This Week in Compliance Vol. 10

What's been occupying our compliance attention lately? Here's a rundown of notable updates and regulatory happenings from the past weeks.

Central Banks Pioneer Compliance-by-Design in Cross-Border Transactions

The Bank for International Settlements (BIS), in collaboration with central banks from Australia, Korea, Malaysia, and Singapore, has demonstrated the feasibility of embedding regulatory compliance directly into cross-border transactions through a proof-of-concept initiative called Project Mandala. By integrating compliance-by-design principles, the project seeks to streamline regulatory processes, reduce transaction times, and enhance transparency in cross-border financial activities.

Mandala leverages a decentralized system with components such as peer-to-peer messaging, a rules engine, and a proof engine to ensure compliance checks are completed before initiating payment instructions. With successful use cases like cross-border lending between Singapore and Malaysia and capital investment financing between South Korea and Australia, Mandala automates key compliance requirements, including sanctions screening and reporting. It is designed to support both emerging digital asset systems and traditional platforms like Swift, paving the way for seamless and efficient cross-border payments.

SEC Charges JP Morgan Affiliates $151 Million for Regulatory Failures

The US Securities and Exchange Commission (SEC) has charged JP Morgan Securities and JP Morgan Investment Management Inc. (JPMIM) in five separate enforcement actions, resulting in $151 million in penalties. The charges stem from misleading disclosures to brokerage customers regarding private fund products, undisclosed financial incentives for recommending specific investment programs, and engaging in prohibited transactions.

Among the violations, JPMIM conducted $4.3 billion in prohibited joint transactions and executed 65 illegal principal trades worth $8.2 billion. Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, emphasized the firm’s violations across multiple business lines and its breach of investor protection laws. While JP Morgan did not admit to or deny the charges, the settlement includes voluntary payments to affected investors, reflecting an effort to address regulatory failures and conflicts of interest.

Hong Kong Monetary Authority Fines Fubon Bank HK$4 Million for AML Failures

The Hong Kong Monetary Authority (HKMA) has imposed a HK$4 million fine on Fubon Bank for breaches of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The fine follows a self-reported failure in the bank’s transaction monitoring systems and an HKMA investigation into its compliance controls between April 2019 and July 2022.

The HKMA found significant deficiencies, including the lack of effective procedures for monitoring business relationships, inadequate follow-up on a decline in transaction alerts, and failures to update customer due diligence after trigger events. Raymond Chan, HKMA's executive director for enforcement and AML, emphasized the critical importance of continuous and comprehensive monitoring to detect potential money laundering and terrorist financing activities promptly.

FinCEN Alerts Banks to Emerging Deepfake Threats in Financial Fraud

The US Treasury Department's Financial Crimes Enforcement Network (FinCEN) has issued a warning to banks about the rising use of generative AI-powered deepfakes in financial fraud. The alert highlights a growing trend of criminals deploying deepfake media, particularly fraudulent identity documents, to bypass ID verification and authentication processes.

To combat this, FinCEN has provided red flag indicators and typologies to assist financial institutions in detecting and reporting suspicious activity, in accordance with the Bank Secrecy Act. Director Andrea Gacki emphasized the importance of vigilance in safeguarding the financial system and protecting individuals from abuse by these advanced tools. The alert follows increasing reports of deepfakes being used not only for identity fraud but also in scams such as AI-generated cryptocurrency investment schemes on social media platforms.

Basel Committee Advances Basel III Implementation and Strengthens Risk Management Frameworks

The Basel Committee on Banking Supervision reaffirmed its commitment to fully implementing the Basel III framework, supported by the G20, as a cornerstone of global financial stability. Key updates include finalizing guidelines to enhance counterparty credit risk management, addressing vulnerabilities highlighted by recent non-bank financial intermediation (NBFI) distress.

The Committee emphasized strengthening macroprudential policies, including guidance on positive cycle-neutral capital buffers, and continued work on climate-related financial risk disclosures under Pillar 3, slated for completion in 2025. These efforts reflect a unified push to fortify banking systems against emerging risks and ensure consistent global regulatory standards.

Australian Banks Collaborate on Real-Time Fraud Intelligence Sharing Network

Australia’s top banks—ANZ, CBA, NAB, Suncorp, and Westpac—are piloting a real-time fraud intelligence-sharing network powered by BioCatch. The system analyzes behavioural and device data to flag risks in receiving accounts before payments are processed, enabling banks to block potential scams.

CBA’s James Roberts calls it a "world-first" for protecting Australians from financial fraud. However, NAB’s Chris Sheehan stresses the need for tech platforms and telcos to do more to prevent scams at their source, such as on social media and messaging apps.

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