Strengthening your financial crime framework

Financial crime is not just a regulatory concern or compliance issue, it is a serious threat to trust, stability and the global financial system. Financial institutions (FIs) are the first line of defence to detecting and preventing illicit activity, but criminals constantly adapt to exploit gaps in systems, technology and global networks. As criminals become more sophisticated, so must our defences.

In the year 2025 to date, regulators in the Middle East issued over US$ 106 million in fines for failures in anti-money laundering (AML) and counter-terrorist financing (CFT) compliance. These penalties weren’t limited to one type of institution and spanned exchange houses, insurance brokers, local banks and foreign bank branches.

Financial crime puts trust and stability at risk. To stay ahead, financial institutions need more than quick fixes and they need a strong framework that reduces risk and meets regulatory expectations. We have highlighted few key common challenges in the region and are sharing practical ways to tackle them below:

1.   Inadequate enterprise-wide financial crime risk assessment (FCRA): FCRAs are often conducted in silos rather than holistically, overlooking key exposures, such as fintech partnerships, trade-based money laundering in corporate clients or reactivated dormant accounts. Weak controls like generic customer risk ratings or poorly calibrated transaction monitoring rules limit risk detection, leading to blind spots in risk exposure and increasing the likelihood of regulatory breaches.

2.   Weak sanctions framework: Sanctions framework failures remain a critical risk. Recently regulators have sanctioned multiple insurance brokers with fines and warnings for inadequate sanctions frameworks. FIs fails to have:
•   Adequate list management controls in place
•   Strong screening tools and configuration
•   Coverage across products & channels
•   Adequate alert management & escalations process

Absence of these controls may lead FIs to miss detection of critical alerts and sanctions breaches, exposing them to serious regulatory and reputational consequences.

3.   Poor calibration of transaction monitoring rules / scenarios: FIs face issues with poorly calibrated transaction monitoring rules / scenarios. Outdated typologies and generic scenarios fail to reflect the actual risks. For example, using the same thresholds for all customer types often leads to too many false alerts or missed high-risk activity, such as structuring or unusual cross-border transfers. This:
•   Weakens the ability to detect real suspicious activity
•   Overwhelms compliance teams with false positives
•   Increases the chance of missing true red flags risking regulatory finding.

4.   Inadequate customer due diligence process: FIs face challenges implementing a robust customer due diligence process. Key issues include incomplete customer profiles, outdated or missing documentation, lack visibility into complex ownership structures and weak ongoing due diligence, particularly for high-risk clients like offshore companies or politically exposed people (PEPs). For example, FIs may fail to identify a natural person holding less than 25% ownership in a complex structure, resulting in no UBO information being collected at all. These gaps can lead to onboarding risky clients unknowingly, sanctions breaches and regulatory penalties for non-compliance.

5.   Poor data quality: Poor data quality is a common challenge for financial institutions. Missing names, incorrect IDs or messy address fields can stop detection systems from working properly. For example, if a customer’s name is spelled differently when translated from Arabic to English, it might not match against sanctions lists or trigger alerts. This can lead to missed red flags and increase the risk of undetected suspicious activity.

To strengthen the financial crime framework FIs may consider the following key approaches that can be implemented proactively.

Use centralised and data-driven FCRA which consolidates risks across all products, consumers and geographies; use dynamic scoring models and reliable data sources. Ensure FCRA is timely updated and all regulatory requirements are incorporated
Validate the sanctions screening model periodically, use real-time automated tools for sanctions screening, keep lists up to date on a daily basis and ensure issues are reported timely
Make sure your transaction monitoring rules reflect your actual risk profile. Regularly update scenarios to include new threats and trends, and set thresholds using real transaction data to improve accuracy
Use centralised and automated KYC systems, make sure documents are validated on a real-time basis, review customer profiles periodically and apply a risk-based approach throughout the customer lifecycle
Use strict data standards, refine key fields on onboarding, capture structured data automatically (like nationality and IDs), have a dedicated data steward and monitor data quality continuously.

Conclusion: Strengthening financial crime frameworks is no longer a choice, it is essential for staying strong and compliant in the Middle East's changing rules and regulations. Financial institutions need to understand how financial crime risk appears across their products, services and customer activities. By applying smart, risk-based controls, they can protect both themselves and the wider financial system. Those who focus on clarity, consistency and control now will be better prepared for future risks.

How BDO can help

At BDO, we are committed to helping businesses manage and mitigate financial crime risks.

Author:
Rahul Samdani, Director, Forensic Risk & Compliance
Rahul.samdani@bdo.ae Mobile: +971 56 414 3952