1. Inadequate Understanding of Local Regulations

Each market has unique regulatory requirements, and assuming that one compliance framework fits all can be a grave mistake. Companies often fail to conduct thorough due diligence on:

• AML/ATF laws – Regulations vary significantly across jurisdictions, especially concerning Know Your Customer (KYC) and transaction monitoring requirements.
• Licensing and registration – Financial service providers, virtual asset businesses, and money service businesses (MSBs) may require specific licenses to operate legally.
• Data privacy regulations – Laws like GDPR (Europe), PIPEDA (Canada), and CCPA (California) impose strict data protection obligations.

Solution: Conduct a comprehensive regulatory gap analysis to identify market-specific compliance requirements. Engaging local legal and compliance experts can help prevent misinterpretations.

AML Incubator offers tailored compliance solutions, including MSB registration and regulatory remediation, to help businesses expand seamlessly.

2. Overlooking Beneficial Ownership and Due Diligence Requirements

Regulators in many jurisdictions require businesses to identify and verify ultimate beneficial owners (UBOs) to prevent money laundering. However, companies often:

• Fail to conduct enhanced due diligence (EDD) on high-risk clients.
• Neglect politically exposed persons (PEP) screening, increasing exposure to illicit funds.

Solution: Implement a robust risk-based approach (RBA) to customer due diligence (CDD) and ensure EDD protocols align with local requirements.

Explore AML Incubator’s enhanced due diligence (EDD) services to strengthen compliance.

3. Misjudging Licensing and Regulatory Approval Timelines

Many businesses fail to account for the time required to obtain regulatory approvals. In some jurisdictions, licensing can take months or even years. Key mistakes include:

• Rushing into market entry before securing required approvals.
• Underestimating application complexity, leading to delays or rejections.
• Failing to appoint the right compliance officers (e.g., Chief AML Officers in financial institutions).

Solution: Engage with regulators early and ensure a fully compliant application with all necessary documentation. A temporary compliance officer can help navigate the process.

AML Incubator provides CAMLO/MLRO services to support businesses with regulatory filings.

4. Neglecting Transaction Monitoring and Reporting Obligations

Many companies focus on acquiring new customers but fail to establish proper transaction monitoring systems to detect suspicious activity. Common errors include:

• Inadequate rules-based or AI-driven monitoring tools.
• Failing to submit Suspicious Transaction Reports (STRs) or Large Virtual Currency Transaction Reports (LVCTRs) on time.
• Insufficient audit trails, making compliance reviews challenging.

Solution: Invest in automated transaction monitoring systems and ensure compliance officers are trained in reporting obligations.

Read more about transaction monitoring challenges for crypto exchanges here.

5. Poor Internal Compliance Training and Culture

Even if a company meets all legal requirements, poor staff training can lead to compliance failures. Common issues include:

• Employees not recognizing red flags for financial crime.
• Compliance being seen as a one-time effort rather than an ongoing process.
• Lack of clear internal policies on AML, fraud prevention, and regulatory updates.

Solution: Establish a compliance culture by implementing regular training programs, internal audits, and continuous monitoring.

AML Incubator offers compliance effectiveness reviews to assess and improve internal policies.

6. Failing to Adapt to Evolving Regulations

Regulations change frequently, and failure to adapt can render a business non-compliant overnight. This is especially true in:

• The crypto and digital asset industry, where rules are rapidly evolving.
• Cross-border payments, which face stricter AML scrutiny.
• Data privacy laws, where non-compliance leads to hefty fines (e.g., GDPR penalties).

Solution: Maintain a proactive compliance strategy by monitoring regulatory updates and partnering with industry experts.

Stay ahead of regulatory changes with AML Incubator’s regulatory remediation services.

Final Thoughts: Compliance is a Competitive Advantage

Avoiding these compliance pitfalls not only prevents legal issues but also enhances business credibility, fosters trust with regulators, and attracts institutional investors. Companies that prioritize compliance from day one gain a significant competitive advantage in new markets.

Need help navigating compliance in new markets? Connect with AML Incubator today.

Related Reads:

📖 How to Hire a CAMLO in Canada

📖 What to Do When Your MSB License Expires

📖 Global Cryptocurrency Regulations: Trends & Changes in 2024

📖 Preparing for the Retail Payment Activities Act

📖 The Importance of a Strong Compliance Program

Disclaimer:

The views and opinions expressed in articles published on this website are solely those of the respective authors and do not necessarily reflect the views of the company or its affiliates. The content is for informational purposes only and should not be considered financial, legal, or investment advice. The whole or part of this content may have been generated, edited, or rewritten using language models.