This Week in Compliance Vol. 8

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

Wells Fargo to Revamp AML Practices After Regulatory Directive

Wells Fargo has agreed to a formal pact with the Office of the Comptroller of the Currency (OCC) to remedy significant deficiencies within its anti-money laundering (AML) protocols and broader financial crimes risk management framework. This move comes without a financial penalty but resulted in a four percent drop in the bank’s stock. The regulator highlighted gaps in the bank's procedures for monitoring suspicious activities, reporting currency transactions, and conducting customer due diligence. As part of the agreement, Wells Fargo has pledged to accelerate its compliance enhancements to meet these regulatory expectations.

Klarna Bank Faces Scrutiny from Swedish FSA Over AML Practices

Klarna Bank has come under fire from the Swedish Financial Supervisory Authority (FSA) due to inadequate handling of money laundering risks. The critique, detailed in a letter addressed to CEO Sebastian Siemiatkowski, points out shortcomings across several areas of compliance with the Money Laundering Act, including general risk assessment and customer due diligence protocols. This regulatory scrutiny raises questions about the potential impact on Klarna's prospectus initial public offering slated for the next year.

Global Governments Commit to Council of Europe's AI Framework Convention

The Council of Europe's newly established Framework Convention on Artificial Intelligence, aimed at safeguarding human rights, democracy, and the rule of law, has gained signatures from key global players including the UK, US, and EU. This agreement focuses on the responsible lifecycle management of AI systems, ensuring they respect privacy, prevent discrimination, and protect against misinformation threats. The convention, which also emphasizes regulatory measures for AI technologies, has been endorsed by a total of 46 member states and 11 non-member states, highlighting its potential for widespread international influence and rapid implementation.

Macquarie Asset Management Settles for $80 Million in SEC Fraud Charges

Macquarie Investment Management Business Trust (MIMBT), part of Macquarie Asset Management, has agreed to pay $79.8 million to settle charges from the U.S. Securities and Exchange Commission (SEC). The SEC accused MIMBT of overvaluing assets and conducting illegal cross trades that benefited certain clients over others. The settlement addresses practices from 2017 to 2021 involving inflated valuations of illiquid collateralized mortgage obligations (CMOs) and preferential cross trades that resulted in losses for retail mutual funds. As part of the resolution, MIMBT will undertake comprehensive compliance reviews and reinforce its risk management protocols.

Singapore Banks Introduce Facial Verification for Enhanced Security

Banks in Singapore are set to incorporate Singpass Face Verification (SFV) into their security systems to fortify the digital token (DT) setup process for retail banking customers. Over the next three months, SFV will be employed in high-risk scenarios to confirm customer identities against national records before DT activation. This technology aims to prevent unauthorized account access by ensuring that DTs cannot be activated on new devices with stolen or phished credentials. This step is part of broader efforts to enhance customer protection against financial scams, complementing other initiatives like phasing out one-time passwords (OTPs) and introducing a Money Lock feature for securing specific funds.

European Credit Sector Associations Advocate for Enhanced Fraud Prevention

The European Credit Sector Associations, including the European Association of Cooperative Banks (EACB), the European Banking Federation (EBF), and the European Savings and Retail Banking Group (ESBG), have endorsed the Euro Retail Payments Board (ERPB) Working Group Report on retail payment fraud. The report, reflecting inputs from various stakeholders, outlines four "gamechanger" actions aimed at amplifying fraud prevention efforts across Europe. These actions encompass fostering cross-sectoral collaborations, sharing fraud insights, enhancing EU-level supervisory cooperation, and prioritizing consumer protection in product design. Additionally, the report offers a compilation of best practices for public and private entities to effectively counteract fraud, emphasizing a comprehensive regulatory approach beyond traditional payment regulation to tackle the complexities of digital fraud

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