The banking sector in the Nordic countries, which encompasses Norway, Sweden, Denmark, Finland, and Iceland, has been traditionally perceived as a safe haven for banking. However, recent events involving high-profile international money laundering cases have rattled this reputation, casting a spotlight on the necessity for robust anti-money laundering (AML) and counter-financing of terrorism (CFT) compliance mechanisms in Nordic banks.
The AML Scandals That Rocked Nordic Banking
In 2018, Danske Bank, Denmark’s largest bank, was implicated in an alleged €200 million money laundering scheme linked to its Eastern European and Russian branches. The following year, another major Swedish bank, Swedbank, was caught in the scandal’s web after revelations surfaced of it laundering around €20 billion in its Estonian branches for Russian clients.
Another Swedish bank, SEB Bank, was slapped with a SEK1 billion fine in 2020 following an investigation that exposed weak money laundering controls in its Baltic branches. This prompted the Nordic governments to collectively request the International Monetary Fund (IMF) to conduct an impartial review of the region’s money laundering and terrorism financing risks in 2021.
Nordic Banking Regulators
Each of the Nordic nations has established dedicated domestic authorities, known as Financial Supervisory Authorities (FSA), to oversee and regulate AML/CFT.
Norway – Finanstilsynet
The Financial Supervisory Authority of Norway, Finanstilsynet, supervises Norway’s financial system, managing the licensing of banks and financial institutions. The primary AML regulation in Norway is the Anti-Money Laundering Act. As a European Union (EU) member, Norway also implements the Anti-Money Laundering Directives.
Sweden – Finansinspektionen
Finansinspektionen, the Financial Supervisory Authority of Sweden, provides oversight for all banking, securities, and insurance companies in the country. The primary AML regulations in Sweden include The Money Laundering and Terrorist Financing (Prevention) Act and the Act on Penalties for Money Laundering Offences.
Denmark – Finanstilsynet
The Danish Financial Supervisory Authority, Finanstilsynet, is responsible for supervising financial undertakings of banks and other financial service providers in Denmark. The primary AML regulation in Denmark is the Act on Measures to Prevent Money Laundering and Financing of Terrorism.
Finland – Finanssivalvonta
Finanssivalvonta, the Finnish Financial Supervisory Authority, provides supervision for Finland’s financial and insurance sectors. The primary AML regulation in Finland is the Act on Preventing Money Laundering and Terrorist Financing.
Iceland – Seðlabanki Íslands
In Iceland, the Financial Supervisory Authority merged with the Central Bank of Iceland, Seðlabanki Íslands, in 2020. The Central Bank now monitors Iceland’s financial institutions to ensure compliance with the law and governmental directives.
The Nordic Banking Risk Environment
The money laundering scandals in the Nordic banking sector stirred financial turbulence across the region, revealing a pattern of compliance failures. Several compliance vulnerabilities that may have contributed to these failures include barriers to information sharing, outdated compliance technology, reliance on manual compliance processes, and inadequate employee compliance training.
AML Solutions for Nordic Banking
In response to these challenges, the Nordic banking community has embarked on collective action to address its compliance failings, including an effort to enhance the data it collects to perform more robust customer due diligence (CDD) and build more accurate risk profiles.
Automated screening solutions are now being implemented to add speed and accuracy to their compliance processes, more intuitive name-matching, and the ability to adapt quickly to changes in the risk environment.
Future Compliance Considerations in Nordic Banking
The focus of the Nordic banking community is likely to be on enhancements to its collective Know Your Customer (KYC) framework. The EU’s anti-money laundering directives will also impact Nordic banking AML compliance. The Sixth Anti-Money Laundering Directive (6AMLD), which came into effect on 3 June 2021, places a clear focus on the harmonization of anti-money laundering standards across the EU.
The Global AML Landscape
Regulatory changes and enforcement actions worldwide serve as reminders for financial institutions about the critical role of the board in oversight and appropriate management of AML/CFT compliance programs.
Significant legislative change is on the horizon in several jurisdictions, including the United Kingdom and the United States. Changes to FATF’s Recommendation 24 concerning accurate and up-to-date information on the beneficial ownership and control of legal persons are also noteworthy.
Key Risks and Developments
Several jurisdictions are witnessing key developments in the AML/CFT space:
- UK: The Financial Conduct Authority (FCA) has set out its expectations regarding the competence and capability of money laundering reporting officers.
- US: Enforcement orders and large fines have been issued for AML failures. Significant reforms are also anticipated in the near future.
- EU: The European Commission’s draft legislative package is undergoing a legislative review process.
- Singapore: The FATF Presidency will be held by Singapore from 1 July 2022 for a fixed two-year term.
The Road Ahead
The international AML landscape continues to evolve, with regulators worldwide placing increased emphasis on board involvement, understanding, and oversight of AML/CFT compliance programs. The developments in the Nordic region and beyond underline the need for financial institutions to stay abreast of changing regulations, enhance their compliance mechanisms, and foster a culture of ethics and compliance at all levels.