By Samantha Sheen, AML Director Europe, ACAMS
1 August, 2016
Babel fish (The Hitchhiker’s Guide to the Galaxy):
A fictitious alien fish that performs instant translations. Source: Wikipedia
On 20 July 2016 the Financial Conduct Authority (“FCA”) released a feedback statement summarising the responses received from its call for input about the development and adoption of RegTech1 (“Feedback Report”).
The FCA is to be applauded for its active engagement on this topic and its clear commitment to supporting the development of RegTech and its use by financial services firms. The Feedback Report describes the many possible benefits to be derived from using both RegTech and FinTech.
It does this by summarising them under four main themes:
- Efficiency and Collaboration
- Integrate, Standardise and Understand
- Predict, Learn and Simplify
- New Directions
The Feedback Report also identifies what have been and, in some respects, continue to be the main obstacles to firms’ investing in and using these forms of technology.
The lists of possible benefits reads somewhat like a technology “wish list”. Don’t get me wrong, I’m not criticising this initiative. As far as FinTech/RegTech’s potential to make AML compliance activities more efficient – well, they had me sold at “hello” (apologies, Jerry Maguire).
But it’s time these reports start taking account of an important stakeholder in the buy-in process to embracing these tools – the people who fulfil AML compliance functions.
Unless you are a tech-savvy compliance person, it’s not entirely clear when reading the Feedback Report how these innovations will affect the day-to-day activities of the folks applying AML policies and procedures.
- Result in less manual analysis?
- Make it easier to undertake customer due diligence (“CDD”) on customers and if so, will that be for both individuals and corporate entity customers?
- Make the lives of front-line staff less onerous when trying to on-board a new customer?
- Simplify or make more accurate the compliance function’s ability to identify emerging risks, failing controls or trends in transactional activity that warrant further investigation?
For example, it’s helpful to have definitions provided for terms such as “data lake” in the Feedback Report and be told that it will improve reporting. But what’s not clear is whether this means less time needed to prepare compliance reports, or more accuracy in the identification of risks explained in those reports.
I am a big fan of the potential compliance and consumer benefits that both FinTech and RegTech offer. But the Feedback Report would have benefited from some simpler elaboration on how these measures will make regulatory requirements less expensive for business, easier to undertake by the first and second lines of defence and crucially, how they could improve consumer access to banking services.
And for those of you who think it’s hard trying to convince the compliance function to say “yes” to a change in existing processes, it will be even harder to get their buy-in for RegTech initiatives if they can’t see how they help to mitigate AML risks and comply with regulatory requirements.
Some of the most challenging meetings I have had in the past involved the IT, operations and the compliance functions. Everyone wanted to achieve the same end goal, but had difficulty communicating with one another in a language they all understood. It was in these sorts of meetings I wished I had a bucket of Babel fish to pass around.
The transition to using new and innovative forms of technology requires both a clear understanding of their potential and buy-in around how they will change the way AML compliance activities are undertaken. Ultimately it’s a change management exercise.
I sincerely hope that as we move towards using RegTech and Fintech, we don’t forget the importance of obtaining the buy-in and support of the AML compliance function. It should not feel as though this is “happening” to them, but rather that they are in integral part in making this change a successful one. And that starts with ensuring that these initiatives are explained in a way and with language to which AML compliance personnel can relate.
I hope that in the next phase of this initiative, a Tech/Compliance Sprint is held, bringing together the developers and AML compliance staff so that bridges can be built early on. Maybe even some “change champions” will emerge from the AML compliance function who can promote the benefits to be gained.
Because after all, you shouldn’t really need a bucket of Babel fish.
For more information about this Report see: http://www.fca.org.uk/news/fs16-04-supporting-development-and-adopters-of-regtech
For more information about the TechSprint Event in April 2016 see: https://www.the-fca.org.uk/firms/project-innovate-innovation-hub/regtech
- RegTech is a sub-set of FinTech that focuses on technologies that may facilitate the delivery of regulatory requirements more efficiently and effectively than existing capabilities.