When sanctions were imposed after Russia's invasion of Ukraine, many financial services firms discovered that financial crime risk was no longer just a compliance issue. Firms were suddenly forced to reassess customer and counterparty relationships, freeze assets, block transactions and navigate changing restrictions. What had previously looked like a regulatory challenge for compliance teams to keep in check became a broader test of resilience, demanding rapid adaptation while keeping critical services running.

More than 75% of Financial Conduct Authority (FCA) enforcement work focuses on financial crime. Financial institutions increasingly find themselves at the intersection of national security, economic resilience and financial crime prevention. As criminal methodologies evolve and regulatory expectations continue to grow, firms must look beyond compliance and consider how financial crime risks could affect their operations, customers, reputation and long-term growth.

Having lots of controls in place won’t be enough to help firms thrive over the next decade. Financial services firms need to understand how disruption creates new opportunities for illicit finance and respond quickly.

Interconnected financial crime risks demand a broader response

Financial crime threats are both increasing in number and becoming more interconnected. Firms are no longer simply managing their own financial crime risks but are expected to act as a frontline defence against external risks like money laundering, fraud, sanctions evasion and wider illicit finance. They need to support the integrity of the financial system and help protect economic security too.

Geopolitical tensions, economic instability, organised crime, sanctions and technological disruption are not operating in isolation. Decisions made in one part of the world can rapidly create financial crime exposures thousands of miles away, whether through disrupted supply chains, sanctions circumvention, cyber attacks or increased money laundering activity.

Geopolitical exposure now extends beyond your customers

The sanctions implemented following Russia's invasion of Ukraine demonstrated how quickly firms can find themselves at the centre of international policy responses. What was once considered primarily a compliance exercise became a strategic challenge involving customer relationships, correspondent banking networks, supply chains, third-party intermediaries, beneficial ownership transparency and reputational risk.

Firms must look beyond direct customer relationships and understand their exposure across payment flows, distribution channels, third party service providers and throughout the wider financial ecosystem. They need to explore beyond whether an organisation is transacting with a sanctioned party to identify hidden connections, ownership structures or third-party arrangements that could create risky exposures. To mitigate these risks, firms should assess:

• Critical third parties
• Ultimate beneficial ownership
• Supply chain vulnerabilities
• How geopolitical developments may alter their risk profile.

To strengthen their visibility and resilience, firms need to understand who their clients, customers and other third parties are doing business with.

AI is raising the threat and strengthening firms’ defences

Criminals can use AI, synthetic identities and deepfakes to scale fraud and create new attack methods. AI generated or supported crime creates new challenges for financial services firms across onboarding, payments, customer authentication and transaction monitoring.

At the same time, the technologies available to firms are becoming more powerful. AI and advanced analytics are enabling enhanced transaction monitoring, intelligent sanctions screening, network analysis and anomaly detection. Rather than relying solely on rules-based systems, organisations can increasingly identify complex patterns of behaviour indicative of financial crime activity. Firms that can harness the same technologies criminals are using will be in a better position to strengthen detection and response.

Building resilience rather than simply compliance

These developments point towards a broader shift in how financial crime risk should be managed. Historically, organisations measured success through compliance with regulatory requirements. While compliance remains critical, regulators are increasingly focused on effectiveness, outcomes and demonstrable risk management rather than the existence of policies and procedures alone.

Financial crime resilience requires organisations to ask broader questions. How might geopolitical developments affect our exposure to illicit finance? Do we understand our third-party and supply chain risks? Are our controls capable of identifying emerging threats? Can we adapt quickly as technologies and criminal methodologies evolve? The firms best positioned for future threats will continuously adapt their controls rather than optimise for compliance alone.

Treat financial crime as a strategic resilience challenge

The most significant financial crime challenge facing organisations is not a single regulation, technology or threat actor. It is the growing convergence of geopolitical instability, economic security concerns, organised crime and technological disruption.

Organisations that continue to treat financial crime as a narrow compliance obligation may find themselves increasingly exposed. It should be viewed as a strategic resilience challenge to protect growth, reputation and stakeholder confidence in an uncertain world.

The rest of this series will explore four areas where these themes are already becoming visible for financial services firms:

• How corruption enables illicit finance.
• Why sanctions risk is now broader than screening.
• How regulation and supervision are changing in response.
• How technology is reshaping both criminal activity and firms’ defences.

Together, these articles consider what firms need to do now to move from compliance with individual requirements to a more resilient, intelligence-led approach to financial crime risk.

To discuss your financial crime risks, please contact Peter Hawkins and Erin Sims.

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