Financial crime prevention enters a transition phase amid AI disruption and EU rule changes

May 2026 | SPOTLIGHT | BANKING & FINANCE

Financier Worldwide Magazine

May 2026 Issue

The rise of alternative payment methods, such as payments in cryptocurrencies, stablecoins and other digital assets, is reshaping how money moves across borders. As recently as 2019, the total value of stablecoins in circulation was just $1bn. Today it is nearly $300bn, and forecasts suggest that figure could reach $4 trillion by 2031. Demand is coming from generation Z, active non-bank issuers and a new payments paradigm.

Simultaneously, artificial intelligence is lowering barriers for sophisticated fraud and money laundering techniques as well as assisting in rapidly generating false documentation, creating synthetic entities and fraudulent transaction patterns to evade traditional monitoring systems. These tools allow criminals to conduct more targeted and efficient attacks while remaining harder to detect.

While the innovations introduced by alternative payment methods promise faster, cheaper and more accessible financial services, they also present emerging risks for financial crime. Stablecoins can be transferred almost instantly across jurisdictions, bypassing many of the intermediaries present in traditional correspondent banking systems. While this reduces transaction costs and settlement times (which is the purpose), it also means that the necessary checks in the end to end process may not be done.

FATF standards on virtual assets and virtual asset service providers

This rapid growth of digital assets has prompted significant attention from international regulators seeking to address emerging financial crime risks. Central to these efforts is the work of the Financial Action Task Force (FATF), the global standard-setting body responsible for developing international policies to combat money laundering, terrorist and proliferation financing.

In 2019, the FATF formally extended its anti-money laundering (AML) and countering the financing of terrorism (CFT) standards to cover ‘virtual assets’ and ‘virtual asset service providers’ (VASPs), including cryptocurrency exchanges, custodial wallet providers and certain intermediaries involved in digital asset transactions.

These standards require jurisdictions to impose obligations comparable to those applied to traditional financial institutions (FIs), including customer due diligence, record keeping, suspicious transaction reporting and ongoing monitoring of transactions. The FATF also introduced the so-called ‘travel rule’ for digital assets, which requires VASPs to collect and transmit key information about the originators and beneficiaries of transactions.

The FATF’s work reflects a broader effort to ensure that innovation in financial technology does not create gaps in the global AML framework. As stablecoins and other digital asset payment mechanisms gain prominence in cross-border finance, the implementation and enforcement of these standards has become an increasingly critical issue for regulators and FIs worldwide. The entry into force of the Markets in Crypto-Assets Regulation has reduced AML risks in connection with cryptoassets in the European Union (EU), but the FATF’s work is more relevant than ever.

While a comprehensive AML framework has been deployed across the traditional global banking, remittance and gatekeeper communities, there is a fragmented regulatory landscape surrounding stablecoins. In many jurisdictions, regulatory frameworks are still evolving. The FATF has repeatedly expressed concern that the global implementation of AML and CFT standards for digital assets has progressed slowly and unevenly.

FATF assessments indicate that roughly three quarters of jurisdictions remain only partially compliant or not compliant with these standards. A particular area of concern is the limited adoption of the ‘travel rule’ requirement. FATF surveys have found that more than half of jurisdictions have taken no meaningful steps toward implementing this requirement, and even where legislation exists, supervision and enforcement remain limited.

Our recent survey conducted across 143 global markets showed that less than 45 percent of countries had implemented FATF standards relating to digital assets while only 5 percent of countries had banned them. This means that payment flows using cryptocurrency and stablecoins can freely be made to approximately half of the world’s countries in a way where necessary financial crime checks are not being conducted. This represents a significant loophole.

This issue is not the one only being faced by developing countries. Even in more developed markets and in traditional financial markets, financial crime measures are being tightened still. The EU has long had pan-European measures to combat financial crime and terrorism financing. However, the measures (contained in a Directive) mean that each member state needs to transpose the measures and broad principles into national laws.

Historically, this has resulted in fragmented implementation with significant differences in substantive rules and supervision across jurisdictions. Therefore, the EU has recognised that it needs to shift toward a more harmonised framework and a centralised approach to AML across the EU.

The EU AML and CFT framework

The EU has recently undertaken one of the most significant reforms of its AML and CFT framework in over a decade. The new legislative package, first proposed by the European Commission in 2021 and adopted by the European Parliament and the Council in 2024, introduces a comprehensive set of regulatory measures designated to strengthen the EU’s capacity to detect, prevent and investigate financial crime. As outlined below, the reforms consist of several interlocking instruments, including a new Anti-Money Laundering Regulation (AMLR), the Sixth Anti-Money Laundering Directive (AMLD6) and a regulation establishing a new European supervisory authority, known as the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA).

The EU’s new AMLR and changes to the existing AMLD. The new AMLR is a regulation meaning that it is directly applicable in each member state without the need for the member state to transpose the regulation into national laws. This ensures harmonisation of standards across the EU, creating a ‘single rulebook’ for AML and CFT compliance. It introduces directly applicable rules governing customer due diligence, beneficial ownership transparency and internal compliance obligations for covered entities across the EU.

The AMLD6 will replace the existing Directive 2015/849/EU and contains provisions that are not appropriate for a regulation, such as rules concerning the responsibilities and tasks of the national supervisors and financial intelligence units (FIUs) in member states, and other organisational and institutional issues of the EU AML framework (such as the cooperation between national supervisors and cooperation with other regulatory authorities covered by other EU legal acts).

The new regulator. The AMLA is a new EU-level supervisory authority headquartered in Frankfurt. It will have both direct and indirect supervisory powers over entities considered to pose the highest risk of money laundering or terrorist financing, particularly large FIs operating across multiple member states. In addition to direct supervision of certain high-risk institutions, the AMLA will act as a coordinating body for national supervisors and FIUs, facilitating information sharing and ensuring consistent enforcement of AML standards throughout the EU. This centralised oversight mechanism is intended to strengthen the effectiveness of supervision in an increasingly interconnected financial system where criminal activity frequently crosses national boundaries. The AMLA is vested with extensive investigatory and enforcement powers and is expected to adopt a rather assertive approach toward supervision.

Extension to new sectors. The reforms also expand the scope of AML obligations to cover additional sectors considered vulnerable to financial crime risks. The updated framework extends AML requirements to new categories of obliged entities, including parts of the virtual asset sector, traders in high value luxury goods and certain professional service providers.

Enhanced customer due diligence obligations, stronger beneficial ownership transparency requirements and stricter monitoring expectations will apply to these sectors. In parallel, the new rules establish greater transparency around transfers of funds and virtual assets by implementing the FATF’s ‘travel rule’ into EU law. These measures are designed to reduce the anonymity and opacity that can facilitate money laundering and other illicit financial activities.

Conclusion

The EU’s decision to overhaul its AML framework reflects broader concerns about the scale and sophistication of financial crime in the European single market. Several high-profile money laundering scandals involving major European FIs over the past decade exposed weaknesses in national supervision and cross-border coordination.

At the same time, the rapid growth of digital assets and alternative financial technologies has created new channels through which illicit funds can move across jurisdictions. By introducing a harmonised rulebook, strengthening supervisory coordination and expanding the regulatory perimeter to emerging sectors, the EU aims to modernise its AML regime and better safeguard the integrity of its financial system.

Taken together, the new EU AML package represents a significant evolution in the region’s approach to financial crime prevention, notably by centralising elements of supervision and harmonising substantive regulatory standards.

Charlotte Henry, Timo Buehler and Jaime Bofill are partners at Herbert Smith Freehills Kramer LLP. Ms Henry can be contacted on +61 (2) 9225 5733 or by email: charlotte.henry@hsfkramer.com. Mr Buehler can be contacted on +49 (69) 2222 82547 or by email: timo.buehler@hsfkramer.com. Mr Bofill can be contacted on +34 914 23 40 08 or by email: jaime.bofill@hsfkramer.com.

Charlotte Henry, Timo Buehler and Jaime Bofill

Herbert Smith Freehills Kramer LLP