Regtech could help quash financial crime, says IIF

Amid increasingly complex compliance rules, report highlights range of technologies that could help root out bad actors from finance system

Regulatory technology, or ‘regtech’, has a vital role to play in the global fight against financial crime, according to non-profit risk-management awareness group the Institute of International Finance (IIF).

In a new report, the organisation points out two areas of weakness in the global supervisory network:

  1. Information-sharing challenges – money laundering and international fraud typically aim to exploit regulatory gaps by channelling funds through multiple institutions, jurisdictions and financial constructs at once; and
  2. Rule-based flaws
  3. – global anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations have not fully removed ambiguities by leaving significant room for interpretation. That has led to fragmentation among jurisdictions and conflicting sets of requirements.

Regtech solutions, the report notes, could plug those gaps and ambiguities. This will provide stakeholders with enhanced supervisory clout, enabling them to detect and tackle criminality more effectively.

The report also notes that, with those added resources, organisations will have greater confidence that they are meeting their Know Your Customer (KYC) obligations.

Interestingly, the report highlights how key vetting challenges could be overcome with the aid of specific types of regtech, directly matching needs to solutions – such as:

  • Unambiguous identity verification and bank-client interaction Biometrics combined with deep learning, cryptography, distributed ledger technology;
  • Automated detection of suspicious behaviour on payment and client systems Machine learning, artificial intelligence (AI); and
  • Automated execution of AML/KYC investigations – eg, analysis of internal and external data sources Robotics and AI, big-data infrastructures.

The report offers stakeholders six recommendations that, according to IIF senior policy adviser Matthew Ekberg, “focus on improving the regulatory landscape for AML/CFT compliance and promoting enhanced information sharing across the financial system”. They are:

  1. close gaps in the international AML/CFT framework;
  2. improve global data-sharing policies;
  3. create a proper environment for regtech innovation;
  4. foster regulatory reliance and increase efficiencies through shared utilities;
  5. make regulation and supervision resilient to continuous technological innovation, and
  6. adjust supervisory focus as automation alters the nature of risk in the financial sector.

IIF associate policy adviser Bart van Liebergen – who authored the report – said: “Financial institutions play an important role in the process of identifying and reporting suspicious activities to national law enforcement agencies.

“Regtech solutions promise to dramatically improve the ability, speed and efficiency of financial institutions in analysing and sharing data for detecting and reporting financial crime.”

Download the full report here.

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