2024 is proving another standout year for the regulatory space, finding itself under the spotlight, for better and worse reasons. This month, The Fintech Times will look at some of the biggest issues regarding compliance and financial rules, as well as the solutions hoping to ease the compliance journey for firms and make the fintech world fairer and safer.
Throughout this month, we have explored a plethora of regtech-related topics, including the challenges facing compliance teams, how AI can automate compliance processes and what more (or less) the regulators should be doing. But another important area to consider is collaboration, between the financial institutions and regulators that many consider to be poised against one another.
If working together was easier or more encouraged, how much more of an impact could both parties have in fighting against financial crime? To find out, we sat down with industry leaders to get their take.
Eric Hussey, global chief information security officer at financial software company Finastra
According to Eric Hussey, global chief information security officer at financial software company Finastra, collaboration is the only way to ensure positive results in industry-wide efforts to clamp down on financial crime.
“Resilience across the financial sector is driven through high velocity, agile capabilities that are enhanced through collaboration between financial institutions and regulators.
“This strengthens the fight against cybercrime by enabling real-time information sharing, coordinated responses to threats, improved compliance, and the development of uniform standards. Only through this close and ever-evolving relationship will we continue to yield positive outcomes.”
Ensuring clear guidance
Jessica Cath, head of financial crime at compliance consultancy Thistle Initiatives, also explains the benefits of collaboration between financial firms and regulators, pointing out the clear impact that guidance can have on firms struggling to balance priorties.
Jessica Cath, head of financial crime at Thistle Initiatives
“An ongoing, collaborative approach between financial institutions and regulators will lead to a more agile, responsive, and effective system for combating financial crime. Financial institutions are keen to get financial crime compliance right, but balancing competing priorities in an increasingly challenging market is tough. This is why support from regulators is crucial. By providing clear guidance, regulators can help firms prioritise effectively and build controls for a changing risk landscape.
“Information sharing regarding common industry weaknesses is key. If a regulator is continuously seeing ineffective anti-money laundering or know-your-customer procedures, for example, sharing this information can ensure that firms control frameworks continue to improve.”
‘No silver bullet’ for an over £200million problem
Grigory Yusupov, regional director, UK and ROW at IDnow
For Grigory Yusupov, regional director for UK and the rest of the world at identity verification platform IDnow, collaboration is the only way the financial sector will see a net positive result against fraud.
“Enhanced collaboration within the financial and regulatory sector is paramount to fighting the fraud epidemic that has been plaguing the UK for too long. Losses due to Authorised Push Payment (APP) scams alone totalled a staggering £239.3million in the first six months of 2023.
“Collaboration is critical as technology alone cannot eradicate fraud. In fact, there is no silver bullet for fighting fraud; it is something that manifests at every online touchpoint, affecting individuals and organisations equally. The key will be for institutions and regulators to work together to identify the surging forms of cybercrime and devise ways to combat them through technology and education.”
Should firms be sharing insight?
“A closer collaboration would help to avoid working in silos,” explains Gerben Schreurs, partner at the Forensic Risk Alliance, a forensic consultancy which advises companies and law firms on corruption, sanctions and bribery matters.
Gerben Schreurs, partner at the Forensic Risk Alliance
“Currently, most institutions try to detect and mitigate financial crime based on their own information (KYC and transactions). This will always be just a single perspective on potential financial crime which, in most cases, is thriving by using more complex structures and multiple layers to succeed.
“If a regulatory landscape would be created that allows for sharing insight between institutions and regulators, there would be a new world of opportunities to detect financial crime and unravel complex transaction flows by having the different data points available. In some countries, pilots are being held with a form of centralised transaction monitoring in a public-private partnership.
“These types of developments should be monitored closely, and the lessons learned from these initiatives can contribute to a more effective fight against financial crime.
“This should also be accompanied by a culture shift where the regulator is only there to ‘punish’ an institution when not fully complying with FCC standards into a reality where forces are joined to learn and improve with the goal of fighting the financial crime at the root and not spend time on defensive filings and formalities.”
Compliance is a ‘competitive advantage’
Finally, Krishna Subramanyan, CEO of Bruc Bond, a Singapore-headquartered and licensed fintech, breaks down how regulators could better support fintechs through collaboration.
Krishna Subramanyan, CEO of Bruc Bond
“Financial integrity thrives when regulators and financial institutions collaborate. Although it may be indirect, transaction monitoring and reporting is one key example in the way it aids the exchange of information among cooperating Financial Intelligence Units (FIUs) across the globe.
“Remote verification for onboarding is an example of this need for financial institutions and regulators to collaborate. Fintechs, by the very nature of their clients being located across borders, rely heavily on remote identification providers. However, the risks of extensive use of remote verification are heightened in an environment of deep-fakes and other threats. It would benefit the safe and certified use of emerging technologies if regulators could assist fintech innovators in this space.
“Regulators can play a vital role by providing regulatory sandboxes and benchmark databases. These resources would help reduce false positives across diverse demographic groups for challenging scenarios such as twins; age-separated target images and videos; and deep-fake videos and stills.
“Regulators must endeavour to create secure frameworks for benchmarking the effective application of AI and ML for these and other typologies they are familiar with. Financial institutions, in turn, need to view compliance not as a cost centre, but as a competitive advantage that helps them stay several steps ahead of threats by collaborating with their regulators through early adoption of such frameworks.”
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