From Onboarding to Communications – Compliance at Every Step

While global FinTech investments reached $44B USD in 2020 – an increase of 14% from 2019 – the introduction of innovative products and services around the world simultaneously increased the demand for new regulatory laws.  New products always bring a certain level of risk and this is especially true for financial firms who are held to a high standard of compliance.  These institutions, both traditional and digital, must conduct heavy due diligence and risk management procedures to ensure there products are used legally and not as a means of facilitating criminal activity.  As the legal landscape consistently changes to keep up with the pace of innovation, it’s important now more than ever that companies understand how their new technologies fit in to both existing and new regulatory framework.

Many of the concerns for regulators revolve around inefficient anti-money laundering (AML) and know-your-customer (KYC) laws.  Both sets of laws aim to reduce illegally obtained income and to verify the identities of their clients to prevent fraud and other criminal use of funds.  In the case of digital assets like cryptocurrency, for example, U.S. exchanges with demonstrably weak KYC policies are responsible for moving 33% of cross-border Bitcoin volume.  Rather than ban digital assets which hold numerous positive use cases, regulators are strengthening the KYC requirements to target these weak exchanges.  However, many feel that KYC data, especially when obtained solely through onboarding, is no longer sufficient to prevent money-laundering and fraud.  A more granular approach called know-your-transaction (KYT) focuses on real time data – such as purpose of payment information or transaction frequency – which can help reveal patterns and trends used to disguise illegal activities online.  KYT is a relatively new concept that has yet to be fully adopted by all financial institutions.

Due to the evolving-nature of the regulatory landscape, companies across the globe are spending an increased amount of time and money to ensure their compliance.  In North America, the cost of financial crime compliance in 2020 rose to a projected level of $42B USD, topping the cost of 2019 by 33% according to LexisNexis’ annual report.  When broken down, this translates to a 55% average increase in annual costs per organization.  While these costs are distributed slightly higher to KYC activities compared to monitoring and investigations, AML compliance management was not far behind.  Luckily, companies who invested more of their compliance budget into technology saw lower year-over-year costs than those who didn’t.  This trend is expected to continue as Bloomberg predicts the global RegTech market size reaches $55.28B by 2025, expanding at a compound annual growth rate of 52.8%.  In the same amount of time, the global AML solutions market is predicted to grow from $2.2B to $4.5B USD.

In addition to the operational costs required, companies face the indirect impact of compliance on productivity, business growth, and customer acquisition.  A LexisNexis study of the Asian market showed that most firms in the region suffer from slow onboarding times, with only 15% of respondents completing mandatory Customer Due Diligence (CDD) in less than one hour.  In addition, over 90% of firms require at least an hour to process and clear any type of alert raised.

In the Pursuit India 2021, one of the largest RegTech, Compliance, AML and Cybersecurity events in the world, which was hosted by the Internet and Mobile Association of India last Thursday under the title – Combating Financial Frauds with Technology, I had the pleasure to host an Israeli focused trialogue under the title ‘From Onboarding to Communications: Compliance at Every Step’ to showcase very interesting RegTech solutions from the scale-up nation.

TeleMessage was one of them, which serves as an example of a successful RegTech vendor in today’s everchanging regulatory landscape. TeleMessage’s primary function is to capture and archive mobile content from corporate or Bring-Your-Own-Device mobile phones to ensure compliance with data regulations. The data archives that TeleMessage compiles provide records for regulatory bodies for audits or regulatory checks. This content, whether it be SMS or MMS messages, voice calls, or Mobile chat over other platforms like WhatsApp, WeChat and more, is securely delivered by TeleMessage to the financial firm’s archiving, and surveillance servers. Having been named Best RegTech Solution by Finovate Awards in 2020, TeleMessage supports hundreds of companies in their efforts to remain compliant while allowing their employees to interact with clients through mobile communication channels.

Israeli identity management company AU10TIX is another company that was hosted as part of the trialogue, that offers such cutting-edge regulatory technology. AU10TIX provides the world’s only100% automated ID authentication and onboarding service, featuring forensic-level fraud and risk detection, fitting KYC-regulated companies.  At 8 seconds or less to verify an identification document, AU10TIX is over 20 times faster than any other verification solution, making it the fastest KYC onboarding service out there. Forensic-level authentication enables detection much more sophisticated types of fraud, those that are nor visible to the eye. Coupled with the Instinct “Mafia attack” detection capabilities, this multi-layer defense poses a serious challenged to professional fraudsters. This adds to smart Selfie-to-ID matching with Passive Liveness Detection taking place in the background while the selfie is captured. As different laws and sets of regulations continue to develop and change, AU10TIX adapts with advanced, AI-enhanced technology solutions that are capable of handling high variability in ID document types, face types, and image qualities.

Last Thursday, we had the opportunity to hear from Ofer Friedman – Chief Business Development of AU10TIX, who forecasted a colossal fight over the ownership of identity. The clash is between governments, who are supposed to own their citizen’s identity credentialling, and commercial platforms such as social and payment giants who are taking action to own it.  Friedman’s takeaway: “Invest in identity, as Dave Birch labelled it: Identity is the new currency.”  Ultimately, it will be a question of standards – what identity is, how it’s used, and how it’s shared – for which nobody knows the answer.

We also had the chance to hear out Guy Levit, the CEO of TeleMessage, who mentioned that the future of innovation in the field of anti-fraud and cyber security is also shrouded in mystery and can only be answered by asking: Where are the fraudsters going to be in five years?  As they are usually a step ahead, the industry is often a game of cat and mouse.  For now, both Levit and Friedman agree that the focus is on building a user experience that makes sense for the customer.  Whether it’s enabling them to communicate through their preferred channels or providing a customer journey without bottlenecks, the customer experience is something that cannot be underestimated.

As the FinTech industry continues to develop, companies will be required to act flexibly with the changing regulatory landscape.  Companies who give their chief compliance officers sufficient oversight of the company’s operations as well as the power to make decisions will be better positioned to adapt to these changes.  In addition, embracing RegTech can help decrease future compliance costs while freeing up other resources to focus on the core business.  Although remaining compliant in the financial industry may appear costly, it’s an essential part of conducting legal business and stopping criminal activity in a warzone that was shifted be to almost fully digital.


By Nir Netzer | CPA (LL.B, MBA) |

Founding Partner at Equitech Group | Chairman of the Israeli FinTech Association – FinTech-Aviv |

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