Global anti-money laundering rules are imposing vast costs on banks while recovering less than 1% of illicit funds, senior industry figures warned at a high-level financial services summit in Luxembourg.

The Ireland Luxembourg Chamber of Commerce (ILCC) convened more than 100 senior banking, regulatory and compliance professionals at Banque de Luxembourg to assess whether current anti-money laundering (AML), counter-terrorist financing (CFT) and know-your-customer (KYC) regimes are delivering value.

Panellists said illicit financial flows are estimated to exceed 2% of global GDP, funding crimes including drug trafficking, fraud and terrorism. Yet despite the scale of regulation, recovery rates remain negligible.

The discussion focused on what speakers described as an unusual regulatory model that places primary responsibility for policing financial crime on private sector institutions. Banks and financial firms now face substantial legal and reputational exposure, including fines exceeding $1bn (USD), while global compliance costs are estimated at more than $180bn (USD) annually.

ADMINISTRATIVE BURDEN

Participants questioned whether the current framework is proportionate or effective, pointing to mounting administrative burdens and diminishing returns.

The panel – which included Brian Hayes, chief executive of the Banking and Payments Federation Ireland, Jerry Gribic, chief executive of the Luxembourg Bankers’ Association, Richard Meads of Business Decisions Limited and governance specialist Yann Power – also highlighted unintended consequences.

These include the “de-banking” of higher-risk or low-value customers, barriers for start-ups and small businesses, and reduced access to regulated financial services for vulnerable groups.

COMPLEX COMPLIANCE

Speakers warned that over-complex compliance systems may also constrain financial innovation while criminals exploit new technologies such as AI-driven fraud and deepfake extortion.

The event concluded that AML, CFT and KYC frameworks require fundamental reassessment, with greater emphasis on measurable outcomes, systemic analysis and better alignment between government objectives and private sector incentives.

Attendees agreed that without reform, the widening gap between compliance cost and enforcement impact risks undermining both financial inclusion and the credibility of the global financial crime regime.

Main picture: (Left to right) Brian Hayes, Chief Executive Officer of the Banking and Payments Federation Ireland and former Irish Government Minister; Jerry Gribic, Chief Executive Officer of the Luxembourg Bankers’ Association; Joe Huggard, Managing Director of Huggard Consulting Group; Yann Power, Independent Director, Governance & Compliance Coach in the Fund Industry and member of various ILA & ALFI working groups and Richard Meads, Business Decisions Ltd.