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.
So far this month, The Fintech Times has focused on compliance. Whether it be the biggest challenges facing compliance teams or exploring the role of the regulator and the impact of hefty fines, we’ve been deep-diving into the complexity of regulatory rules.
But for the firms desperately trying to stay compliant, in the midst of a huge number of regulatory shifts, how can they ensure they won’t be unknowingly caught out? To find out, we reached out to industry experts to ask them about the different solutions available that can help fintechs with their compliance efforts.
Leveraging the ‘power of ecosystems’
Sean Coyne, solutions consulting principal, treasury and capital markets at Finastra, the financial software provider, explains that cloud-based solutions may be the correct way forward.
Sean Coyne, solutions consulting principal, treasury and capital markets at Finastra
“Institutions need solutions that are highly agile and future-proof, enabling them to adapt to new demands and take advantage of the opportunities. The advent of cloud-based SaaS solutions that are quick to deploy allow firms to swiftly comply with new regulations today and in the future, with ongoing upgrades provided by a team of experts.
“Institutions can focus on deriving value from new initiatives, such as improving their internal processes in response to regulatory requirements. For example, the Basel III regulatory requirement for market risk capital charge (FRTB) contains many features that can be utilised for internal risk process, and fintechs can help with this transition by offering the right solution, fully integrated with their core treasury system.
“In such a fast-moving environment, the power of ecosystems cannot be understated. Institutions cannot navigate change by themselves, and partnering with fintechs helps to ease compliance burdens. The strategy of Finastra has been to adopt an open finance approach, allowing clients to seamlessly integrate solutions from fintechs from our partner network through open APIs, to streamline processes, better manage risk and deliver added value.”
Data security platforms
Iwona Rajca, solution engineer EMEA at Protegrity
“Regtech offers the opportunity to lower cost and risk at the same time by outsourcing to specialists and benefiting from best-in-class compliance,” explains Iwona Rajca, solution engineer EMEA at data protection firm Protegrity. “Regtech solutions tailored for compliance empower companies to automate, streamline, and elevate their regulatory processes, dramatically reducing the risk of non-compliance.
“This ensures that regtech can confidently navigate the complexities of highly regulated environments, allowing them to focus on innovation and growth. There are effective, comprehensive data security and privacy platforms that relieve the burden of compliance by continuously classifying and discovering data.
“Through these platforms, sensitive data within the scope of regulations never goes undetected. For example, Protegrity’s data protection methods enable fintechs to control the method of protection and to combine methods to match the sensitivity of the data and its use.”
Integrated digital compliance platforms
Phil Cotter, CEO of SmartSearch
“Integrated digital compliance platforms enable a wide range of organisations, including fintechs, to avoid doing business with fraudulent individuals or entities and, importantly, meet their compliance obligations,” said Phil Cotter, CEO of digital compliance and anti-money laundering expert firm SmartSearch.
“Such platforms can enable access to trusted data sources for the purposes of Know Your Customer, Know Your Business, Identity Verification, Politically Exposed Persons (PEPs) and Sanction screening and fraud prevention, through a single API.
“This helps fintechs to systematically embed their risk management and compliance policies into their onboarding and ongoing monitoring workflows. As a result, they are able to comply with their internal risk policies whilst also meeting their compliance obligations. Properly designed, these solutions can also provide an enhanced customer onboarding process through a streamlined digital process. Finally, such systems also provide an audit trail of how policies were implemented, and decisions were made, providing easy access to vital information when undergoing audit by a regulator.”
Automating back-office functions
Automation could go a long way in helping fintechs ensure compliance, explains Tiago Veiga, CEO at Aurum Solutions, a reconciliation software specialist.
Tiago Veiga, CEO at Aurum Solutions
“Fintechs often face compliance difficulties when they try to run before they can walk; many are so focused on delivering cutting-edge customer experience and new, innovative features that this can come at the expense of proactively investing sustainably in the back-office. This can be problematic for fintechs, especially when back-office infrastructure is vital to meeting regulatory requirements around the protection and ring-fencing of client funds.
“Given that these back-office systems are responsible for safeguarding client money and preventing fraud, it is vital they are developed in tandem with front-end technologies to meet evolving regulatory demands. Investing in reconciliation through automation software should be the first port of call for fintechs wanting to create robust back-office and comply with regulations.
“This is because reconciliation largely affects the entire accounting ecosystem; if a regulator spots an issue with failing to reconcile accounts properly, it is highly likely that they will identify other instances of non-compliance once a formal review or investigation begins. Automating back-office functions is therefore key to not only avoiding fines and penalties, but also ensuring that a firm’s entire operations do not get upended.”
Identifying the right combination of tools
As Evelien van den Arend, head of compliance and regulation at Komainu, a digital asset custodian, explains, there is no ‘one-size-fits-all’ solution when it comes to compliance.
Evelien van den Arend, head of compliance and regulation at Komainu
“One of the biggest challenges fintechs face in achieving compliance is navigating the overwhelming number of solutions available in the market. Many providers overlook that firms have established processes, policies, and procedures that are intricately tied to certain tools, making it far from a simple ‘plug-and-play’ scenario.
“It’s important to remember that no single solution can address all compliance needs, so the real challenge lies in identifying the right combination of tools that most effectively aligns with a specific business model and client base. While there are many solutions available, success ultimately depends on carefully selecting those that best fit the unique needs of the organisation.”
High-quality data management
“One of the biggest challenges facing compliance teams in the financial sector are the complex regulations associated with the Financial Conduct Authority’s CASS 7 rules,” adds Murray Campbell, product manager at AutoRek. “These rules govern the handling of client money – necessitating detailed daily reconciliation and imposing rigorous reporting demands. Compliance with CASS 7 is widely recognised as a costly aspect of doing business and one with material regulatory scrutiny.
Murray Campbell, product manager at AutoRek
“Data transparency is critical, especially when demonstrating the robustness of the reconciliation process during audits. However, managing vast amounts of disparate data can complicate this challenge. In fact, more than nine in 10 asset managers acknowledge a significant reliance on manual processes for reconciliation procedures. Spreadsheets, while familiar, are often inefficient, prone to human error, and lack the robust audit trails necessary for compliance. Relying on these outdated methods complicates compliance efforts, as the data management requirements of CASS 7 far exceed the capabilities of manual processes.
“To navigate these challenges, high-quality data management is essential. Investing in advanced technologies can facilitate data validation, ensuring the accuracy and integrity of information. By automating the internal client money reconciliation (ICMR) process, financial firms are equipped with the necessary tools to navigate complex regulatory environments, enabling them to not only meet regulatory demands but also to thrive in a competitive market.
“For instance, with the impact of automating repetitive tasks like data entry, reconciliation, and reporting, organisations can significantly reduce the risk of human error, leading to more accurate and reliable financial records. Investing in automation technologies is not just about regulatory compliance; it’s about building a stronger, more resilient, and future-ready financial organisation.”
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