With the continuously developing technology, digital banking has surged, eventually replacing traditional banking functions. However, technology innovation demands a deep understanding of compliance management and regulation. 

70% of the fintech firms reported that the pandemic has increased their reliance and dependency on technological solutions, showed an improvement in efficiency, greater transparency in decision-making, and cost reductions.  

Credit unions and financial institutions collaborate with reputed Fintech companies to accelerate their process to offer convenient and quick access to customers to an array of banking services, including automated online payments, fund transfers, personal loans, investments, and more. The institutions aim to enhance their customer experience with modern and innovative solutions, surging up the additional compliance considerations and risks of financial institutions. 

Compliance Management

 

Risk & Compliance Management

There are ever-increasing risks for the financial institutions that need to be effectively managed from compliance risks and money laundering risks. The risks beginning with Know your customer (KYC) compliance, Anti-Money Laundering (BSA/AML), OFAC Office of Foreign Control), and all other beneficial ownership related collected pertaining to business accounts.  

Developing technologies, robotics, AI, ML are becoming the core elements of customer interactions and fintech’s solution portfolio. To impress regulated firms, banks and financial institutions & work on their needs, many fintech molds and optimize their business strategies. All these optimizations lead to the evolving fintech risk management functions and ultimately pave the way for ongoing regulatory and financial market developments. 

 

  • Cross Border Transaction 
  • Speed of Transaction 
  • Data Security 
  • Privacy 
  • Anti-Laundering  

 

Regulatory risk 

For financial institutions, regulatory compliance is an immediate concern that needs to be addressed. According to the OCC (Office of the Comptroller of the Currency) paper, “vision for responsible innovation in the federal banking system” Stating the consideration and management of risk assessment and impact of fintech on the traditional financial institution’s operations.  

This initiative opened up new avenues for the fintech world for their collaborate with regulators to work on the solutions specific to the offered product/solution to the regulation. As aforementioned, banks must develop a robust and secure compliance foundation from the beginning of a fintech partnership to achieve robust risk and compliance capabilities. 

Having said that regulatory risk is an immediate concern for financial institutions that partner with fintech companies. Fintech products are changing the game for the financial services industry at an incredible rate, and lawmakers cannot keep up.  

Since it could take years to modify banking regulations to accommodate fintech products, regulators are carefully examining fintech relationships to ensure financial institutions are still in compliance with traditional banking regulations.  

Banks must build a strong compliance foundation at the start of a fintech partnership to prepare for increased scrutiny from regulators. FinTech’s continue to gain attention and momentum from the regulators. It’s vital to measure effective risk and compliance management before non-compliance becomes apparent to the regulators and public. 

 

Unanticipated Risks

Every day, new technology or solution is born to overcome the customer’s problems and enhance their customer experience. With any new product, unexpected risks are ever-present. Therefore, fast-growing companies need to gain experience working with regulators and regulations. A well-structured processing system that can organize, defragment, manage and control the entire processing and activities is a must-to-have. 

Reputational Risk 

Whenever a new product is launched in the market, financial institutions and fintech companies need to look for every compliance check before investing time and resources. As a matter of fact, one single misstep can result in reputational risk affecting the credibility and bottom-line for additional business and products in the market.  

Apart from this, OFAC (Office of Foreign Asset Control) verifications need to be addressed to block transactions and accounts of specified individuals, entities, and countries mentioned. Let’s say a business, ABC Pvt Ltd wants to transfer money from offshore through the U.S. bank route.  

But the beneficiary party is counted under the OFAC designed verification; it must be blocked. The technology increases the risks for certain transactions that need to be screened against the OFAC verifications to mitigate any unforeseen risks. 

In fact, according to CDD (Customer Due Diligence) rule, financial institutions have to develop proper risk-based strategies before conducting customer due diligence. It incorporates the procedure to understand the nature and purpose of the customer relationship to develop a customer/member risk profile, identify and report suspicious transactions. 

Strengthening and developing the regulatory compliance program need proper support, time, and energy. The financial institutions and fintech must identify the current and future compliance regulations to mitigate every associated risk. Honestly, developing regulatory compliance and risk-free infrastructure is just like building a mirror house.  

Take Notes! 

If your foundation is not so strong, it will eventually collapse, leading to massive loss. Invest in a developed solution that works according to the regulatory compliance and scans every message or file subjected to validation, filters, sanctions screening, AML, and PDM check.  

Monitor payment patterns over any period to identify suspicious activities, violation of usage rules, unusual movement of money, balance enquiries, deposit and withdrawals etc. Track payer and payee behaviours for profiling and monitoring. Take the time out to properly articulate future regulatory risks and incorporate them into your risk management program. 

 

Meet our Reliable Compliance Management System 

ECS Fin compliance expertise offers end-to-end advisory and processing services for all the regulatory functions from governance to financial regulatory compliance. We also work to enhance the overall performance of your operational business and alerts you every time for any malfunctioning to enhance efficiency. Our solution delivers a unified and streamlined view of the global regulatory environment to make informed decisions to manage regulatory risk confidently. We also aid corporates, capital markets, and financial institutions to comply with all the regulatory compliance. Contact us now!