The Deregulation Trend: Are We Playing into Criminals' Hands?

Across the globe, financial deregulation is gaining traction, particularly in the United States and the UK. Proponents argue that reducing regulatory burdens fosters economic growth, encourages innovation, and enhances competitiveness in global markets. However, critics warn that excessive deregulation could weaken financial safeguards, making it easier for criminals to launder money, finance terrorism, and engage in corruption. The crucial question is: how far is too far? At what point does deregulation shift from enhancing efficiency to actively enabling financial crime?

The US: Pushing for Ever Further Deregulation

The US has been rapidly rolling back financial regulations, particularly those introduced in response to the 2008 financial crisis. One of the most significant changes was the 2018 revision of the Dodd-Frank Act, which reduced oversight on mid-sized banks by raising the asset threshold for enhanced regulatory scrutiny from $50 billion to $250 billion. This meant that several large regional banks, previously subjected to stringent risk assessments and stress testing, no longer faced the same level of regulatory oversight. This rollback was partially blamed for the 2023 Silicon Valley Bank (SVB) collapse, where inadequate risk management and poor liquidity controls contributed to a major financial crisis.

More recently, the Financial Innovation & Technology for the 21st Century Act (FIT21), introduced in 2023, has aimed to streamline compliance obligations for crypto firms. While the bill is intended to provide regulatory clarity, critics argue that it loosens anti-money laundering (AML) obligations by shifting oversight away from the Securities & Exchange Commission (SEC) and toward the Commodity Futures Trading Commission (CFTC), which is perceived as a less stringent regulator. This move could reduce the ability of authorities to effectively monitor crypto transactions for illicit activities.

Additionally, there have been ongoing discussions about revising the Bank Secrecy Act (BSA), particularly regarding Suspicious Activity Report (SAR) thresholds. Some industry groups have pushed for raising the monetary threshold for reporting suspicious transactions, arguing that the current system creates excessive compliance burdens for banks. However, weakening SAR requirements could lead to a significant reduction in flagged transactions, making it easier for criminals to move illicit funds undetected.

At the same time, funding cuts to key enforcement agencies such as the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) have raised concerns about reduced enforcement capacity. A lack of sufficient funding and personnel could hinder investigations into money laundering, sanctions evasion, and terrorist financing.

The UK: The Edinburgh Reforms & a Post-Brexit Deregulation Agenda

In the UK, post-Brexit financial deregulation is being pursued under the banner of the Edinburgh Reforms, a package of regulatory changes introduced by former Chancellor Jeremy Hunt in December 2022. These reforms aim to make the UK’s financial sector more competitive by cutting back on certain EU-era regulations, but they also risk weakening key financial crime protections.

One of the most contentious elements is the proposed revision of the Senior Managers & Certification Regime (SMCR), which was introduced in the wake of the 2008 financial crisis to enhance individual accountability within financial institutions. The UK Treasury and the Financial Conduct Authority (FCA) are now reviewing whether the SMCR should be relaxed or even dismantled, arguing that the current framework is overly burdensome and discourages talent from taking on senior roles. However, rolling back SMCR requirements could reduce personal accountability for misconduct, making it easier for executives to evade responsibility in cases of financial crime or regulatory breaches.

Another significant change is the planned relaxation of ring-fencing rules, which were introduced to separate retail banking from riskier investment activities in response to the failures of 2008. The government has already proposed increasing the threshold at which ring-fencing applies from £25 billion to £35 billion, reducing the number of banks subject to these protections. Critics argue that loosening ring-fencing could expose depositors to greater risks and make it easier for financial institutions to engage in high-risk activities with customer funds.

The UK government is also reviewing its approach to AML regulations, with a particular focus on streamlining due diligence requirements for firms. Some financial services companies have argued that Know Your Customer (KYC) obligations and Politically Exposed Person (PEP) rules create excessive compliance costs. However, reducing these obligations could allow high-risk individuals, including sanctioned entities and politically exposed figures, to more easily access UK financial services.

A major concern is that post-Brexit deregulation could undermine the UK’s status as a leader in financial crime enforcement. The UK was once at the forefront of beneficial ownership transparency, becoming one of the first countries to introduce a public register of company ownership. However, in 2023, the Economic Crime & Corporate Transparency Act introduced new measures requiring identity verification for company directors, but critics argue that the Companies House reforms remain too weak to prevent misuse by criminals. Some business groups have even lobbied to weaken ownership disclosure rules, claiming that excessive transparency discourages investment. If these efforts succeed, the UK risks becoming an even greater hub for anonymous shell companies, which are commonly used for money laundering and sanctions evasion.

In addition to regulatory rollbacks, enforcement capacity has been a persistent concern. The UK’s National Crime Agency (NCA) and Serious Fraud Office (SFO) have faced significant budget constraints in recent years, limiting their ability to investigate large-scale financial crimes. This has led to concerns that corporate crime enforcement in the UK is becoming increasingly ineffective, particularly in complex cross-border cases involving corruption and money laundering.

The Down Side of Loosening Financial Regulations

Financial regulations serve a dual purpose: maintaining market stability and preventing illicit finance. Weakening these safeguards creates opportunities for criminals to exploit the financial system. One of the most immediate risks of deregulation is the erosion of AML controls. Many financial institutions already face significant compliance costs, making the prospect of lighter regulatory burdens appealing. However, a system with fewer reporting requirements, relaxed due diligence, and reduced scrutiny fosters an environment where money laundering and financial crime can thrive. If banks and other financial entities are no longer required to file SARs as rigorously as before, illicit funds will move through the system undetected.

Another major concern is the weakening of beneficial ownership transparency. Over the past decade, international efforts have closed loopholes that allowed corporate structures to conceal illicit wealth. Public beneficial ownership registers—particularly in the EU and UK—have helped unmask individuals hiding behind complex corporate networks. However, certain deregulation efforts now aim to roll back these measures, arguing that transparency discourages investment. If corporate disclosure rules are weakened, criminals will again find it easier to establish anonymous shell companies, laundering money and evading sanctions with impunity.

Beyond financial institutions and corporate structures, regulatory oversight and enforcement powers are also under threat. Agencies such as FinCEN and the FCA play a vital role in investigating financial crime, ensuring compliance, and penalising misconduct. However, budget constraints, political pressure, and proposed reforms could weaken these watchdogs’ ability to act effectively. A lack of resources and authority allows criminals to exploit gaps in enforcement, making it easier for illicit activity to go undetected and unpunished.

One of the most concerning consequences of deregulation is the potential for a "race to the bottom" in global financial crime standards. If major financial centres such as London and New York weaken their financial crime controls, other jurisdictions may feel pressured to follow suit to attract business. This could lead to a downward spiral, eroding AML and CTF measures worldwide. As financial regulations weaken across multiple jurisdictions, criminals will increasingly exploit jurisdictions with minimal oversight, creating new safe havens for illicit finance.

Where Should the Line Be Drawn?

While some level of deregulation can be beneficial—particularly in reducing unnecessary bureaucratic obstacles—certain safeguards must remain intact. A well-regulated financial system must uphold protections against illicit finance, ensuring that deregulation does not weaken financial integrity.

• Beneficial ownership transparency must be preserved. Tracing the individuals behind corporate structures is one of the most powerful tools against financial crime. Weakening transparency requirements makes it easier for criminals to conceal illicit activities behind opaque corporate entities.

• Financial regulators must be properly resourced and empowered. Agencies responsible for enforcing AML and financial crime laws need adequate funding, expertise, and legal authority to investigate and penalise misconduct. Limiting enforcement powers emboldens criminals and allows systemic risks to go unchecked.

• International cooperation in financial crime prevention must remain a priority. Financial crime is inherently cross-border, and weak regulations in one jurisdiction can have global repercussions. Countries must remain aligned with the FATF standards and international AML and CTF initiatives to prevent criminals from exploiting regulatory arbitrage.

• Key reporting obligations such as SARs must remain intact. While simplifying compliance can be beneficial, financial institutions should not be relieved of their responsibility to report suspicious activities. Weakening reporting standards would undermine efforts to detect and combat money laundering, fraud, and terrorism financing.

Balancing Growth & Financial Integrity

Both the US and UK governments argue that deregulation is necessary to enhance competitiveness and stimulate economic growth. However, such changes come with significant risks. Looser AML controls, reduced corporate accountability, and weaker regulatory oversight create opportunities for financial criminals to exploit the system. If deregulation is not carefully managed, it could undermine trust in financial markets, facilitate illicit finance, and weaken global enforcement efforts.

As financial crime becomes more sophisticated, particularly with the rise of cryptocurrency-based money laundering, sanctions evasion, and complex offshore structures, strong regulatory oversight is more critical than ever. The challenge is not simply to reduce compliance burdens but to ensure that any regulatory reforms do not open the floodgates for financial crime.

Final Thoughts

The current trend towards deregulation in the US, UK, and beyond presents a significant dilemma. While streamlining regulations can enhance economic efficiency, there is a fine line between removing red tape and dismantling essential safeguards. Without robust AML controls, corporate transparency, and effective regulatory oversight, the financial system becomes increasingly vulnerable to abuse.

Regulators and policymakers must ask themselves: Are we making the financial system more efficient, or are we opening the door to exploitation? If the latter, the world risks undoing decades of progress in combatting money laundering, corruption, and illicit finance. In the pursuit of economic flexibility, governments must not become complacent in the face of financial crime. The cost of deregulation should never be the erosion of financial integrity.

As financial regulations loosen, the risk of financial crime rises. Are you prepared?

At OpusDatum, we provide expert consultancy to help businesses navigate regulatory changes, strengthen compliance frameworks, and mitigate financial crime risks.

• Stay ahead of evolving rules with our regulatory advisory services

•  Identify vulnerabilities with risk assessments. 

• Build robust controls as part of your compliance strategy.

Don’t risk exposure. Contact us today to safeguard your business.