Common AML Compliance Mistakes and How to Avoid Them

AML compliance is one of the toughest responsibilities in banking. Regulators such as FATF, FinCEN, MAS, and the FCA have set out exactly what they expect. Yet every year, institutions still pay heavy penalties. In 2023 alone, financial institutions were hit with approximately $6.6 billion in fines related to AML failures, KYC lapses, CDD weaknesses, sanctions breaches, and ESG-related control gaps.

The problem is rarely policy. Most banks can show written procedures. The challenge is day-to-day execution. Customer files are incomplete, monitoring thresholds are not updated, and board reports understate the scale of alert backlogs. When regulators conduct an inspection, these common AML issues quickly turn into findings, fines, and costly remediation programs.

This article examines the AML compliance mistakes regulators see most often, why they continue to appear, and what compliance leaders can do to avoid them.

Why AML compliance mistakes persist

On paper, most AML frameworks appear sound. In practice, weaknesses surface quickly once regulators begin their reviews. Teams often face more alerts than they can realistically clear, while customer data remains scattered across systems that do not connect. This slows investigations and erodes context. Monitoring scenarios stay unchanged for long periods because no one owns the process of review and recalibration. File refreshes that should occur routinely are postponed until regulators ask for them.

Together, these weaknesses build on each other. Investigations stall when records are incomplete, backlogs grow as tasks are delayed, and leaders go into regulatory inspections without the evidence regulators expect. What may feel internally as a resourcing strain is interpreted externally as something more serious, a sign that the bank has lost control of its AML risks.

Common weakness in AML customer due diligence

Customer due diligence should be an ongoing process, not a one-off task that ends once a customer is approved and an account is opened. Regulators expect banks to identify and verify customers and beneficial owners, apply enhanced due diligence (EDD) where risk is higher, and refresh files when new information emerges. FATF Recommendation 10 and MAS Notice 626 both require this.

Yet common AML compliance mistakes remain. Ownership details are collected but not always verified. Schedule reviews are missed as workloads mount. Enhanced due diligence is applied inconsistently, which leaves politically exposed persons and high-risk customers insufficiently checked.

The ING case in 2018 is a stark reminder of the consequences. Dutch regulators fined the bank €775 million ($900 million) after finding thousands of accounts had been opened and maintained without adequate CDD. Beneficial ownership was unclear, and risk ratings were incomplete.

The solution is straightforward. Make CDD continuous by verifying beneficial owners, refreshing risk profiles when red flags arise, and recording the rationale for every decision. Solutions such as Artemis KYC software help capture and update this information in a way regulators can rely on.

AML transaction monitoring mistakes and outdated thresholds

Transaction monitoring is one of the most frequent sources of AML failures. If thresholds are set too high, suspicious activity slips through; If they are set too low, compliance teams are overwhelmed with false positives. Regulators including MAS, FCA, and FinCEN expect firms to show how rules were designed, when the thresholds were last reviewed, and how changes were recorded.

The NatWest case in 2021 showed how costly weak monitoring controls can be. The bank admitted failing to monitor a commercial customer who deposited nearly £365 million, including £264 million in cash. The UK Financial Conduct Authority found that NatWest’s transaction monitoring systems had not been calibrated to detect this activity, breaching the Money Laundering Regulations 2017.

To prevent similar AML failures, banks need to treat transaction monitoring as a dynamic process. Every rule change should be logged, thresholds reviewed regularly against actual transaction activity, and systems independently reviewed. FATF Recommendation 10 requires ongoing scrutiny of transactions to ensure they are consistent with a customer’s risk profile, a principle that underpins regulator expectations globally. 

Compliance teams tackling these challenges need tools that make it easier to show evidence to regulators. Modern transaction monitoring platforms can keep a clear log of rule changes, provide reports on how rules are performing, and support reviews of whether scenarios reflect actual customer and transaction behaviour. Athena transaction monitoring is built with these needs in mind, helping institutions show regulators that their systems are effective and well managed.

Frequent issues in Suspicious Activity Reports

Suspicious Activity Reports or Suspicious Transaction Reports lose their value if the narrative is unclear. Too often, SARs or STRs are vague, copied directly from system alerts, or lack the context needed to explain why the activity is suspicious.

Regulators including FinCEN and MAS under Notice 626, expect each SAR or STR to cover three points. It should describe the activity, explain why it was unusual, and show how it may relate to potential financial crime. When these points are missing, the report signals to regulators that the institution has not properly assessed the risks.

The strongest SARs or STRs read like clear investigation notes. They describe the customer and activity, explain what triggered suspicion, and show why the behaviour could indicate money laundering, fraud, or sanctions breaches.

Institutions that use structured templates, train investigators in effective writing, and apply a brief quality review before filing consistently produce more useful reports and build regulator confidence.

AML governance and oversight failures

Weak governance is another recurring AML weakness. Boards and senior managers are often given dashboards or reports that hide the true scale of alert backlogs, staffing shortages, or systemic issues. When decision makers rely on incomplete reporting, problems persist.

The Standard Chartered settlement in 2019 shows how this plays out. Regulators fined the bank $1.1 billion for governance failures in high-risk markets, describing them as oversight weaknesses at senior levels. Both the FCA’s Senior Managers & Certification Regime (SMCR) and MAS Notice 626 stress that boards and risk committees must receive accurate and unfiltered AML reporting.

The lesson is clear. Leadership needs full visibility. Reports should show backlogs and highlight weaknesses openly. Case work should be tracked in auditable case management workflows that log every escalation and decision so there is no doubt about how issues were handled.

Why reliance on spreadsheets weakens AML compliance

Spreadsheets are still commonly used in mid-tier banks and financial institutions. They are easy to use, but they remain a recurring source of AML failures because they lack version control, create multiple copies of the same file, and provide no audit trail.

Compliance teams see the risks every day. A customer file stored in a spreadsheet can be overlooked, or two versions of the same document can lead to inconsistent information. When regulators or auditors review these cases, such gaps stand out immediately.

Moving reviews and investigations into structure systems eliminate these weaknesses. It gives regulators the evidence they expect, reduces duplication of work, and strengthens audit readiness.

How to strengthen AML compliance programs

These AML compliance mistakes are not new. They persist because policies are written down but not consistently applied. The solution is not more documentation but execution that stands up to regulatory inspection.

Stronger programs keep CDD current, review monitoring rules regularly, file SARs that are clear, give boards unfiltered visibility, and replace spreadsheets with auditable systems. When these elements are in place, investigations run more smoothly, oversight focuses on genuine risks, and leadership can engage regulators with confidence.

Preparing for regulatory inspections and audits

Before a regulatory inspection or AML compliance review, it helps to ask four questions:

• Are customer files up to date, with beneficial ownership evidence on record?

• Do monitoring rules have a documented change history and validation results?

• Do SARs explain suspicion clearly enough for someone outside the bank to understand?

• Do board and risk committee reports reflect the true state of alerts and backlogs?

Our AML Mistakes Prevention Checklist makes this easier. It can be used to prepare for regulatory visits, internal audits, or board reporting.

Check your AML program before regulators review it

Download the AML Mistakes Prevention Checklist. Regulators continue to find weaknesses in due diligence, monitoring, SARs, and governance. This checklist helps you review each area step by step, record evidence, and close gaps before a regulatory review. Get your checklist now and give your team the confidence that your AML program is ready when it matters.

Get My Free Copy of the Checklist

Conclusion

AML mistakes are predictable. They happen when policies exist but are not followed through in practice. Regulators have been clear. Programs must be risk-based, refreshed regularly, and backed with evidence.

Institutions that act on this reduce regulatory risk, protect their reputation, and give their teams the space to focus on genuine threats.

FAQs on Common AML Compliance Mistakes

What are the most common AML compliance failures

The most frequent failures are weak customer due diligence, outdated monitoring thresholds, poor SAR narratives, blind spots in governance, and over-reliance on spreadsheets.

What happens if AML compliance is weak

Weak programs lead to regulatory findings, fines, remediation orders, and in some cases criminal prosecution. Beyond penalties, reputational damage and higher long-term compliance costs are almost guaranteed. In Singapore, MAS has also shown it will act where AML frameworks are not applied in practice.

How do banks avoid AML fines

By keeping due diligence current, reviewing monitoring rules regularly, writing SARs that tell a clear story, and reporting to boards without filters. Running operations on platforms with audit trails also gives regulators the evidence they expect.

What do regulators look for in AML programs

They want evidence. Ownership details must be verified, monitoring logs kept up to date, SARs explained clearly, and board reports showing the full picture. Programs need to be risk aligned, refreshed often, and backed with evidence.