Innovation. Partnership. Outreach & Education. When you think of a regulatory agency, these may not be the words that spring to mind, but they were key themes at the North America track of the ACAMS Anti-Financial Crime FinTech Summit. Across all of the sessions, the message was consistent and clear: regulators are focusing on enabling fintechs and helping them ease the regulatory burden, even as anti-money laundering laws around the world are being strengthened and expanded.
Here are some of the main takeaways from the conference.
The North America session included representatives from FinCEN, the OCC, the Department of Finance Canada and the Federal Reserve Board. They walked through the highlights of the latest AML laws, but much of the discussion was centered on innovation and cryptos. They reiterated that if you are doing money transmitting activities, including virtual currency, you are a money service business (MSB) and must have an AML compliance program in place.
The agencies are looking to encourage innovation in ways that also protect privacy. For example, they talked about how they are all collaborating — with each other and with businesses — to create a “regulatory perimeter” around crypto by sharing best practices, focusing on the right risks and working toward a common understanding of what that perimeter should look like.
Of course, you can’t talk about innovation without also discussing technology. Although they were all careful to point out that they must remain technology-neutral and not create unfair competitive advantages, regulators are actively looking at ways they can help companies understand the types of technologies they can use to shore up their AML efforts.
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For example, FinCEN is trying to identify better ways to use artificial intelligence (AI) and machine learning (ML) in identity tools and dynamic real-time risk assessment to enable companies to meet their regulatory obligations in a more efficient way. At the same time, the OCC acknowledges that many banks still use largely manual processes, and instead of pushing AI/ML on banks, they will take a principles-based approach in their guidance.
Bottom line: Regulators fully recognize that enforcement of laws is only one part of the battle against financial crime. They are actively partnering with businesses to help enable them with the best practices and tools they need to win the war. Companies should embrace these relationships to make sure they’re meeting their obligations, and in particular they need to evaluate whether they meet the definition of an MSB. They should also make sure they are up-to-date on the latest laws and regulations.
Funding of Domestic Terrorism
The speakers in this session were representatives from the Office of Terrorist Financing and Financial Crime, the FBI and Homeland Security Investigations. They underscored the importance of our fight against financial crime and the real impact it has on people’s lives. Tracking the financial activity of a suspect can help to determine whether they were at the scene of a terrorist event, and it can also show intent. For example, a person might sell a truck to raise funds that they then use to finance the terrorist activity.
Know Your Customer (KYC) is critically important to protecting your business and keeping criminals out of the financial system, but it’s also important to protect the privacy of individuals and not violate constitutional rights. Be sure to use a KYC solution with proper security technology and safeguards.
The speakers also talked about the importance of partnering with your regulatory agency. Thousands of suspicious activity reports are filed every year, and it’s very helpful when compliance officers pick up the phone and alert the agency if there’s one in particular that stands out. They also suggest proactively developing a relationship with your local agency and not meeting for the first time in a crisis.
Bottom line: Your AML compliance program can actually help save lives. Develop a relationship with your local regulatory agency so you can work in partnership. And be sure your KYC solution is safe and secure.
Coping Strategies for Fintechs
After hearing from the regulators, it was interesting to get the perspective from the business side. This practical session featured compliance experts from Ant Group and PayPal. The key message was the same: regulators provide guidance and education, and businesses should focus on treating them as allies and a resource. But it’s also important to establish that relationship early to help regulators understand your business so they can be better partners to you.
The speakers gave some excellent advice on building your compliance team. In particular, look for candidates who exhibit curiosity and approach problems with solutions. You need people who will pull the thread but also know when to stop. New graduates who don’t have experience in banking but have experience as users of fintech products like PayPal and Venmo are often great candidates, as they can have an easier time learning the money laundering typologies. They pointed out that real case studies are an important training tool. Even though these studies can’t include actual details of a suspicious activity report for privacy reasons, they can educate people about typologies and how you’re monitoring for certain risks.
They also talked about the culture of compliance versus the regulatory burden and how some organizations look at compliance simply as an expense instead of recognizing it as an asset. This important cultural shift must begin with senior management. A compliance officer has to be a people person who builds relationships but should also have a direct line to the board of directors and know when to escalate. Compliance can be expensive, but the distribution of those investments are shifting toward data science, machine learning and software solutions that streamline compliance and require less human review.
Bottom line: A strong compliance program is essential to your business and needs to be part of the culture from the top down. Partner with regulators from the very beginning to make sure you’re meeting your obligations and following best practices, and to ensure the regulators understand your business. And choose case management software that streamlines the process to maximize efficiency and reduce operational costs.
The day finished with a great discussion on the future of compliance for fintechs and the challenges they face. Simply put, fintechs are no longer flying under the radar, and although innovation is often about breaking the rules, you need to understand the regulatory environment before you build anything. Compliance programs may seem expensive, but the up-front costs are a lot cheaper than navigating a regulatory investigation. And regulators are actively trying to help financial organizations use technology to improve their systems and should no longer be viewed as a barrier. So embrace a partnership with your regulator; they truly want to help you.
Similarly, choose your AML compliance solution wisely and look for a vendor who treats you like a partner, not a paycheck. Collaborative compliance isn’t just a catchphrase; it’s the principle that Jumio lives by every day. To find out more about how we help fintechs at every stage of growth, contact us here.