Futureproofing Fintech: Navigating AML Compliance in a Rapidly Evolving Sector
The fintech space is experiencing unprecedented challenges in anti-money laundering (AML) compliance.
From a global pandemic that displaced users online to economic downturns and sanctions resulting from geopolitical conflicts, fintech firms are facing daunting challenges that could harm their business. With the fintech industry expected to grow by USD 305.7 billion by 2023, compliance with AML regulations is more critical than ever to avoid reputational damage and financial losses.
Financial data specialist Refinitiv, in collaboration with Fintrail, has interviewed fintech experts to understand the AML challenges facing the industry. The resulting white paper delves into the cause and effect of increasing AML compliance pitfalls for fintech companies.
Fintech News Singapore takes a look at just some of the key trends and issues covered in the white paper.
Fintech trends weighing AML needs
Technology, data and governance: Effective risk management
AI-based AML technology requires high-quality data to produce better results and support proactive risk management. Fintech companies must strike a balance between not creating too much friction during onboarding and not attracting malicious actors.
Quality data is collected and analyzed, including underlying data containing high-quality secondary identifiers such as date of birth and gender for more precise, targeted results. Successful implementation of data deduplication can eliminate duplicates of the same record, while optimizing storage and minimizing inefficient processes, improving the hit rates of monitoring procedures along the way.
Governance is becoming a critical component of fintech scale-up success, requiring a shift to a more robust governance model that adapts over time as the company grows.
Scaling Fintech AML Teams: Finding the Right Talent
Fintech outfits tend to face a shortage of specialized, skilled workers. And they need to find the right talent to scale their AML operations – from first and second lines of defense to engineers and data scientists.
Financial crime compliance is largely considered recession-proof, and demand for financial crime compliance roles is expected to remain high. Outsourced solutions can help balance a firm’s increasing notification volume or strong customer growth with increasing regulatory scrutiny.
Even more pressing trends in fintech affecting AML effectiveness can be found in the Refinitiv whitepaper, ‘AML Challenges for Fintechs: Insights for the Future’.
AML challenges facing FIs and fintech
Online Fraud: The Rising Threat
image via freepik
The shift to remote and digital banking has caused an increase in cybercriminals targeting financial institutions. One of the biggest threats is fraud, especially the increasing impersonation of individuals and organizations.
Fraudsters can manipulate information, including similarities, at a speed that is extremely difficult to discern. AML compliance teams focus on awareness and education to help consumers avoid bad actors, who often use social media to promote their scams. These scams are present in both traditional fiat and cryptocurrency areas.
The role of digital assets and cryptocurrencies
Speaking of cryptocurrencies, digital asset-related legislation is advancing globally, increasing the need for all fintechs to consider the risks and exposures associated with the more widespread use of virtual assets.
As digital asset and cryptocurrency regulations evolve, fintech firms must create and review their AML risk assessment methodology to assess the nuances of different cryptocurrencies and non-fungible tokens (NFTs). Digital asset companies must stay on top of new asset classes, features and potential risks, leveraging data and automation. Fintechs need to determine which product falls within a firm’s risk appetite for buying or selling, or to consider how to interact with virtual asset service providers (VASPs).
Sanctions
Fintechs face challenges including flight risk and sanctions violations resulting in fines. In 2022, AML teams faced the challenge of keeping pace with Russia-related sanctions in response to the conflict in Ukraine.
In 2023, exposure to sanctions risk is likely to continue, underscoring the need for fintechs and their sanctions teams to remain alert and agile.
More about the use of technology, regulatory guidance and prioritization of efficiency in the entire Refinitiv whitepaper.
Looking to the future
Regulatory AML Opportunities and Fintech Community Collaboration
Regulatory changes and requirements are constantly evolving along with threats of financial crime. Fintechs must remain agile in response to these coming changes and be alert to opportunities, adopting a “global but local” approach.
Fintechs should cooperate with regulators and cooperate when possible to ensure meaningful results. Regulatory sandboxes show how regulatory technology firms can support the ecosystem by creating innovative solutions for greater effectiveness against financial crime.
Balancing customer service and compliance
Customers are increasingly demanding personalized one-to-one service. Fintechs must balance customer service with the right level of friction for AML compliance. The demand for faster and more convenient customer experiences is increasing, increasing the need for frictionless onboard journeys.
The use of digital identities is a solution that can help achieve a frictionless customer onboarding journey, which has been implemented in some jurisdictions. Fintechs must remain agile and innovative while balancing compliance requirements with the common goal of meeting customer demands for faster and more convenient experiences.
Fintech pros interviewed in the Refinitiv whitepaper gave examples such as MyInfo in Singapore, a government technical centralized KYC solution, has led to lower fraud or account takeover rates. Other practical examples of fintech firms strengthening their AML compliance processes with technology without disrupting customer experiences can be seen throughout the whitepaper.
Refinitiv’s AML help for fintechs
Refinitiv offers comprehensive solutions to help the fintech sector tackle AML and KYC-related challenges and meet evolving regulatory obligations, prioritize customer centricity and promote seamless digital experiences. Refinitiv’s targeted solutions include risk screening, due diligence, identity and account verification, and digital onboarding.
Fintechs must be alert, agile and innovative as they navigate the evolving regulatory landscape and balance customer service with compliance requirements. Download the full Refinitiv report to learn more about the practical solutions and strategies recommended by the fintech community to future-proof your AML compliance operations.
