“Knowing and Understanding your Customer in an International World”
Donna Bales, Co-Chair of RegTech RoundTable Foundation opened the dynamic event with a Keynote speech on knowing and understanding your customer across the globe at the first RegTech For London event on 10th July at Canary Wharf.
"I am delighted to be given the opportunity to open the conference and meet so many professionals in this intimate forum.
Today we have an exciting agenda ahead of us where we will explore some of the opportunities new technologies can provide in unlocking value and understanding the customer. Yet we must remember as we explore these topics that fundamentally KYC procedures preform a critical function in combatting financial crime.
To complicate matters, there are several changing dynamics within the financial services landscape adding further complexity to an already challenging problem.
I can honestly say, I do not know exactly what the financial services landscape will look like in 5-10 years time but I believe it will be significantly different then it is today.
There are many factors contributing to these changing dynamics – technology being one of them.
Technology has always been a factor contributing to the improvement of the efficiency and effectiveness of banking operations. However, what is different now is the breadth of technologies available and their potential impact on AML programs. Emerging technologies can help to reduce risk and become more connected but they can also be used to create opportunities for criminals. Therefore, the potential exploitation by criminals must be considered along with the benefits.
We are already seeing some of the potential of new technologies in the field of data analytics.
Consumer behaviour and changing expectations are driving change
Of these factors, I think that the changing mindset of the customer will be one the greatest threats to how we currently bank – and consequently how customer activity is monitored.
My reasoning behind this view is that I do not think we can under-estimate the speed in which consumer patterns can change. We just need to look at the adoption of smartphones, tap and pay and the discontinued use of plastic bags for shopping as examples.
Adoption rates vary from country to country
A recent EY survey showed that:
I have developed new products throughout my career and my # one rule is to develop from the end user case and work backwards.
However, in financial services and particularly when building solutions for AML compliance where there is an international focus, product managers are working with a series of constraints which makes it difficult to be truly agile and reactive to customer expectations. For example:
Personally, I think the technology is playing the role it always has - to improve customer experience and overall operational efficiency. The difference now is that there are more technology options available.
I am less concerned with ‘WHAT’ technology to use but ‘HOW’ to implement it. The scale of some of these change programs is too great. Add on the pressure to execute fast to keep new entrants on the sidelines.
Good quality data is backbone of an effective AML program and many firms are still working to centralize data in Enterprise Data Warehouses -so the can be efficiently and proactively used and shared
Recently, I have been working with several firms on their Enterprise Data Strategies.
The security policy must be compliant but not be too restrictive in terms of PII data that it restricts usage
Permissioning and access must be reliable and adaptable
The decision to use a new technology is not the hard part – the work begins when you attempt to integrate and operationalize it within your firm.
I have touched upon some of the technology and business challenges but there are also several regulatory considerations when operating within an international context.
AML regulations and data protection and privacy rules vary across jurisdictions – these rules need to be constantly updated in systems – the rigidity of rule-base systems creates an excessive number of false positives.
Therefore, arriving at a consistent view on the question of ‘effectiveness’ can be extremely challenging.
Following a risk-based approach is a practical and essential step towards managing AML compliance.
International bodies such as FAFT play an important role in creating standards and consistency across jurisdictions and are actively engaged in efforts to improve the sharing of information between private and public sectors.
The management of KYC data is one area where public and private collaboration can be beneficial and there has been some good progress internationally. Collaboration can be an effective tool when:
Prior to the fintech/regtech revolution –In 2011, I was working closely with MAS to get a regulatory licence for a dark pool trading venue for a firm that I was working for at the time. Even before the concept of the regulatory sandbox - MAS was interested in learning about the technology, trading types and the algorithms we were using. This information exchange was beneficial for both parties.
The global sandbox takes this one step further – offering a powerful, practical way of improving outcomes for consumers by making it easier for firms to get new products to market.
In conclusion, I do not think we can under-estimate the complexity and change that is currently impacting the financial services industry. Irrespective of these changing dynamics the fundamentals behind the KYC process will not change. Firms regardless of whether they are a traditional or non-traditional provider of financial services will be expected to have a sound KYC process in place – one that is risk-based and robust.
Technology can improve operational efficiencies but the potential abuse of new technologies by criminals can also accelerate crime and therefore any program cannot be static -it must constantly evaluate new risks
At a firm-level, banks must be dynamic and flexible, adapting in real-time to meet the needs of their demanding and increasingly tech-savvy customers. But the public sector can also not be complacent. They have an important role to play in creating standards and tools to improve sharing of information so that the KYC process is more seamless and effective globally while still adhering to the basic objective of AML – the prevention of financial crimes."
Speaker: Donna Bales, CAMS, Co-chair of Regtech Roundtable Association
We will be hosting "AML & KYC TECHNOLOGY ENABLED COMPLIANCE" in Toronto in October, for more information please see the attached PDF: