Transparency is rising – so is complexity: Why AMLA’s anti-money laundering reforms are part of a growing global data challenge

Faisal Ayub, Director – Business Development, KYA

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The AML industry has spent years debating how much transparency is enough. The answer increasingly appears to be: more.

AMLA’s ongoing consultation on beneficial ownership reporting thresholds is the latest example of a broader trend emerging across global anti-financial crime regulation. Regulators are demanding deeper visibility into ownership structures, greater consistency in reporting and better quality data to support enforcement activity.

Whatever AMLA’s final position later this year, managers are already determining whether the data sitting across their systems is sufficient to meet new – and evolving – requirements. The next phase of anti-money laundering rules will be about the growing volume of data needed to evidence them.

It is part of a growing cycle in which increased transparency drives increased complexity. New reporting expectations require new data. New data requirements create operational burdens. And those operational burdens continue to expand as regulators push for ever-greater visibility.

The direction of travel is clear

Beyond AMLA in Europe, supranational authorities, regulators, policymakers and enforcement agencies are grappling with many of the same challenges. They want to improve their ability to detect illicit activity, understand ownership structures and identify the individuals ultimately controlling assets and entities.

While approaches may differ, the objective is remarkably consistent: better data leads to better enforcement. Regulators are no longer satisfied with knowing who sits directly across the table. Increasingly, they want firms to understand what sits behind the structure: the underlying owners, the relationships between entities, the sources of capital and the connections that may only become visible several layers beneath the surface.

For fund managers, that creates a burden that extends far beyond regulatory interpretation. Every new transparency requirement relies on the ability to identify, validate and maintain more information. As expectations expand, so too does the volume of data firms are expected to capture, monitor and report.

The compliance burden is becoming a data burden

When beneficial ownership requirements change, managers may need to revisit ownership structures that have already been reviewed, reassess whether existing reporting remains accurate and determine whether information held across administrators, transfer agents and internal systems is sufficiently complete. What appears to be a relatively modest regulatory adjustment can quickly translate into a substantial operational exercise.

The same pattern is visible across the wider AML and KYA landscape. Expectations around sanctions screening continue to expand beyond direct counterparties to include indirect ownership and control relationships. Ongoing monitoring obligations require firms to identify changes in ownership, control or risk profiles in near real-time. Meanwhile, regulators are increasingly focused on how managers demonstrate not only that they hold information, but that they understand it and can evidence the resulting decision-making.

Each new requirement builds upon the last. Ownership data must be linked to screening data. Screening data must be reconciled with legal documentation. Legal documentation must be validated against external sources. Monitoring programmes must then be capable of identifying when any of those elements change.

Lack of data is rarely the issue. It is that critical information often sits across multiple systems, service providers and jurisdictions, making it difficult to assemble a complete picture quickly and consistently. As regulatory expectations continue to rise, that fragmentation is becoming one of the biggest operational risks facing compliance functions.

Complexity is building faster than operating models can adapt

Our recent Know Your Assets report highlights just how significant this challenge is becoming. Regulatory expectations are becoming more sophisticated, more interconnected and more data-intensive. Some 96% of institutional investors and 89% of fund managers expect regulatory complexity to increase over the next two years. Yet many operating models still rely heavily on manual processes, fragmented workflows and resource-intensive reviews – 43% of fund managers report that more than half of their KYA and AML processes are manual.

As transparency requirements continue to expand, that gap becomes increasingly difficult to ignore. Fund managers are being asked to do more, with more data, at greater speed and with higher levels of scrutiny.

Seeing the trend before it becomes a requirement

The organisations that are best prepared will be those that understand their data environment today: where information resides, how reliable it is and how quickly it can be mobilised when requirements change.

Across jurisdictions, regulators are reinforcing one another’s objectives. Better ownership information supports better enforcement. Better enforcement creates demand for greater transparency. Greater transparency generates new data requirements.

The firms that struggle in the years ahead may not be those that misunderstand the regulations. They may be the firms that underestimate the operational challenge of managing the data those regulations increasingly require. As transparency expectations continue to rise, data is becoming one of the most important compliance assets a fund manager can possess.

Read more about the rise of KYA from fund managers themselves – download our Know Your Assets report. Or, for more on AMLA and the evolving regulatory landscape, catch up with our latest Regs Radar webinar.