What are risk and compliance services and where do they come from? 

With the constant expansion of the regulatory demands and the significant pressure on compliance professionals to meet the companies’ obligations, the risk and compliance (RandC) industry has been aggressively evolving. Even though there have been controversial discussions on when and how RandC as an industry originated, considering that regulations and respective companies’ compliance has been an ongoing process for decades, we can safely define September 2008 and the bankruptcy of Lehman Brothers as a milestone trigger for the RandC increased demand.

The end of 2008 was marked by a chain reaction of bankruptcies in the financial industry not only in the United States (US) but globally, reaching its peak in international banking crises. As part of the national fiscal policy response, the US Federal Reserve, the European Central Bank, and the Bank of England provided unprecedented trillions of dollars in bailouts and stimulus packages. 

This was the largest liquidity injection into the credit market and the biggest monetary policy action in world history. Shortly after the dawn of the financial crisis in 2008, regulators on a national and international level responded with quick restrictive measures aiming to address legislation gaps and systemic risk issues. In the US, the federal banking supervisors – Board of Governors of the Federal Reserve System (the Federal Reserve), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) the US Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the newly formed Consumer Financial Protection Bureau (CFPB) took legally required steps to prevent corruption and money laundering, to assess companies’ risk by requiring commercial entities to screen their business partners and subcontractors involved in international cooperation. 

The US Financial Crimes Enforcement Network (FinCEN) issued final rules in 2016 under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements for banks; brokers or dealers in securities; mutual funds; futures commission merchants and introducing brokers in commodities. The Europe response to assessing compliance with the principal international standards to counter money laundering and the financing of terrorism included international legislation issued and supervised by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), the Council of Europe, the Basel Committee on Banking Supervision (BCBS), the Financial Action Task Force (FATF).

All of these regulators have been entrusted with the task of and the effectiveness of the measure implementation, as well as with the task of making recommendations to national authorities in respect of necessary improvements to their systems. 

2020 a.k.a. The game-changer

The main pillars in the customer due diligence (CDD) risk assessment defined not only by FinCEN but also by the rest of the national and international regulators strictly to ensure clarity and consistency across sectors include:

  1. Customer identification and verification; 
  2. Beneficial ownership identification and verification; 
  3. Understanding the nature and purpose of customer relationships to develop a customer risk profile;
  4. Ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining and updating customer information.

In 2020 with the outbreak of the COVID-19 pandemic globally, companies across all industries were forced to adapt to the constantly changing regulatory environment and were forced to migrate to a remote working approach. Customer contact in person was limited only for essential service providers and businesses like banks and insurers had to apply telecommuting as the new business as usual approach.

Very quickly digitalization became essential for the “New Normal” day to day work. The companies struggling with the economic effect of the pandemic restrictions identified a vital need for cost-cutting through automation of their internal processes and cost, and risk outsourcing to external organizations.

“We have been seeing higher interest in the APAC region and Post-Soviet states in the second half of 2020 and we expect this to continue in 2021 with more projects focused on these regions.”

Tsveta Asenova, Account Manager MMA, A Data Pro
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2021. What to expect when it comes to risk and compliance, and due diligence?

The current EU directive in place and adopted by all countries in Europe is the (5th) EU Directive dated 23 October 2018. The (6th) EU directive (Sixth AMLD) came into effect for member states on 3 December 2020 and must be implemented by the countries due 3 June 2021.

Siyana Vacheva A Data Pro

“If the previously Anti-Money Laundering (AML) and Know Your Client (KYC) regulations for most industries were a matter of reputation management, with the most recent changes, industries like gambling, public postal operators, trading companies, non-profit organizations have been legally obliged to comply with the AML measures implementations.” 

Siyana Vacheva, Head of R&C Business Services, South East Asia, A Data Pro 
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Two are the main pillars that upgrade the previous regulation. The first one is the expansion of the regulatory scope. With the new directive in place, “aiding and abetting” will constitute criminal activity equal to money laundering punishable by the same sanctions. Before Sixth AMLD, the EU money laundering regulations considered legally culpable only the parties who profited directly from the act of money laundering, but under the new rules, the so-called “enablers” will also be punished. 

The second change is the Extension of Criminal Liability. According to the current regulations, only individuals (ultimate beneficial owners, key executives) can be considered culpable for the act of money laundering. Upgrading the previous directives, the Sixth AMLD will expand the criminal liability to include the punishment of legal entities, such as commercial enterprises or partnerships. The new regulations imply that a company will be held legally responsible for the crime of money laundering if it is established that it failed to prevent a “directing mind” within the organization from conducting the illegal activity.

Veneta Angelkova A Data Pro

Automation in risk and compliance has been a significant trend and services including innovative technologies will enhance business opportunities in the future. Investing in the growth potential of advanced data analytics, machine learning, and AI will ensure efficiency in times of uncertainty and rapidly changing rules and regulations.

Veneta Angelkova, Project manager, A Data Pro
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Why A Data Pro?

Financial Services institutions face increasing regulatory pressure and vigorous enforcement to proactively mitigate risk and ensure compliance with AML/KYC requirements. 

Operations, information solutions, check and audit procedures are set up and continually improved to monitor, detect, and prevent potential money laundering or terrorist financing activities to screen potential customers and transactions for suspected illegal activity.

The growing Government, Risk & Compliance (GRC) regulatory complexities and the need to establish and maintain relevant due diligence information across the lifecycle of every customer exposes compliance officers and organizations to the costly impact of non-compliance. This is coupled with increasing pressure from the market to ensure a fast, smooth, and seamless customer experience – from onboarding to efficiently meeting client expectations.

A major challenge for banks is therefore balancing key business growth targets with AML/KYC risk assessment procedures, which often drain resources and create process inefficiencies.

A Data Pro offers a unique and tailored approach that supports financial institutions in confidently mitigating risks. 

  • Access the expertise of 400+ highly skilled researchers and analysts dedicated to navigating;
  • The KYC and Enhanced due diligence challenge in the shortest time possible;
  • With over 40 languages at hand, we can investigate any client or transaction – we cover 80+ jurisdictions from across Latin America, Europe, the Middle East, and Asia;
  • Having provided top-tier clients with high-quality, reliable, and accurate results, we have extensive knowledge and experience;
  • Our investigative methodologies are based on vast region-and market-specific expertise, combined with global research capabilities;
  • We are swift in responding to our clients and flexible in our approach, with our structure and processes allowing us to seamlessly fit into, support, and streamline your bank’s internal procedures;
  • Our partners directly benefit from our R&D investments and innovations — we consistently invest in developing proprietary datasets and technologies, including AI, automation, content harvesting, and indexing.

Interested to find out more? Visit our due diligence & compliance screening page or contact us!