AML Compliance For Everyone: A RegTech Webstore that enables FinTech’s Financial Inclusion

Jose Caldera
Sep 11, 2018 · 7 min read

The IdentityMind RegTech Webstore offers anti-money laundering (AML) capabilities accessible to every FinTech and Financial Institution worldwide to jumpstart their AML compliance program cost-effectively.

A follow up to this story is available here

I started working on compliance solutions because it was an obvious application of our core technology and philosophy of digital identities. I didn’t know much about compliance when I started (I had been working on computer and network security for over 15 years ), but I quickly realized that the principles weren’t too different. Fast forward 10 years and here I am, still learning.

I should say at this point that when I say compliance I am referring to anti-money laundering compliance. And more specifically, about specific functions of AML: know your customer and know your business (KYC/KYB), enhanced due diligence (EDD), sanctions and PEP screening, transaction monitoring to detect suspicious activities and transaction monitoring for fraud detection and prevention.

There were many things that resonated with me from the get-go, and some others I’ve learned along this journey. The following observations are some of the things I have learned and I will list them because they are going to be important to support the actual point of this article, so bear with me.

1) While compliance is about meeting regulations, there is a deeper motivation: To catch the bad guy. The satisfaction of compliance officers and analysts in uncovering a complex money laundering scenario and being able to point to the perpetrators is inspiring. I have seen it.

2) Being compliant and meeting regulations is not black and white — you can implement a simple program and get by, you can implement a very complex and sophisticated AML program and still meet the same regulations, and yet with either program you may miss something important. There is always room for improvement.

3) There is an important balance between the operational cost of executing an AML program and the scope and depth of the program itself. Spending more money in compliance operations isn’t necessarily better.

4) Traditional financial institutions have very large teams that deal with compliance, where most functions are siloed — some by design, some by organic growth — and most are more reactive than proactive. In contrast, FinTech compliance teams are smaller and are able (and sometimes willing) to adopt technology faster, making them more efficient.

So let’s get to the point… or at least start to get to the point.

To me, and to many, the most relevant aspect of FinTech is financial inclusion: how to provide financial services to demographics that have been neglected (think low-income people) or set aside (think people in tiny towns or deep in the countryside) or simply not-well-serviced (think Millennials) by the traditional financial system. Everybody has read and many have written about the explosive growth of FinTech, so there is no need to expand on it here. FinTech covers many different financial services, including payments, API banking, remittances, virtual currencies, P2P loans, crowdfunding, etc. All of these services have many things in common: the requirement for AML compliance.

The use of FinTech applications to launder money has been well documented, perhaps even overhyped as a very large majority of money laundering still happens through the traditional financial system.

But the reality is that most (all?) FinTech services do need to comply with AML regulations (assuming it is located in or servicing customers in a country/region with AML regulations).

Most of FinTech is driven by entrepreneurs, and many are driven by young entrepreneurs. Many of them have never been exposed to regulations before, and many face the regulatory realities late in the process. So when facing these, many find themselves scrambling to put a AML program in place. Keep in mind that their focus is to offer a financial service, but no matter how well-intended the services are , they may get abused by bad guys. So yes, they do need to take this seriously.

As I mentioned before, FinTech applications are often aimed at demographics that are not well-served by the traditional financial system. That means there is less information about the individuals in those demographics, which in general implies higher risk — and higher risk implies higher cost of operations. Why? Because in order to be compliant, you have to follow a set of steps to establish both the risk and the identity of the users of financial services.

Now, FinTech applications are usually broad in scope, they offer services worldwide… and worldwide services imply multiple jurisdictions, and each jurisdiction has its own regulatory requirements. They are all relatively similar in principle, but they still require local knowledge, and there is reasonable overhead in keeping compliant with all of them.

Putting an AML program in place, therefore, isn’t simple. It is expensive or it can be, and even more so when you don’t know much about it.

We, at IdentityMind, have been working with these companies for years now. Most of our 350+ clients worldwide are FinTechs, many of them well and fairly represented in this article. They all have a fair understanding on the need of complying with regulation in common. We admit that we have a skewed view because if they didn’t want to comply with regulation, they wouldn’t have approached us in the first place.

So, we are trying to solve the problem of how we can enable FinTechs to achieve their fundamental goal of providing financial services and achieving financial inclusion while complying with regulatory laws worldwide and cost effectively.

Our current SaaS platform has been serving this purpose well, providing all required functions for AML through APIs and/or through our user interface. Our clients perform global KYC/KYB, transaction monitoring both for AML and fraud, manage the operational workflow with case management and regulatory reporting, and take advantage of advanced analytics based on big data statistical analysis and machine learning for anomaly detection, etc.

But there are other realities about FinTech businesses, especially young ones. It is hard to actually predict when you are launching your product, it is very hard to project adoption and growth, and yet you have to have all of the compliance program in place. That implies adopting technologies like ours, and therefore commitments that may be difficult to get into when there is uncertainty.

On the other hand, new companies are accustomed to self service, they expect support on-demand, and the line between product owner, developer, and business owner is fuzzy — it is all intertwined.

Customer acquisition in the digital world is all about user experience, and that implies that compliance and risk officers have to work side-by-side with product owners and business managers. These decisions are all important for a business to succeed.

That is why we have created the IdentityMind RegTech store.

Within our RegTech Webstore you can choose what regulatory function you need to solve. Each function is delivered in a self-contained container — we call these “RegTech Plugins” — you can think of them like apps. Within the store you have the ability to fully test the functionality — try before you buy, build everything you need without any commitments, and only execute when you are ready to do so.

The RegTech Webstore will also provide videos and learning material to foster cooperation among developers and compliance and risk officers to share their experiences and the use of technology to meet their regulatory needs.

In addition, the Webstore comes with on-demand access to customer support, and the ability to schedule one-on-one time with a specialist when necessary.

In terms of payments, it works simply with a credit card, and shortly with other forms of payments like cryptocurrencies, PayPal and others. As any modern store of micro services, the IdentityMind Webstore offers full transparency as to how the money has been used depending on the services and the model chosen.

What is available in the IdentityMind Webstore today

The IDM Webstore is open for business.

Today, you can start by using either our KYC plugin or ICO plugin. Each of these enable organizations worldwide to create a customer onboarding experience that includes identity validation, document validation, face match, identity risk analysis, etc. We already have 100+ clients using our plugins for their KYC compliance needs worldwide. The plugin directs the user through a set of dynamic steps to collect the regulatory required information depending on the applicable jurisdiction. And in the backend, it packs a set of preconfigured rules as required for each of these jurisdictions. It takes less than 30 minutes to create and configure a fully functional KYC experience. The plugin is accessible through a URL that is embedded into your web application.

Each Know Your Customer level has its own set of capabilities to adjust to your regulatory needs. If you want to model different user experiences depending on your needs you can create different instances and manage them all through the Webstore.

Instructional videos and onboarding materials are available with much more to come, as well as several pricing models.

What is coming to the IdentityMind Webstore

We are starting the IdentityMind RegTech community shortly. We will be adding additional plugins: KYB (know your business), transaction monitoring, sanctions screening, case management, and advanced analytics to be rolled out within the next 12 months.

Compliance for Everyone

The IdentityMind RegTech Webstore is unique: it is the first actual on-demand store for regulatory functions. It enables clients to have access to state of the art anti-money laundering technology cost-effectively. No matter how small you are, you can access all the advanced analytics and detection that big banks have, in an on-demand fashion. It meets all the regulatory requirements worldwide associated with KYC, sanctions screening and transaction monitoring. It enables you to be proactive and be prepared for when regulators come knocking at your door.

The IdentityMind Webstore truly makes AML compliance accessible to everyone.

A follow up to this story is available here

Entrepreneur. Product owner. Marketing nerd. All things security: KYC, AML, Payments, Crypto, Network, Computers.

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