How can FinTechs win with AML?


When it comes to key challenges for financial technology companies, one of the chief pain points surrounds AML. How can FinTechs win in this area?

In a recent webinar with an expert panel consisting of Fenergo senior client solutions consultant Deepan Nambiar, regulatory compliance consultant Leigh-Anne Moore, Faisal Islam and head of Compliance & MLRO at Shieldpay Scott Newby, RegTech firm Fenergo did a deep dive into this topic and considered some of the key issues that need to be overcome.

The webinar touched on hot-button issues such as why transaction monitoring is so crucial for FinTechs to get right, best practice tips for integrating automated KYC and real-time TM into AML workflows, how to approach AML in the most effective ways and the benefits of automation with ongoing KYC, AML and real-time transaction monitoring.

As for some of the key quotes of the webinar, Fenergo senior client solutions consultant Deepan Nambiar highlighted that in his personal experience, one of the common problems amongst FinTechs in this area is data silos. He said, “This seems to be the crux of the issue and leads to many downstream issues forming. This includes things such as juggling customer data and not having a single source of truth.”

Nambiar cited a survey Fenergo issued to clients that showed 100% of respondents found rising financial crime as a top concern for compliance department. In other areas, 80% of respondents said that customer onboarding and complexities around the time to onboard customers and is the second highest concern.

Another key area found by the survey was a lack of external investment. Up to 60% highlighted this to be a top priority for compliance departments, claimed Nambiar.

To start the panel discussion, Nambiar quizzed Leigh-Anne Moore on some of the common problems surrounding synchronising TM and KYC data processes.

She said, “It’s certainly a challenging area for firms of all sizes. I think the biggest problem in general is that the current systems that are in place, are not sophisticated enough to accurately determine what’s illegal activity from legitimate transactions. So, we see that by the large number of false positives that are created. A lot of these alerts turn out to be legitimate activity, which ends up in a lot of wasted time and resources.:

Moore continued, adding that even those companies that have good AML systems often still rely on data from core systems. “I think that is part of the challenge, that if those core systems were feeding better static or transactional data to transaction monitoring systems, then maybe those scenarios could be tweaked and the number of false positives would be reduced – but it’s certainly a challenge for all firms regardless of the size.”

She also highlighted that these issues can be exasperated when looking at large financial institutions with legacy systems in place. “often what we see is delays in updating data can have a significant impact on a firm’s ability to identify suspicious transactions. It’s important to have fully integrated systems between KYC and transaction monitoring, as quite often those systems are separate.

Are the large incumbent financial institutions that have been around a long time in a better or worse position compared to FinTechs? In the opinion of Moore, while the bigger financial institutions have more resources at hand, they also have the legacy systems in place. This can make it easier for FinTechs to implement more innovative solutions.

“I think there’s advantages and disadvantages in terms of FinTechs and financial institutions. We know that FinTechs share the pain of compliance in this space. They’re certainly not exempt from FCA fines. FinTechs also have a considerable lack of access to historical customer data, which can make it difficult to really pull together customer profiles. So there are definitely challenges for FinTechs.

The webinar also saw Faisal quizzed on what advice he would give to his clients on how to shore up their KYC and transaction monitoring processes and bring them up to scratch with the growth they’re experiencing and the complexity of risks they’re starting to see.

Islam noted that the one of the poorest ways of adopting and having a proper financial crime system is adopting the three-lines-of-defence systems. The three lines of defense represent an approach to providing structure around risk management and internal controls within an organization by defining roles and responsibilities in different areas and the relationship between those different areas.

He stated, “One of the things I advise from an early stage funding raise is to forget three-lines-of-defence, which essentially allows you to fail faster – you need to be able to figure out a risk-based approach, which is the most true-and-tested way of finding out your inherent risks, what is the severity of the damage that could occur, and then put controls as a result of that and adopt that throughout the customer journey as they’re progressing.”

Newby also highlighted some of the pain points that he felt taking companies from start up to scale up phase and improving the businesses KYC and transaction monitoring processes.

He said, “When we look at the role of MLRO’s, we’re all spinning multiple plates. We’ve got demands, we’ve got regulatory challenges. You’ve also got the FCA business plan that’s come out of their CEO letters, so some of the wording in there includes questions such as what are you doing to ensure your systems and adequate and effective and preventing fraud.

“Alongside that, we’re also trying to create great customer experiences, keep our investors happy, we’re trying to comply with consumer duty and make sure we’re doing the right thing by our customer.

To view the full webinar, click here.

Keep up with all the latest FinTech news here

Copyright © 2023 FinTech Global

Enjoying the stories?

Subscribe to our daily FinTech newsletter and get the latest industry news & research


The following investor(s) were tagged in this article.