Sophie Proctor
Our next foray into the complex financial crime compliance industry is looking into APAC. In a report published by Business Market Insights, the APAC anti-money laundering market is projected to grow from US$377m in 2019 to US$1.7bn by 2027, as the demand for sophisticated transaction monitoring solutions grows. This growth has been propelled by the rising fraud against banks, financial services, and insurance sectors.
There is a broad spectrum in the APAC region when it comes to AML, with high regulations being enforced in countries like Singapore and Hong Kong, and little to no regulation in North Korea and Iran. This makes it very complex when looking at the year ahead, however, we’ve identified some key points of interest.
Penalties on the rise
The APAC region has been stepping up its AML response in recent years - and showing it’s doing so with some heavy penalties. Financial institutions in Financial Action Task Force (FATF) member countries like Australia and China will likely be paying closer attention to their customer due diligence protocol.
Australia
In 2020, Australia’s second-largest bank was hit with a $919m (1.3bn Australian dollar) fine for breaching anti-money laundering and counterterrorism financing laws. Compliance teams in the region will be looking to ensure their policies are in line with the updated AML/CTF Rules and legislation, with new guidance published by the Australian Government, AUSTRAC, in June 2021.
In 2021, AUSTRAC also published a suspicious matter reporting reference guide to help reduce poor quality reports. “This document provides guidance to assist reporting entities in submitting more effective SMRs, helping AUSTRAC to generate actionable intelligence for police and other partner agencies.”
China & Hong Kong
At the end of 2021, the Hong Kong Monetary Authority (HKMA) announced it was issuing fines totally $5.7m to four banks following AML breaches and failure to maintain effective compliance procedures. Hong Kong financial service providers will be heavily focused this year on improving their regulatory technology in accordance with AML rules.
In June 2021, China’s central bank published a draft version of their amended Anti Money Laundering Law in order to improve its effectiveness. This draft included some changes such as:
- expanding its definition of AML activities,
- enhanced regulation of non-financial entities,
- AML obligations for all organizations,
- a significant increase in penalties (2 million yuan, or $315,000, for failing to conduct client due diligence or reporting large suspicious transactions),
- and finally, reciprocal requirements on international AML cooperation.
The future of AI
With the rise in sophisticated scams, comes the need for more sophisticated solutions, with the APAC region becoming increasingly digitized and investing heavily in AI technology. The use of artificial intelligence enables firms to reduce costs and increase efficiency, by using machines to manage false positives and identify money laundering patterns.
Leading the pack is China, who according to a report by Harvard Business Review, is filing more AI patents than any other country, and in March 2019, the number of Chinese AI firms reached 1,189 (closely following the US’ 2000). The International Data Corp reported that by 2025, China’s AI-related expenses will be expected to surpass $16bn, and in 2020, China’s AI software market reached $3.62bn. This seismic growth in AI technology may be a key feature for the country’s fight against money laundering.
This AI implementation is not equal across the region, however, with some areas still being labor-intensive and lacking sophisticated technology.
DeFi & Crypto:
The emergence of cryptocurrencies and decentralized finance, or DeFi, has certainly attracted global attention, particularly in Asia where vast numbers of the population are ‘unbanked’. In a report by 11fs, digital financial services revenue in Southeast Asia is estimated to grow from $11bn in 2019 to $38bn in 2025.
Singapore
The attitude towards cryptocurrencies is varied across the APAC region, with countries like Singapore embracing the crypto market, but imposing regulations like the Payment Services Act (PSA) that “requires an entity to have a license to process any crypto transactions, storage, or exchanges.” This has been followed by Thailand, who as of January 25 of this year, announced it will regulate the use of crypto as payment as a way of safeguarding businesses from fraud and money laundering.
It’s not all smooth sailing in the crypto market in Singapore however, as the Monetary Authority of Singapore published guidelines in January of this year instructing businesses to stop advertising their crypto assets to retail investors in public spaces, calling trading such assets “highly risky and not suitable for the general public.” This includes physical public spaces, but also virtual like social media ads or by using social media influencers.
China
China has fully banned cryptocurrencies , citing concerns about crypto mining’s effect on the environment, and the risks of fraud and money laundering. However, this doesn’t apply to NFTs, often being re-branded as ‘digital collectibles’ by Chinese tech firms as a possible method to sidestep regulations. Unlike in other countries, these NFTs cannot be sold once purchased, and there could still be the risk of them being used to hide proceeds from illicit activity.
Japan
Japan has a more progressive stance on cryptocurrency, with a bank-backed cryptocurrency set to launch this year, tentatively named ‘DCJPY’. Japan, like Singapore, recognizes digital currencies under the PSA, so crypto exchanges in Japan are required to be registered and comply with AML/CFT obligations. In April this year, the crypto travel rule is expected to be mandated in Japan, which will require the Japan Virtual Currency Exchange Association (JVCEA) to keep the industry well-informed and support virtual asset service providers in making efforts towards travel rule implementation.
What else to look out for this year?
Further points of interest to watch this year include, FATF’s review of India’s AML and CTF regime, which was postponed for the second time at the end of last year and will be expected to commence in September 2022.
The FATF also reported a sizable number of jurisdictions would be vulnerable to phishing scams related to COVID, with the added pressure in the APAC region due to language, borders, and differing compliance protocols. This has intensified the shift towards digitalization, as well as thorough and effective KYC processes to obtain high-quality and extensive data.
To look back on last year and further insights into the shift we are experiencing, read our article: https://www.amlrightsource.com/news/in-the-year-2022
For solutions to protect your business against financial crime, explore our range of products here: https://www.amlrightsource.com/solutions.