2023 is expected to be a major year in the field of financial crime compliance. With increasing inflation rates, coupled with a prolonged war on the European mainland, and what is now an established, yet evolving, sanctions regime, both businesses and regulatory authorities will face numerous challenges in navigating the regulatory landscape. The implementation of a major EU AML package aimed towards harmonising the EU AML environment is also on the horizon. This includes the introduction of a single EU AML/CFT rulebook, an updated AML Directive, and a new EU authority for AML/CFT. However, these changes are just the tip of the iceberg. The below list compiles some of the expected themes to look out for during the second half of 2023.

Virtual Financial Assets Regulation

• The trend here is that regulation will increase across the entire Virtual Assets space, most notably with the establishment of the Markets in Crypto-Assets (MiCA) Regulation. Adopted on 20 April 2023, the regulation is intended to harmonise existing EU financial services legislation, thereby providing legal certainty for crypto-assets not covered by existing legislation. MiCA covers issuers and service providers, with the aim of protecting consumers and investors, while ensuring financial stability and supporting innovation. This regulation positions Europe as an attractive region in the crypto market.
• The establishment of Central Bank Digital Currencies (CBDCs) have been in the works for the past couple of months and will continue to be a priority throughout 2023. A digital euro would respond to the growing preference for electronic payments by making public money available also in digital form. Together with cash, a digital euro would offer Europeans access to means of payment that allow them to pay everywhere in the euro area, free of charge. The first digital euro Rulebook Development Group (RDG)meeting was held in February. The introduction of a digital currency is anticipated to reduce costs, increase transaction speed and security, and ultimately promote financial inclusion by providing greater access to those without a bank account.
• Increased regulations aimed at preventing money laundering and financing of terrorism will be applied to the cryptocurrency and digital asset management industries. While major enforcement actions have been few, we can expect to see more of these examples with wider application of more mature regulation. The Virtual Assets Contact Group (VACG) within the FATF continues to stress the importance of implementing the FATF Standards to effectively regulate and supervise this sector.

International Targeted Financial Sanctions

• There is a growing international sentiment that the severe sanctions being imposed on targeted Russian entities and individuals are not rendering the intended impact in easing geo-political tensions in Ukraine. Marking one year since Russia’s invasion, on 24 February, the European Commission welcomed the Council's adoption of a 10th package of sanctions against Russia and those that support it in its illegal aggression against Ukraine.  The package includes further export bans worth more than €11 billion, depriving the Russian economy of critical tech and industrial goods. Further sanctions, characterised by substantial relevant penalties, are anticipated in 2023.

Beneficial Ownership Information

• The recent decision by the European Courts of Justice dismissing a clause in the EU 5th Money Laundering Directive, which provided public access to information on companies' ultimate beneficial owners, has been described by Transparency International as pushing back the progress made against cross-border corruption "by years".
• The decision has raised concerns about hindering the detection of identity fraud/theft as potential victims who have had their data stolen can no longer confirm whether their identities are being used to create fictitious businesses that will facilitate financial crime. Government agencies will still have access to these registers, but it is still not clear how law enforcement and regulators around the world can offer sufficient surveillance on their own, given the limited resources available. This decision is likely to spark more discussion and debate in the coming months.
• Tougher global beneficial ownership rules are expected in 2023 to stop criminals from hiding their illicit activities and dirty money behind secret corporate structures. In February 2023, the FATF agreed on a guidance document to help countries implement the revised requirements on Recommendation 24 which required countries to ensure that competent authorities have access to adequate, accurate and up-to date information on the true owners of companies. The FATF also agreed on enhancements to Recommendation 25 on legal arrangements to bring its requirements broadly in line with those for Recommendation 24.