Regulation refers to the legal rules, directives and standards established by governments, regulatory authorities and international bodies to govern industries, institutions and financial markets. The primary purpose of regulation is to ensure stability, transparency and accountability while protecting consumers, preventing financial crime and maintaining the integrity of economic systems.

Regulation dictates the compliance requirements that financial institutions and other regulated entities must follow to detect and prevent illicit activities such as money laundering, terrorist financing and fraud when it comes to Know Your Customer (KYC) and Anti-Money Laundering (AML).

These regulations outline obligations such as customer due diligence (CDD), transaction monitoring, suspicious activity reporting and record-keeping. Regulatory frameworks vary by jurisdiction but often align with global standards set by organizations such as the Financial Action Task Force (FATF) and national regulatory bodies like FinCEN in the U.S., the Financial Conduct Authority (FCA) in the U.K., and the European Banking Authority (EBA) in the European Union.

Compliance with regulation is mandatory, and failure to meet regulatory requirements can result in significant penalties, including fines, legal sanctions and reputational damage. Financial institutions must continuously adapt to evolving regulations, ensuring that their policies, procedures and controls align with current legal requirements.