Stay ahead of regulatory change by automating compliance

The regulatory landscape for FinTechs is a picture of constant change, partly because of new threats, but how good are compliance automation solutions at enabling firms to keep up or keep ahead of these changes?

In recent years, changes in anti-money laundering regulation (AML) has accelerated in the financial services industry. As a consequence, compliance demands have grown exponentially. This is forcing firms to invest in new technology that automates the most time-consuming tasks involved in meeting AML requirements.

RegTech is a term used to describe innovative technologies that help financial services firms automate and manage compliance processes including AML. It works in a way that has been deemed ‘revolutionary’ by the Financial Times, Harvard Business Review, and Forrester Research. The RegTech sector has unquestionably seen widespread and rapid growth – global investments, for example, grew from $130 million in 2013 to $3 billion in 2016. This unstoppable development of RegTech makes it one of the fastest-growing areas of FinTech.

This article explores some of the major changes taking place in global regulatory frameworks for AML and KYC activity, as well as how they affect financial institutions. Also up for discussion is what’s being done to mitigate risk in financial services companies through the use of technology, and how automation solutions are helping businesses stay ahead.

The regulatory landscape

The regulatory landscape for FinTech companies is a story of constant change, not least because the threats and types of financial crime keep evolving. New regulation is introduced with a wide variety of purposes, and it alters the compliance requirements placed on financial services organisations. For example, new AML regulation was recently introduced in Canada, which aims to increase the transparency of the legal ownership and control of companies. One result is that banks must now conduct a thorough KYC investigation on company directors as well as potential beneficiaries or UBOs. The new regulations also affect businesses like Bitcoin exchanges in Canada, who now need to comply with customer due diligence requirements for verifying identities.

It’s not just Canadian firms that have had to adjust either; regulators around the world are changing their AML frameworks. For example, Singapore – one of the most competitive economies in the world – has been working on tackling money laundering and preserving the country’s financial integrity. And in 2019 the US passed the corporate transparency act designed to deliver clarity around ultimate beneficial owners of businesses.

Across the globe, AML regulation changes for financial services on an almost continual basis and staying on top of the requirements is vital. Tech should be an enabler in the adaptation process, as arguably it should make firms more flexible and agile, so responding to change is quicker. However, this isn’t always the case as firms can have cumbersome and expensive IT system to update and bring into line.

The cost of changing regulations

A Bloomberg survey says – “50 percent of respondents to a Risk Management Association survey said they spend 6-10% of their revenue on compliance costs.” For FinTechs, changes to AML and KYC regulation often call for a re-working or re-engineering of their compliance processes and systems. This can be both costly and difficult to manage because of the complex nature of the regulations and how they are applied to consumer and business customers, making the estimate above a conservative one.

Automated compliance solutions should provide an easier way to adapt to changing KYC and AML requirements – even when regulatory changes are complicated and rapid. However, the issue for many companies is not whether they have the means to meet the demands of new regulation, but how much time (and money) it will take them to do so. In essence, the tech they have can be adapted to meet the purpose, but it takes a big budget and many development hours to achieve.

Non-compliance just isn’t an option though, fines are one thing but reputational damage can be just as costly to fix.

How RegTech can help

RegTech is instrumental in solving AML and KYC compliance challenges. With the right SaaS RegTech solution, change can be achieved more easily without the burden of expensive and time-consuming development costs.

Taking a risk-based approach to compliance means it isn’t necessary to re-configuration an entire process when there are regulatory changes, making things simpler if edits or updates to a digital AML policy are required. It means implementation of changes across a firm can be faster to achieve and easier to communicate to teams.

Speaking of the professionals, RegTech presents several benefits to compliance people, including:

  • Decreased burden on staff members
  • Greater accuracy in process execution
  • Consistent application of new regulation
  • Central record keeping, audit and reporting

Automated solutions can reduce the pressure on compliance professionals who need (or have a passion) to stay up to date with regulatory changes. While RegTech does the heavy-lifting in a process by automating execution of AML checks such as digital identity verification, adverse media scanning and sanctions exposure, compliance teams can focus on understanding new challenges posed by financial criminals and how they can be solved.

When KYC and AML activity is automated, the burden of repeat tasks is moved away from compliance professionals who can instead focus on decision-making, analysis, policy changes and judgement calls.

Keep ahead with automation

It’s clear automated compliance solutions can aid FinTechs and their compliance teams when it comes to addressing changing AML and KYC regulations. In an age of digital transformation, it’s time to think about the essential characteristics of the technology chosen to support compliance efforts. The wrong tech can make adaptation harder and more expensive, whereas the right SaaS solution will help navigate a path through the changing regulatory landscape.

Automation helps FinTechs keep ahead of financial criminals by being adaptable to new challenges or threats and by reducing the burden of managing changing compliance requirements. When the right SaaS RegTech solution is used to digitally execute policies, compliance teams can adapt them more quickly and focus on the decision making, high-risk cases and where the next change might come from. Ongoing and increased efficiency in compliance management helps financial services firms deal with threats and stay ahead of them.

Get in touch

PassFort is a SaaS solution provider defining the next wave of RegTech for how FinTechs manage compliance challenges now and in the future. Join the line-up of leading financial services clients using PassFort to streamline and simplify their risk-based approach to digital AML processes.

Get in touch with the PassFort team to find out more about what its solutions offer and how they can support your company’s progress.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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