AML and Regulatory fines on global banks soared in 2023, study shows

By Puja Sharma

Fenergo, the leading provider of digital solutions for client lifecycle management (CLM), know your customer (KYC) and transaction monitoring, today released its annual findings on global financial institution enforcement actions, which reveal that the value of penalties imposed on firms surged 57% in 2023.

Penalties for failing to comply with anti-money laundering (AML), KYC, environmental, social, and governance (ESG), sanctions and customer due diligence (CDD) regulations totalled $6.6 billion in 2023, up considerably from $4.2 billion in 2022 and $5.4 billion in 2021. The highest value fine at $4.3 billion was issued to the world’s largest cryptocurrency exchange, Binance, in relation to AML failings. Binance was ordered to pay the fine to resolve investigations by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC) and the Commodity Futures Trading Commission (CFTC).

The Cayman Islands, where Binance is headquartered, has subsequently seen the single largest regional increase in fines received from global regulators, from just over $3 million in 2022 to more than $4.5 billion in 2023. Among the most punitive jurisdictions with the highest penalty totals were the US, which saw an increase of 69% to $5.1bn, the second highest year on record, and China, up from $55 million to $1.4 billion in 2023. Regulators in the United Kingdom were more lenient, handing out penalties to FIs totalling $25.26 million, down 86% from 2023.

Crypto and payments firms have driven the biggest uptick in fines this year, representing 69% and 21% of global penalties, respectively. According to Fenergo’s analysis, 2023 marks the first year when crypto and payments firms surpassed traditional financial institutions with regards to the value and severity of financial penalties received for AML breaches.

Broadly speaking, the most significant increase in enforcement actions relates to KYC and CDD, rising to a staggering $219 million over the last 12 months, up from $2.3 million. Following a similar trajectory, ESG fines have increased by 246% to reach a record high of $19 million in 2023.

Commenting on the findings, Rory Doyle, head of financial crime policy at Fenergo, said: “Regulators have clearly had their foot on the accelerator this year, demonstrated by the huge enforcement crackdown on virtual currency providers. These findings spotlight a need for more robust frameworks for AML within newer, digital-first providers. That said, firms of all sizes must ensure they are well prepared from a financial crime perspective as regulators prioritize AML/counter financing of terrorism (CFT) in 2024.

“The challenges facing financial institutions this year include the need to plug the growing educational gap and the ongoing shortage of qualified financial crime professionals to conduct effective client due diligence. With more work and fewer resources, firms must look to leverage cutting-edge technology to create a centralized financial crime ecosystem – including machine learning and artificial intelligence – to reduce the growing skills gap and, ultimately, mitigate the risk of further enforcement action over the coming 12 months.”