How can fintechs help combat financial crime?
According to United Nations Office on Drugs and Crime (UNDOC) “the clandestine nature of money-laundering” makes it quite unachievable to accurately estimate the total amount of money being laundered every year globally. However, with the figures hovering between $800 billion to $2 trillion, financial crime continues to pose one of the largest systemic risks to the global economy. Whilst an average large bank spends US$1 billion annually trying to combat them, estimated annual cost of money laundering and associated crimes is between US$1.4 trillion and US$3.5 trillion. Incurred
What is fincrime or financial crime and what are the solutions to it?
Digital assets have facilitated the rise of ransomware cybercriminals, narcotics sales and money laundering for drug trafficking organisations; and the funding of activities of rogue regimes.
In order to counter fincrime, the US has been taking proactive steps. According to the recently published framework for Responsible Development of Digital Assets, the Whitehouse is considering amending the Bank Secrecy Act (BSA) and other laws to make them applicable on digital assets. It will also continue to monitor the digital assets sector- its development, associated risks and identify gaps in their legal, regulatory, and supervisory regimes, whilst the Treasury will enhance dialogue with the private sector to ensure that firms understand concerned statutes, share data and encourage the use of emerging technologies to comply with obligations.
Issues with KYC/AML
KYC/AML are critical tools in banking’s fight against fincrime, which are further being applied to the digital asset ecosystem. However, the pace of financial crime is relentless, furthermore being alleviated by customer trends toward more digital banking solutions, resulting in constraints to current KYC, AML/ CFT operations:
- Traditionally KYCs are done in isolation, which is inadequate to address its broader financial crime remediation efforts.
- There is unmet reliance on access to high-quality data about customer accounts, products, transactions, and more
- KYC programs are expensive and despite investments, lengthy delays are caused by slow operational processing, which is costly to businesses
- Risks multiply with increased timelines and costs
- There is existing bulk of KYC remediation backlogs
The challenges before banks and financial institutions are greater now in how it identifies legitimate customers while blocking fraudsters. Present solutions can only do little to protect the bank against this significant, growing risk exposure. There is clearly an urgent need to find ways to make KYC processes more efficient and effective.
Optimising KYC/AML processes
Banks recognise that they need to future-proof themselves by partnering with fintechs that can protect, transform, and help grow business. While crime with roots in tech is on the rise, fintechs are exclusively better placed to combat fincrime. With automated KYC/AML operation, Open Banking and other tech enabled services, fintechs can assist banks and FIs in weaving in missing pieces of data, enabling frequent verification and upgradation to ensure that companies are fulfilling regulatory compliance requirements.
- By working in partnership, banks and FIs would be able to accelerate and better integrate a more agile and stable, cost-effective KYC process. Moreover, this initiative would aid in clearing their backlog, cutting down costs, enhancing efficiency, and transitioning towards a growth-oriented agenda.
- Open Banking/ Open innovation helps automatically collate internal, external and trusted customer data into a single view for an analyst to review and identify any potential financial crime risks.
- Workflow automation tools handle the entire customer onboarding process, including data collection, identification and verification; screening and disposition; and ongoing operations monitoring.
- With the scalable enterprise cloud platform and digital technologies to transform large-volume KYC operations, the stress on internal resources including manual input, is minimised significantly and the data quality and computational capacity is enhanced.
- Analysts are freed to identify potential financial crime threats
- Fintech platforms also support a customised deployment architecture, based on a microservices design approach, which provides flexible, rapid deployment and simple integration with incumbent enterprise solutions.
Furthermore, fintech partnerships bring deep business and industry insights, that are of value in reframing the sector’s battle strategy against financial crime. Banks and FIs have also been orchestrating techsprints or hackathons to explore new approaches of looking at KYC, and approaching the challenge in a way that is quick, secure, reduces risk exposure and can be modified to be country-specific as well as globally applcable.
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