Expert Corner: 4 Common Challenges for Compliance Officers in 2024

Money Laundering Compliance Officers (MLROs) play an essential part in confronting the spread of criminal activities. The job requires officers to constantly implement new regulatory measures, while also ensuring a smooth onboarding process. Obviously, all of this creates a certain level of pressure on MLROs. For example, according to a recent survey by Corporate Compliance Insights, 48% of compliance officers experience stress due to their liabilities. The same report shows that 53% of respondents don’t have enough resources to properly manage their sectors.

All of this is a result of a fast-paced and complex working structure that MLROs face on a regular basis. In this article, Girish Mallya discusses some of the most common challenges MLROs face on a regular basis. This should prepare officers to find solutions when facing such issues.

Regulatory Environment

One of the main challenges a compliance officer might experience is battling out the Complex Regulatory Environment. With new regulations being introduced and existing ones evolving rapidly, compliance officers must stay updated on these changes and ensure their organizations remain compliant across multiple jurisdictions. 

According to a survey by Thomson Reuters, 76% of compliance professionals believe that the volume of regulatory change will continue to rise over the next three years.

Criminal activities

With Growing Complexity of Financial Crimes, such as money laundering and frauds, financial crimes are becoming increasingly sophisticated every day. The United Nations Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally each year is between 2% and 5% of global GDP, which is roughly $800 billion to $2 trillion. 

Post COVID-19, the dependency on digital systems has increased multifold and along with it cybercrime.  With the pandemic, there was a surge in various cyber threats including phishing attacks, ransomware incidents, malware infections, and data breaches, which increased significantly in comparison to previous years. With remote work arrangements, increased online shopping, and dependency on digital communication platforms created new opportunities for cybercriminals to exploit vulnerabilities in systems and target individuals and organizations. These cybersecurity risks became more and more prominent, and compliance officers had to work closely with IT and cybersecurity teams to implement robust controls and protocols to safeguard sensitive information from cyber threats. 

Budgeting

Compliance departments often face resource constraints in terms of budget, staff, and technology infrastructure, limiting their ability to effectively address regulatory challenges. To maintain a strong ethical culture and mitigate risks within organizations, officers must implement effective policies, procedures, controls and training programs to promote ethical behavior and prevent misconduct.

Integrating new technologies

Now with more and more customers familiar and comfortable in performing online transactions, this has brought in a new challenge to the compliance officer in mitigating the new technology risks. Compliance functions are increasingly dependent on new technology for monitoring, reporting, and managing regulatory compliance. However, integrating these new technologies and ensuring that they meet regulatory requirements can be challenging and may require significant investment in training and infrastructure.

With ever evolving regulations, regulatory authorities are becoming stricter in enforcing compliance regulations. This results in increased scrutiny and potential penalties for non-compliance. Therefore, MLROs must ensure that their organizations have robust compliance frameworks in place, to mitigate the risk of enforcement actions.

Furthermore, with the increase of artificial intelligence (AI) and machine learning (ML) technologies usage, it has revolutionized compliance practices by enabling Financial Institutions (FIs) to automate routine tasks, identify patterns, and detect potential compliance issues more efficiently. However, it is essential for FIs to ensure the responsible use of AI to mitigate the risk of algorithmic biases and maintain transparency and accountability in their compliance processes.

Conclusion

As the regulatory environment is growing more complex and financial crimes become increasingly sophisticated, compliance professionals must stay apprised, vigilant and adaptable. Embracing technology, fostering collaboration, and investing in robust compliance frameworks will be essential to navigate the evolving regulatory landscape effectively. By embracing these challenges head-on, compliance officers can continue to safeguard their organizations against risks as well as promoting ethical conduct and maintaining regulatory compliance in an ever-changing world.

The role of compliance professionals is ever evolving to cover a broader skill set that includes not only a deep understanding of regulations but also proficiency in technology, data analytics, and risk management. This multidisciplinary approach is essential for effectively managing compliance in today’s digital age.

Collaboration and information sharing among FIs and regulatory bodies are becoming increasingly important in navigating the complex compliance landscape. By working together and sharing best practices, FIs can enhance their understanding of regulatory requirements and improve their compliance strategies. 

It’s crucial for FIs to strike a balance between innovation and regulatory compliance to ensure they meet both their operational objectives and regulatory obligations.