Changing your FinCrime perspective through the use of

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Changing your FinCrime perspective through the use of RegTech

Financial Services firms are under significant compliance pressure. According to Thomson Reuters there has been an increase of 492% in regulatory change between 2008 and 2015.

The rate of change has continued through the 4th and 5th Money Laundering Directive and we’ve seen even more changes in Bribery and Fraud prevention with legal and supra-national expectations such as European laws in MiFIDII. The implications and challenges of managing regulations and multiple data sources from a variety of systems is not straightforward.

The advent of advanced technologies over the last five years and changing regulations has led to the evolution of Regulatory Technology (RegTech). The reduction of cost in managing complex technologies has been assisted through the use of cloud computing, processing cost reduction and the formation of languages to support Artificial Intelligence (AI)[1], Machine Learning (ML)[2] and Natural Language Processing (NLP)[3]. Within banking, the arrival of Open Banking initiated by the Competition and Markets Authority (CMA) allows adoption of RegTech on a more level playing field within differing types of institutions to ensure they are being customer and community focussed.

The ‘bulge bracket’ banks and other large Financial Institutions (FI’s) have an appetite for a future-looking framework around the infrastructure and how this supports their business needs better and quicker. This includes the use of blockchain, Application Programming Interfaces (API’s)[4] and big data. However, the disparate architectures with multiple data sources has created challenges when working with RegTech providers.

The innovative mid-size and smaller banks may not have the infrastructure spend, but cloud computing and use of third-party solutions allows them to demonstrate compliance and integrating RegTech requires less organisational manoeuvring and technical deployment. Where large firms will have bigger legacy systems that are expensive to change and update, smaller and more agile firms find it easier to change, often resulting in more pragmatic solutions. Irrespective of size, there is significant value in deploying more cost-effective solutions around data mining, predictive analytics, smart contracts and visualisation, rather than ‘throwing’ more people at this.

Multiple systems across clients, transactional data and numerous jurisdictional sources across different data sources proves to be a continued challenge. According to IBM and Chartis, 70% of their respondents were using AI in different ways with ML and NLP the most prominent techniques to employ.

Additionally, the shortage of data skills is a consistent challenge and the disparate systems at large institutions require a comprehensive data strategy that not only answers questions on FinCrime but categorises data for multiple purposes. The value of data can be utilised in different ways including the scenarios that impact the diaspora of regulation as mentioned earlier.

One use case looks at the appropriate segmentation of clients based on the products and services, understanding how to interpret FinCrime and how RegTech solutions and managing ongoing data quality are able to rely on results for multiple stakeholders, e.g. senior management, regulators and law enforcement. This may be around client segmentation, ultimate beneficial ownership, the potential of politically exposed individuals and the use of transactional logic to identify the potential of FinCrime opportunities through the FI’s community.

The RegTech market is growing rapidly and the continued challenge will be on selecting the right supplier, initial configuration investment (time and/or money) and understanding the use cases that are pertinent to your specific business model and deployment, given some of the data challenges you may face. The exogenous factor is the changing regulations that continues to be a challenge to keep up with.

The future of FinCrime: technology trends and challenges

The priority is to embed technologies that will create efficiencies and identify process and data improvements. These allow opportunities for analysis, safeguarding compliance adherence and generating better ideas on automation and future efficiencies. The benefits of technology pervade FinCrime. One of the largest catalysts are that FinCrime prevention will allow the move to a single customer view across products. Our intricate knowledge of data, process and compliance has experienced people to advise on how to achieve your firm’s goals.

Historically, FinCrime evaluations have been manual and subject to interpretation. The advent of RegTech AML techniques allows each firm to empower their staff to focus on what is important. This applies for onboarding, re-reviews and transaction monitoring, to name a few. Wider regulations have equivalent providers in this market. Ongoing refinement of rule calibration and adherence to changing policies can be affected using technology more easily. Staff will need to be trained to ensure they understand the logic of the process through both technology and people.

More automation can be achieved but requires a change in culture to help staff understand how to interpret technology rules. The data challenges for large financial institutions are significant. There are a myriad of legacy systems and new technologies to integrate. Understanding data management and conformance is critical to ensure that a taxonomy can be consumed by RegTech technologies. Multiple failures have occurred as a result of insufficient initial configuration, poor data understanding and use of inappropriate interfaces between systems. This is not necessarily the fault of the systems, given that they have not been built for this specific purpose. However, separation of the data from the application layer will allow complex AI, ML and NLP systems to achieve their goal.

Footnotes

[1]Artifical Intelligence is the simulation of human intelligence processes by machines, especially computer systems. Specific applications of AI include expert systems, natural language processing (NLP), speech recognition and machine learning. AI technologies are quickly evolving, primarily because AI processes large amounts of data much faster and makes predictions more accurately than humanly possible.

[2]Machine Learning is an application of AI that provides systems the ability to automatically learn and improve from experience without being explicitly programmed. The primary aim is to allow the computers to learn automatically without human intervention and adjust their actions accordingly.

[3]Natural Language Processing is the technology used to aid computers to understand our natural language. The ultimate objective of NLP is to read, decipher, understand, and make sense of the human languages in a manner that is valuable. Most NLP techniques rely on machine learning to derive meaning from human languages.

[4]An Application Programming Interface is a software intermediary that allows two applications to talk to each other. Each time you use an app like Facebook, send an instant message, or check the weather on your phone, you’re using an API. Basically, an API specifies how software components should interact.

About the authors

Kiran Sudhakar

Financial Crime prevention specialist
Kiran has worked in Financial Services across multiple sectors for over 20 years. He has worked for different consulting firms and has an understanding of how technology can enhance compliance with Financial Crime regulations while also identifying areas for improved insights to risk and finding cost savings for firms.

Follow Kiran on LinkedIn here >>

Steven Newman

Financial Crime prevention specialist
Steven is an internationally experienced Financial Crime, Risk & Compliance leader with extensive knowledge of developing, implementing and reviewing strategic risk-based frameworks and transformation projects. Steven has significant knowledge of the international legal and regulatory environment. Steven is experienced in influencing politicians and c-suite executives, he sits on the Cross Sector Advisory Group that gives advice to the Cabinet Office on the Governments Financial Crime strategy, has been commended by the UN Ambassador to NATO on his Anti-Corruption work, mentored Foreign Government officials and given advice on their financial crime frameworks.

Follow Steven on LinkedIn >>

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"2025 and Beyond" Question and Answer session

26 Feb, 2024

Our webinar 2025 and Beyond: Why Your Hiring, Learning, and Culture Need to Evolve brought together thought leaders Enrique Rubio (Hacking HR), Lisa Skinner Källström (Teamtailor), and Hydrogen Group’s Dean Jennings and Michelle Miller. The conversation explored strategies used to tackle the challenges of the future workforce, shift organisational cultures towards lasting partnerships, and ensure teams are equipped for the age of artificial intelligence. _ The Q&A box was brimming! Our webinar offered participants the chance to consult our HR experts on addressing shifts in the people and culture realm as we approach 2024 and beyond. Interesting questions were raised, and we compiled them all to seek and reached out to our experts to get some definitive answers. For a recap on the webinar, check out our blog Navigating the Future: Insights from our Webinar "2025 and Beyond" So, here we are. Your questions - answered! - How can companies make people feel more secure in their jobs? Is it just a matter of increasing communication? Lisa suggested a shift towards a more sustainable approach. 'In recent years, we have seen many companies experience massive growth, and the need to get great talent onboard - hence offering extremely generous compensation packages. Unfortunately, many have now faced layoffs, and while the compensation and benefit strategies are not the sole reasons, I would like to propose a more sustainable approach for the future. [Increase benefits as the company grows, and as business results allow, we can increase pension levels or similar benefits – and discuss it internally! Open dialogue about results, investment choices, and their rationale fosters a sense of involvement among team members and signals the company's commitment to a sustainable direction.]' Dean echoed concerns about job security in today's volatile economy and advises, 'In today's uncertain economic climate, job security is a concern. However, by becoming indispensable and embracing tools like AI, individuals can enhance their value to employers, securing their positions for the future. Apart from using Chat GPT, what other tasks can be automated with AI? Lisa commented, ‘We’ve mentioned a few examples already, but I would look at all the systems your company allows you to use and question your suppliers on what features are or will be based on AI. For example, many applicant tracking systems allow the opportunity for AI to summarise CVs for an easy overview, generate interview questions and suggest more personalised replies to rejected candidates based on their CVs. Also, the opportunity for AI to transcribe an interview is an amazing tool which allows the interviewer to solely focus on listening and talking to a candidate as opposed to taking notes. As always, AI in these types of systems is not designed to make the decisions for a recruiter or business - but serve as an assistant to save time and work more efficiently.’ Dean added, ‘There are far too many to list. The AI directory https://aitoolsdirectory.com/ does a really good job of showcasing what does what and where you can find it.’ What is the impact of AI on employee engagement and how can HR teams use AI to promote engagement? Also, what precautions should professionals take when using AI? Dean offered his perspective by stating that ‘engagement and AI may seem contradictory, but there's a clear benefit when HR uses AI to streamline admin tasks, freeing up time for vital human interaction. Tools like Koios, for instance, offer Acoustic AI, helping HR understand team and individual personalities better, for more tailored approaches. Professionals must approach AI implementation carefully, ensuring ethical use to maintain trust and transparency in the workplace.’ How can we make sure our services stay personalised while using AI? Dean responded, ‘By leveraging AI to handle time-consuming tasks. The best thing about AI is that you get to choose what it does and what it doesn’t. If you feel strongly about human interaction to enable personalisation, you don’t have to let go of that – just embrace AI to make those interactions better. Get it to strip data in the background for you, or to type up your notes and actions as you have the conversations. The possibilities are endless, and they can be tailored to your needs.’ Within your businesses, have you experienced any resistance to the adoption of AI? How have you handled these objections? Dean responded, ‘A lot of the resistance I have seen has either been a fear of trying or a fear of being caught. There seems to be a negative connotation with AI, that if you get it to do something for you, are you cheating? The answer is a resounding no, you are working with the tools available to make yourself more productive for your organisation. Robot proof recruiter, if you haven’t read it, you should. Especially if you are a recruiter or if recruitment is part of your job role. I’ll spare you the details, but it is an amazing read that showcases the fact you can never take the people part out of recruitment - you’ll always be able to provide a better level of service than a robot (at least for now) and you need to focus on the parts of the process where human interaction is at its most vital and automate/utilise AI to get back time in your day to improve that social element of the process.’ Do you feel Employee Resource Groups will be on the rise with the future generation of workers? Dean replied, ‘A truly hybrid workplace cannot function effectively without the right technology in place. That doesn’t even need to be AI. For employees to feel a sense of belonging in a workplace, there should be a seamless experience that goes beyond just having teams up on 1 laptop in a room full of 30 people. Again, this will only advance with time ... my eutopia is to have my whole team (who are based in the UK + Thailand) sat around a virtual desk, on a beach with an interactive whiteboard we can utilise in real time via virtual and augmented reality. You may laugh now, but in the next couple of years, VR and AR tech will be the staple of hybrid working and teams coming together around the globe. This doesn’t take away from the in-person experience and nor do I think it should. It should be a tool that compliments real-time working solutions.’ How can we support older generation employees in the changing landscape? Dean offered his perspective, ‘AI is truly remarkable. It embodies the futuristic vision many of us had as children—computers and programs taking on tasks for us. For those uneasy about it, I believe it's a matter of not fully comprehending it or lacking the skills to use it effectively. AI has quietly become a part of the workplace, and many are still navigating its intricacies. The focus should be on empowering employees to leverage AI to enhance productivity and value to the organisation. Those who resist or fail to adapt won't be replaced by AI but by individuals who embrace change and view AI as a tool for greater contribution.’ How can we safeguard against the risk of AI stifling creativity in the workplace? Lisa said, ‘I would say the opposite, if we use AI for the more regular and routine tasks then we will have more time to use to be creative! For example, instead of spending hours on creating a presentation for an important project - let AI do this creating for you and spend the time on how you want to engage with your audience instead. Using ChatGPT to find easy tasks that I would previously have spent a lot of time on has been a big change in how I work and allows me find space in the day.’ Is there a regional divide across different parts of the world? Are Europeans more prone to appreciate safety/job security than Americans? Lisa commented, ‘My thoughts are that globally we have been through a lot in recent years, covid affected everyone regardless of location. After that, we had war in Europe for the first time in many years which had major effects on the economy, which I believe has made people appreciate job safety even more and value this in choosing their next employer. However, in some parts of Europe employees are still very protected by labour laws etc so I believe it is different from America where it is more common to have short notice period and less resistance from employers to terminate an employment.’ Expanding on the key themes discussed in our webinar, we're thrilled to introduce our Thrive Guide – a practical roadmap for building a thriving workplace. Within the Thrive Guide, discover actionable strategies to enhance employee engagement, foster diversity and inclusion, and implement flexible working models. Discover practical solutions to enhance workplace productivity and satisfaction. As our expert Dean Jennings emphasises, 'adapting to evolving workplace dynamics requires strategic initiatives.' This sentiment is echoed by other industry leaders in our webinar. In the Thrive Guide, these insights converge to offer practical solutions, providing a roadmap for organisations navigating change. Revolutionise your workplace. Download the Thrive Guide now!