lax AML controls isn’t just a one-off occurrence at a few institutions. It’s a global challenge that continues to result in major enforcement actions. In the UK, Starling Bank was fined £29 million this week for weak financial crime controls. However, this pales in comparison to larger fines. In 2022 alone, global fines for AML failures reached over $2 billion, with major players like HSBC, Standard Chartered, and Westpac also facing massive penalties - for example JPMorgan Chase faced a $920 million fine for AML violations

What’s worse, these numbers only tell part of the story.

The increasing complexity of financial crime

The increasing complexity of financial crime – facilitated by cryptocurrency, cross-border transactions, and sophisticated money laundering tactics – means that identifying suspicious activity is becoming harder by the day. A Financial Times article described how “the pace of criminal innovation is outstripping the banks’ ability to adapt.”

The lack of innovation is perhaps the most pressing concern. Banks continue to rely on outdated, rules-based transaction monitoring systems that churn out false positives instead of effectively detecting evolving threats. As Raymond Baker, author of Capitalism’s Achilles Heel, highlights: “Regulation without innovation is stagnation.” He argues that the traditional approaches are "struggling to cope with the ever-changing nature of financial crime."

Is Enhanced Regulation Working?

Meanwhile, the regulatory environment is tightening. Recent updates to UK Money Laundering Regulations in 2020 introduced tougher penalties, yet enforcement bodies are overwhelmed with the sheer number of cases. This dynamic creates a "perfect storm" where criminals evolve faster than institutions and regulators can keep up, leading to widespread AML failures.

AMLA - the need for Consistency

The European Union is similarly ramping up penalties with the introduction of its new Anti-Money Laundering Authority (AMLA). According to an EU Commission report, the lack of consistency in AML enforcement across member states is “undermining the fight against financial crime” .

So why are Financial Crime Risk Control Frameworks Failing?

1. Firstly, financial crime models often rely on outdated, rules-based systems that fail to adapt to evolving threats. As fraudsters employ sophisticated tactics such as layering funds across multiple institutions or using digital currencies, these legacy systems struggle to detect patterns and anomalies. The speed at which these transactions occur further complicates detection.
2. Secondly, compliance teams are often underfunded or overwhelmed, particularly in smaller institutions. As financial crime risk management grows more complex, banks need to invest in resources that can handle the sheer volume of suspicious activity monitoring. However, many organizations prioritize cost-cutting measures over bolstering their compliance functions, leading to weak defences against financial crime.
3. Additionally, poor governance and fragmented models within institutions result in siloed risk management. This can make it difficult for AML, fraud, and KYC teams to share critical information, limiting the ability to identify broader criminal networks. In an ideal world, these functions would be integrated to provide a more holistic view of risk. However, without cross-departmental collaboration, institutions are essentially operating with blind spots.
4. Even advanced technology isn't a panacea. Artificial Intelligence and Machine Learning (AI/ML) offer great potential in boosting financial crime detection, but they are not without their challenges. Many banks struggle with data quality issues that hinder the effectiveness of AI models. And, as regulations tighten, the need for model transparency increases, creating another layer of complexity in deployment.
5. Finally, the evolving regulatory landscape adds further pressure. Compliance teams are racing to keep up with emerging regulations that often require large-scale process overhauls. In some cases, regulations are ambiguous or lag behind new technologies, leaving banks in limbo when developing robust financial crime frameworks.

So where do we go from here?

In essence, no one is shocked by "shockingly lax" controls because banks, despite their best efforts, are grappling with challenges that go beyond just throwing money at the problem. It requires a strategic, well-resourced approach, cutting-edge technology, and integrated models to finally close the gaps that criminals continue to exploit. Without these, institutions will remain reactive, playing catch-up with the latest threats.

Until institutions prioritise innovation and integration of advanced technologies like AI/ML for detecting financial crime, the industry will continue to fall short. Compliance isn’t just about ticking boxes but evolving in step with the criminals who are constantly refining their tactics. Simply put, without a major shift in approach, we can expect more fines and more failures.

The truth is, many banks are struggling to get it right. Why? The increasing complexity of criminal schemes, outdated systems, insufficient resources, and fragmented compliance approaches leave gaps that criminals exploit.

Real, lasting reform in financial crime compliance isn't just a regulatory issue—it's a fundamental shift in how banks approach risk, technology, and collaboration. And until that happens, we can expect more fines, more failures, and more headlines about the next institution that didn't get it right.