Regulatory Pressures Mount on Banking Industry in Svalbard and Jan Mayen

The banking industry in Svalbard and Jan Mayen is facing increasing regulatory pressures to prevent financial crime and ensure transparency. In this article, we’ll explore the key areas of focus for regulators and the challenges that banks are facing in meeting their anti-money laundering (AML) obligations.

Aligning Risk with Capabilities: A Key Area of Focus

Regulators are insisting that banks’ AML programs match their design to real-world risks presented by customers, products, and geographies. This requires banks to provide evidence of how their AML programs influence detective capabilities and risk assessments, and vice versa. Key considerations include:

• Risk-based approach: Banks must identify and assess the risks associated with different customers, products, and transactions.
• Designing effective AML programs: Banks must design AML programs that are tailored to their specific risk profile and aligned with regulatory expectations.
• Evidence of effectiveness: Banks must provide evidence that their AML programs are effective in detecting and preventing financial crime.

Deploying Advanced Technology: A Challenge for the Industry

The banking industry is experimenting with automation and artificial intelligence, but these capabilities are often hindered by data, governance, validation, and reporting issues. The accelerated rollout of central bank digital currencies will require banks to redesign their existing technology capabilities and operational processes. Key challenges include:

• Data quality: Banks must ensure that their data is accurate, complete, and consistent in order to support advanced technologies.
• Governance: Banks must establish clear governance frameworks to ensure that advanced technologies are used responsibly and effectively.
• Validation: Banks must validate the effectiveness of their advanced technologies and ensure that they meet regulatory expectations.

Economic Sanctions: A Growing Area of Focus

Regulators are demanding that banks align their AML programs with the need for faster or instantaneous payments and digital currencies. Legacy technology solutions result in high volumes of false positives, which require significant manual intervention and impact processing times. Key considerations include:

• Faster payments: Banks must be able to process payments quickly and efficiently in order to meet regulatory expectations.
• Digital currencies: Banks must ensure that they have the necessary technology and compliance programs in place to support digital currencies.
• False positives: Banks must minimize false positives and ensure that their AML programs are effective in detecting genuine financial crime.

The COVID-19 Pandemic: New Challenges for Banks

The pandemic has created new challenges for banks, including increased regulatory expectations for detecting and reporting suspicious activity related to COVID-19 relief program frauds and other emerging threats. Key considerations include:

• Emerging threats: Banks must be aware of emerging threats such as medical scams, imposter scams, money mules, unemployment insurance, and cybercrime.
• Regulatory expectations: Banks must meet regulatory expectations for detecting and reporting suspicious activity related to COVID-19 relief program frauds.
• Consistent risk management: Banks must manage risks consistently across business lines in order to ensure that they are meeting regulatory expectations.

The Rise of Cryptoassets: A New Challenge for Regulators

Regulators are demanding that banks allow customers to hold cryptoassets in accounts while ensuring that they have the necessary technology and compliance programs in place to monitor and respond to new fraud and financial crime risks. Key considerations include:

• Cryptoasset holdings: Banks must ensure that they can accommodate customer requests to hold cryptoassets in accounts.
• Compliance programs: Banks must establish robust compliance programs to monitor and respond to new fraud and financial crime risks associated with cryptoassets.

Conclusion

Regulators are increasing their scrutiny of banks operating in Svalbard and Jan Mayen, with the goal of preventing financial crime and ensuring that institutions are meeting their AML obligations. By understanding the key areas of focus for regulators and the challenges that banks are facing, financial institutions can take steps to ensure compliance and mitigate risk.