2023 has been a year of challenges for the financial regulatory compliance landscape in the shadows of inflation fluctuations in the world, longstanding influence of the global pandemic, important developments and tensions in geopolitics, continuously increasing cost-of-living and fast-changing technological enhancements. In order to adapt to the changes and minimize the criminal risks in this ever-evolving financial environment, the regulators had to work on the skills for getting to know the new concepts in detail such as the digital assets, cryptocurrencies, artificial intelligence (AI) and other technological transformations. Additionally, environmental, social and governance (ESG) concerns, precautions to prevent financial crimes, climate reporting, consumer safety and digital currencies were among the hot topics of 2023 for the global financial risk mitigation and compliance landscape.

What Were the Regulatory Changes in 2023?

 In 2023, regulatory updates and novelties were put in force in different parts of the world.  The Consumer Financial Protection Bureau (CFPB) of the US dedicated more efforts to regulate overdraft and insufficient-fund fees as they made up a big volume of the overall fees. They were also focused on supervising technology-driven firms and their products including digital wallets and new payment service applications. The new regulations they were working on aimed to cover the 17 tech-giants in the financial industry that assist in actualizing more than 5 million financial transactions per year and hold 88% of the market share.

In the UK, the Financial Conduct Authority (FCA) Consumer Duty became effective in July 2023 by focusing on crucial alterations applied to all the companies regulated by FCA. In 2024, the Duty is planning to dig deeper into regulatory necessities and changes by acknowledging where the trends are moving towards for the financial services sector which seems to be a more standardized and automated data collection and sharing.

In the MENA region, AML (anti-money laundering) and financial crime prevention were the hot topics in the compliance landscape. The UAE spared extra special attention in fulfilling regulatory requirements demanded by the Financial Action Task Force (FATF) to be removed from its grey list.

Financial inclusion and digitalization of financial services were the most highlighted issues tackled by the regulators in 2023 in the APAC area.

The Impact of Artificial Intelligence

 For the global financial landscape, 2023 was the year when artificial intelligence (AI) boosted the innovations and challenged the industry at the same time. The upwards trend in adopting and improving the AI-based FinTech applications including customer ID recognition systems, claims handling and KYC verifications affected the way the compliance requirements were shaped in 2023.

As most of the financial services companies decided to get the support of a third-party service provider to implement the AI applications, the policy-makers needed to work on new regulations to involve third-party service providers to effectively manage the risks and threats about outsourcing these services.

Extended Focus on Digital Assets and Cryptocurrencies

In 2023, the financial regulators put special emphasis on the scrutiny of digital assets as they continue to be used increasingly all around the world. Cybercriminals discovering the methods to exploit cryptocurrencies for money laundering, fraud and illegal trade activities, financial compliance experts had to acquire new skills to understand this new environment and how to detect, prevent and act on the financial crimes associated with the cryptocurrencies.

The Importance of Enhanced Due Diligence

The transformative atmosphere of 2023 increased the risk for criminal financial activities and put extra pressure on the financial institutions and regulators in terms of keeping up with the changes and remaining compliant at the same time. Therefore, processes of due diligence have become more important than ever; however, traditional or regular due diligence processes proved to be insufficient in 2023 due to the fraudsters who mastered in abusing the digital developments. FIs need to make sure that they apply necessary precautions with Enhanced Due Diligence (EDD) procedures especially for high-risk customers who are related to high-risk nations or industries, or who are listed as PEPs (Politically Exposed People). Precautions and actions taken within the framework of Enhanced Due Diligence (EDD) process include background information, source of funds, source and structure of wealth and adverse media screening.

2023 The Year of Challenge and Evolution for the Regulatory Landscape

In 2023, the regulatory landscape has evolved and challenged itself towards innovation and development as a result of the continuous endeavor of all the stakeholders of the financial industry to remain up to date with the technological novelties and potential risks. Artificial intelligence (AI), digital assets and currencies, Enhanced Due Diligence (EDD), Anti-Money Laundering (AML) and combatting all forms of financial crimes were in the focus of regulators globally. 2023 marked as the year of learning new skills and adapting to new trends for the policy-makers and it seems to be continuing so in 2024 as the technological transformation and AI will likely be dominant in the upcoming year as well.

Ahmet Vefik Dinçer, CEO