Financial Crime World

Financial Crime Trends in Bhutan to Watch Out for in 2023

As regulators in Bhutan intensify their focus on combating financial crime and fraud in the country’s financial services sector, it is essential to understand the key areas of regulatory focus and emerging trends.

Key Areas of Regulatory Focus

Regulators are paying close attention to several critical areas to prevent illicit exploitation of access to the Bhutanese financial system:

Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT)

  • Frameworks and risk mitigants: Regulators will scrutinize AML and CTF frameworks to ensure they are effective in preventing money laundering and terror financing.
  • Fraud models, operations, and investigation processes: Financial institutions must develop robust fraud detection and prevention systems to identify and report suspicious activities.

Insider Corruption

  • Employee misconduct: Regulators will monitor employee conduct to prevent insider corruption, including unauthorized transactions and theft of sensitive information.
  • Vendor/third-party misconduct: Financial institutions must ensure that third-party vendors comply with AML and CTF regulations to prevent exposure to financial crime.

New Areas of Expanded Regulations

Regulators are expanding their focus on emerging areas that pose significant risks to the financial services sector:

Crypto and Digital Assets

  • Combatting threats and vulnerabilities: Regulators will strengthen financial safeguards to combat threats and vulnerabilities posed by digital assets.
  • Investigations and enforcement: Non-compliance with existing regulations will lead to increased investigations and enforcement actions.

AML for NFTs and DeFi Platforms

  • Rapid growth of NFTs and DeFi: The rapid growth of these sectors elevates the risk of money laundering and terror financing.
  • Increased attention from regulators: Regulators will pay close attention to AML compliance in these areas.

Sanctions and Price Cap Compliance

  • Virtual currency mining: Regulators will scrutinize virtual currency mining activities for compliance with sanctions and price cap regulations.
  • Dark net markets and bans on services: Financial institutions must ensure that they do not provide services to sanctioned entities or countries.

Assessing Companies

Regulators will assess companies in several areas, including:

Account Holds and Freezes

  • Use of account holds and freezes: Regulators will evaluate the use of account holds and freezes in connection with the application of Reg E, EFTA, and UDAAP.
  • Model development and validation: Companies must ensure that their models are developed and validated to prevent disparities and anti-bias.

Payment Authentication Procedures

  • Payment sender/receiver authentication procedures: Financial institutions must implement robust payment authentication procedures to prevent synthetic identity fraud.
  • Oversight and monitoring of synthetic identity fraud: Regulators will assess companies’ oversight and monitoring of synthetic identity fraud.

Protecting Vulnerable Populations

To better protect vulnerable populations that are often targets of fraud, regulators expect companies to implement risk programs that identify and mitigate:

Elderly, Military, and Other Vulnerable Groups

  • Risk programs for vulnerable groups: Companies must develop risk programs that identify and mitigate fraud/scams directed at elderly, military, and other vulnerable groups.
  • Analysis of outcomes and models across consumer segments: Regulators will assess companies’ analysis of outcomes and models across consumer segments.

Conclusion

Bhutan’s financial services sector must prioritize protecting customers by combating fraud, money laundering, and related financial crimes on their platforms. By responsibly leveraging technology and data to monitor activity, coupled with a deep focus on customer experience, companies can ensure compliance with evolving regulations and mitigate risk.