Six Challenges for Compliance Officers in 2023

Challenges for compliance and risk officers in the finance sector are mounting, with the continued economic and geopolitical turmoil feeding a huge increase in regulatory requirements.

They also face a tough test in keeping up with changes to the sustainability landscape, employment law, and ongoing market disruptions.

We explore the six of the most pressing issues keeping compliance and risk officers awake at night.

Challenge 1: Mounting sanctions

Perhaps the most pressing challenge for compliance officers is another package of sanctions against Russian companies and individuals introduced in February. Complying with sanctions is extremely complex as it involves searching for often elusive information about companies and individuals worldwide and piecing together an intricate web of associations.

But the UK regulator continues to take a tough approach to breaches relating to sanctions or anti-money laundering (AML), and has already issued several multi-million pound fines against banks in 2023.

The compliance industry is responding with a concerted drive towards digitising and automating sanctions and AML activities. To remain competitive, finance firms need to keep investing in these solutions to increase efficiency and improve risk management.

Challenge 2: Mounting economic pressures

Ongoing political and economic pressures, rampant inflation, and war in Ukraine continue to increase complexity and volume of work for compliance and risk professionals. When these pressures will ease is uncertain.

In addition to sanctions, the 2022 UK Economic Crime Act is creating another huge compliance burden by strengthening anti-money laundering and law enforcement powers, and reforming Companies House. Banks must follow these regulations closely or risk huge fines.

Challenge 3: ESG and vulnerable customers

Risk and Compliance Officers are also challenged with managing environmental, social and governance (ESG) risk in strategy, credit decisions, risk management and reporting. The regulator is increasingly holding firms accountable for their ambitious ESG claims - such as around net zero greenhouse gas emission targets - and handing out significant fines for breaches. This tough approach will likely continue as the regulator looks to introduce anti-greenwashing rules in June 2023.

As double-digit inflation continues, the regulator also expects financial firms to support their vulnerable customers, and treat them fairly through the cost-of-living crisis. This will be a critical challenge for Compliance Officers as the government starts withdrawing some of its financial help for individuals.

Challenge 4: Cyberattack

Bank of England research shows 74% of respondents deemed a cyberattack to be the highest risk to the financial sector.

Since the start of the Ukraine invasion, there has also been a 81% increase in attacks. Ransomware, a type of malware, is repeatedly mentioned as the biggest threat, and other common types include phishing, advanced persistent threats (APTs), insider action, and denial of service attacks.

Alarmingly, only 48% of financial firms have a formal cybersecurity strategy, according to government figures.

The impact of a cyber attack can be devastating, so compliance and risk professionals need to keep focusing on strong cybersecurity across their businesses.

Challenge 5: Employment laws

There are potential compliance challenges in several upcoming updates to employment laws. Employers will need to proactively comply with the following laws…

• The Carers Leave Bill will create a statutory entitlement to carers leave.
• The Employment Relations (Flexible Working) Bill aims to expand existing flexible working rights
• The Fertility Treatment (Employment Rights) Bill will require employers to allow employees to take time off from work for fertility treatment appointments
• The Protection From Redundancy (Pregnancy and Family Leave) Bill will give greater protection to employees from the moment they become pregnant.
• The Worker Protection Bill, which will make employers liable if staff experience harassment by a third-party, such as a supplier, client or member of the public.

Challenge 6: Market transformation

The Financial Services and Markets Bill will make wide-ranging changes to financial services regulation. It will implement recommendations from the Future Regulatory Framework Review in light of challenges such as Brexit and climate change.

The bill also seeks to regulate stablecoins, a type of cryptoasset, and protect access to cash.

Although it also aims to reduce some of the burden of EU legislation, the bill contains a wide range of measures that could increase workload and challenges for Compliance Officers in the short term.

How Compliance Officers can combat these challenges

Choosing technology

Finding the right technology partner can help your Risk and Compliance Officers combat these challenges.

To manage the regulatory burden, companies need to be more proactive and shift to digital processes. This includes perpetual offline know your customer (OKYC) - a revolutionary approach that removes reliance on periodic reviews and trigger events to meet compliance commitments.

Furthermore, a customer lifecycle intelligence (CLI) platform can enable companies to build a continuous compliance model that helps accelerate onboarding while reducing risk. This reduces reliance on reactive, error-prone manual compliance processes, which can be overwhelming without automation.

A CLI system enables Compliance Officers to automatically prioritise risky cases for review and direct remediation activity. Improved automation in areas such as referral categories, high-risk transaction identification, money mule management, and complex fraud ring identification helps you reduce false positives and manual referrals.

Frictionless journeys

Using external data intelligence to automate checks also supports a frictionless customer journey. For example, when customers self-declare items such as occupation, you can use social media such as LinkedIn for external identification to mitigate risk and streamline verification.

KYC/AML authentication processes are often fragmented, leading to duplication of data. A CLI platform can address fragmentation by providing a holistic perspective of risk trends and patterns across your portfolio. This allows you to automatically understand the impact of a policy change and identify emerging risks, such as exposure to Russia. It also lets you quickly identify second and third-degree connections for a 360° view of risk.

CLI data sits in a dashboard that is easy to use and interpret. It also uses risk scoring and machine learning to provide extra insights and maximise the value of your data.

How FullCircl can help address the challenges compliance officers face

FullCircl is a compliance game changer that goes beyond standard KYC and AML practices to perpetual OKYC.

It’s a CLI platform that allows you to overlay policies and risk appetite across trigger changes in your customer base. This enables you to prioritise remediation and deliver consistent decisions and efficiencies.

FullCircl’s CLI also uses automated data collection and checks, and connects data points to expose potential risks across networks of people and businesses.

The overall impact is to help you accelerate onboarding; rapidly reduce compliance challenges and financial risk; acquire validated customer data; and drive consistency and transparency. These factors help you increase customer conversion rates, lower cost to acquire, and improve customer profitability.

FullCircl includes an ultimate beneficial owner (UBO) API endpoint to connect the dots, helping you meet regulatory requirements – particularly for sanctions against Russia – and accelerate onboarding. FullCircl can also be enhanced with Premium Data extensions to address risk and compliance challenges in standard pre-onboarding checks. These include adverse director history; HMRC import and export data; international company data; and County Court judgements and legal notices.

Want to revolutionise your risk and compliance management in 2023? Contact FullCircl to discuss your needs.