RegTech May Help In DeRisking Countries
Some policies that have been put in place to counter financial crimes have unfortunately had a chilling effect on banks’ willingness to do business in markets perceived to be risky – in part due to the high price of compliance,” says Vijaya Ramachandran, senior fellow at the Centre for Global Development and one of the study’s authors.
But, pointing to the new study, he says “regtech may be the solution to some de-risking woes”.
“What we’re seeing is that even as these policies are having an impact, financial institutions are coming up with solutions in the form of new cutting-edge technologies to help them comply better and faster with AML regulations,” Ramachandran says.
KYC utilities, for example, can reduce the amount of time correspondent banks spend on repetitive due diligence processes. Blockchain can improve the KYC data storage security.
Big data and machine learning can enhance correspondent banks’ ability to assess and manage risk through more sophisticated customer typologies and more accurate transaction monitoring. And biometrics can enable faster and more assured identification of individuals.
Over time, the study concludes, these technologies may alleviate some of the pressures on banks and “make holding correspondent banking accounts with clients in poor countries more likely”.
This enthusiasm about regtech is not new: GTR has previously reported on ways regtech can help the industry optimise compliance – a task that is still largely dominated by manual and mundane processes. A recent study found that banks could save £2.7bn a year by adopting machine learning and big data technology in their AML systems.
However, the argument that new regtech like machine learning and blockchain will bring banks back to de-risked markets is met with scepticism elsewhere in the industry.
“I don’t think technology is going to solve the problem. It’s a people’s, education and timing issue,” says Sean Norris, head of sales at Accuity.
He points to the fact that many of the de-risked countries, mentioning the likes of Afghanistan, Malaysia, Indonesia and Vietnam as examples, “haven’t got processes right for very basic things yet” and are still “far behind” when it comes to prioritising and implementing the Financial Action Task Force (FATF)’s guidelines and best practices for AML.
Norris doesn’t deny the power of technology – after all, Accuity itself is a provider of AML software and is also exploring the use of machine learning to minimise the number of false positives. He also argues that de-risking is in fact driving the acquisition of better technologies by banks in Africa and Asia to upgrade their AML processes.
“When you’ve got a bank in Jakarta that is still relying of self-declaration of a person in a KYC process, how is that going to be acceptable for a western bank? I don’t think technology is going to solve a behavioural problem and different attitudes to AML controls,” he says.
https://www.gtreview.com/news/fintech/could-regtech-bridge-the-trade-finance-gap-in-emerging-economies/