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Fintech or financial technology companies are on the rise and they are giving tough competition to traditional financial service providers, with great speed, convenience and increased financial inclusion. With risks such as money laundering, terror financing, and data breaches, these fintech providers are under great scrutiny by regulators as well as the public. Regulators across the globe have come up with several mandates to increase transparency and reduce risk. The sheer volume of new norms to comply with adds to the troubles of financial institutions.
The regulations usually change rapidly, requiring startups to stay up-to-date and comply with new rules.
Compliance with regulations can be expensive, and fintech startups may not have enough funds to comply with all requirements.
The operational systems working on compliance and monitoring must be resilient to any interference and must be flexible to any changes and updates.
A march towards data privacy retrenchment at a jurisdictional level is noted because firms are not able to share information within firms. When looking at advanced technologies to fight financial crime, conflicts may arise between technological possibilities and privacy realities.
There has to be a level of human intervention in the decision-making process, and technologies that might appear to profile customers should be reviewed carefully from both a compliance and a legal perspective.
Overcoming these challenges can be tricky especially when balancing the tradeoff between time and resources. There is no one-size-fits-all approach when it comes to startups because each of them has a unique offering with unique regulatory requirements.
With the rise in innovative technology, RegTech (Regulatory Technology) is a crucial domain that helps with all compliance needs, right from data protection and KYC, to monitoring updates in regulations. Not free from limitations, the concern emerges when a RegTech firm doesn’t have in-house compliance subject matter expertise and sells its solution to compliance professionals with little or no technical expertise. Imagine: A RegTech firm states that its AI system reduces transaction false positives by an average of 40%. But, behind the scenes, the system is learning like a naughty child and over time false negatives sneak in. The compliance professional now has a false perception that the system is watertight. RegTech must ensure to have compliance experts on board, with compliance professionals to skill themselves on the latest technological advances along.
By its very nature, RegTech is a sophisticated technology designed to solve challenges around regulatory compliance, risk management, and data reporting. It’s fast gaining prominence in the local and international financial services industry as firms grapple with seemingly endless and ever-changing regulations and additional data challenges. Building a compliance culture from the very beginning, setting out a budget for compliance needs, and leveraging technology for this purpose can help new-age FinTechs ease into this seemingly daunting aspect of running a startup.
Financial crime is a persistent and growing problem that affects individuals, businesses, and governments. The loss incurred due to financial crime can be significant and has a ripple effect on the economy. With the pandemic-induced economic downturn, financial criminals are becoming increasingly organized and sophisticated in their methods, making it even more challenging to detect and prevent fraudulent activities. It becomes crucial for companies to stay ahead of the curve and anticipate the emerging trends in financial crime to protect themselves and their customers.
According to a report by ComplyAdvantage, corporates are more likely to revise their risk-assessment parameters given the ever-fast-changing state of the economy and less likely to take on additional risks. With the rapid increase in e-commerce transactions, frauds related to credit cards and online banking are also on the rise. Synthetic identity fraud is also a growing concern, which involves criminals creating fake identities to obtain loans or credit cards. As more online payments and digital transactions occur, they give rise to a broader surface for financial crime, including crimes related to embedded finance products.
There has been a rise in illicit activity through non-banking areas such as gaming, gambling, and professional services, and the lack of a comprehensive regulatory framework surrounding this industry. Moreover, there is an increase in the use of DeFi platforms for fundraising for political extremist groups, terror financing, and the use of the crypto space for financial crimes. The dearth of industry standards, security measures, and regulations in Crypto, Web3, and the metaverse will worsen the situation.
Another focus area would be enhancing the efficiency and frequency of KYC and real-time screening procedures to match the increase in volume and rapidness of online transactions. With the increase in effectiveness and strictness of sanctions schemes, there arises a requirement for enhanced AML requirements to ensure more effective sanctions screening. To combat financial crime, there is a need for an increase in financial crime awareness. Ensuring that companies have the right policies, procedures, and processes in place is critical. Adherence is even more important. Therefore, companies must create a culture of compliance.
Firms will no longer be able to take a myopic and siloed approach to financial crime. Financial crime compliance and fraud have traditionally operated as separate business verticals. While financial crime compliance teams focus on meeting sanctions, anti-money laundering (AML), and other regulatory requirements, fraud departments are tasked with identifying and investigating potential and actual fraud. The need of the hour is to ensure the convergence of the two. According to a report by LexisNexis, compliance professionals can expect FRAML (fraud + anti-money laundering) to be the new watchword in 2023 and beyond.
Criminals are becoming increasingly organized, requiring greater scrutiny and sophisticated technology on the part of financial institutions. The use of AI to detect patterns in these crimes will help fight these institutions. To conclude, financial crime is a growing concern, and we need to be aware of the trends that are likely to emerge in 2023. As technology advances, so do the methods of criminals seeking to defraud individuals and entities. To combat this, we need to take a holistic approach to financial crime compliance and fraud detection by leveraging AI and converging financial crime awareness with unique technological solutions.
Team ZIGRAM wishes all, a very Happy Women’s Day. Today, we celebrate the strength, resilience, and achievements of women all around the world.
Happy Women’s Day!
We at ZIGRAM believe in women’s empowerment and ability to bring about change. To support women in fostering their livelihoods, we collaborated with the non-profit organization ‘Pravah Skill Development Centre’ to provide 5 sewing machines in honour of International Women’s Day. Being valued by Pravah for our contributions to society is an honour.
Throwback to our unforgettable Holi Party! It was a day full of colours, laughter, and joy as we celebrated this vibrant festival together. From drenching each other in colours to indulging in delicious food, drinks, and sweets, we had a blast! The energy and enthusiasm of our team were infectious, and they truly reflected our strong team spirit.
The colours may have faded, but the memories of our Holi party will stay with us forever!
Can’t wait for the next event to come around so we can create more unforgettable moments like these!
GURGAON, HARYANA, INDIA, May 15, 2023: ZIGRAM, a cutting-edge Regulatory Technology (RegTech) company specializing in Anti-Money Laundering (AML), Financial Crime Compliance (FCC), and Emerging Risks, is pleased to co-sponsor the 6th Third Party Risk Management India Summit 2023, conceptualized by Inventicon. This Conference has established itself as a renowned platform in the third-party risk management (TPRM) space.
The conference will feature top experts from the Financial Institutions, Supply Chain, and Regulatory Technology domains. It will also provide an opportunity to understand TPRM learnings, strategies, and technologies around the Risk space along with TPRM regulatory requirements for TPRM compliance from Chief Risk Officers, Heads of Supply Chain, and Third-Party Risk Management to name a few.
The Summit will act as a forum for professionals, where they will engage in thought-provoking panel discussions, debates, and speaker sessions. Among other interesting sessions, Abhishek Bali, CEO of ZIGRAM, will speak on “Transforming Risk – From KYC to KYX”, specifically addressing the shift from Know Your Customer to Know Your Everything and its evolving nature of risk.
About Inventicon:
Inventicon is a company that specializes in organizing business conferences, summits, and training programs. The company aims to bridge the gap between industry experts and professionals by facilitating meaningful discussions, interactive sessions, and networking opportunities. Inventicon’s events often feature keynote speakers, panel discussions, case studies, workshops, and exhibitions, allowing participants to gain valuable insights and forge new business connections. One such event organized by Inventicon is the Third-Party Risk Management India Summit.
Ninad Bhate
ZIGRAM Data Technologies Private Limited
+91 98117 02117
ninad.bhate@zigram.tech
Once considered a source for high-risk countries like Iran and North Korea to get around sanctions, Cryptocurrency space is now a hub for mainstream hackers and money launderers. With an exponential increase in accessibility through unique technology, along with the anonymous nature of transactions, it has become a lucrative avenue for money laundering and terror financing. According to a study by Chainalysis, the total cryptocurrency laundered globally in 2022 amounted to US$23.8 billion, which meant a rise from US$14.2 billion in 2021 and US$8.5 billion in 2020. These staggering numbers show that the regulators still have a long way to go in making the Crypto space safe and crime-free.
The cryptocurrency industry is prone to financial crime for many reasons. Decentralized finance exchanges have seen a rise in cases of hacking, where hackers steal currency. Even when everything gets recorded on the blockchain, criminals have found loopholes to keep their accounts free from suspicion. Cryptocurrency mixers or tumblers mix transactions to make them a part of a large number of transactions. This makes it practically impossible to trace the origin of these transactions and hence mixers become an easy avenue for financial crimes. Many Over-The-Counter (OTC) crypto-to-fiat exchanges are also being used to convert illicit funds to physical currency.
Taking cognizance of these loopholes, regulatory authorities around the world have acted to prevent these crimes. Under the Prevention of Money Laundering Act 2002, the Indian Government made the KYC process mandatory for all crypto exchanges and published specific guidelines to closely monitor and report suspicious transactions exceeding 1 Mn INR. As for the US government which planted its jurisdictional flag from the early days of crypto, the FinCEN (Financial Crimes Enforcement Network, U.S. Treasury) requires crypto mixers and DeFi services to register themselves and comply with the AML laws.
Despite continuous efforts from regulators, compliance in this industry is not free from obstacles. The global nature of cryptocurrency and DeFi transactions allows easy escape from regulations at the time of cross-border transactions as different nations have different levels of scrutiny. This makes the customer onboarding process for Crypto exchange even more cumbersome as more steps get added for detailed verification and conversion rates get hampered in the process.
Interestingly, the backbone of the crypto industry, blockchain technology, is starting to get used for AML purposes which gives us hope that the essence of crypto which makes it unique and attractive for financial crimes can be used to prevent them. Despite the frictions, the regulations imposed by the authorities have mostly received positive feedback from legit crypto-related businesses. These regulations will increase investor confidence and improve the reputation of the crypto industry. Safety concerns pose a major hindrance to the adoption of cryptocurrency as an investment instrument and imposing well-implemented rules will make way for a brighter crypto landscape.
The job market has been in a constant state of flux since the advent of technology. From the earliest agricultural societies to the industrial revolution, the way we work and the jobs we do have undergone significant changes. Today, as we enter the age of artificial intelligence (AI), we have begun witnessing a new wave of disruption in the job market.
AI has the power to revolutionize the way we work, allowing us to automate mundane and repetitive tasks. Being able to analyze data in ways previously considered impossible helps us make more informed decisions. AI is having a significant impact on the job market. While AI can automate many jobs or make workers more efficient, it also creates new job opportunities. Businesses must be aware of these shifts and adapt their strategies accordingly to stay competitive.
AI programs are typically only capable of “specialized” intelligence, meaning they can solve only one problem and execute only one task at a time. Often, they can be rigid and unable to respond to any input changes or perform “thinking” outside of their prescribed programming. In contrast, humans possess “generalized intelligence,” with the kind of problem-solving, abstract thinking, and critical judgment that will continue to be important in business. According to a survey by PwC, 70% of the respondents were positive that human-AI collaboration would allow them to focus their attention on meaningful work while also sparing time for pursuing creative interests. This in turn provides enhanced value to both the employee and the company.
The job market across different industries would be impacted differently by AI. While some jobs will undoubtedly be automated or change significantly, other industries will see significant growth in employment opportunities due to AI. As the Artificial Intelligence Task Force recommended in its latest report to the Government of India, these industries include healthcare, finance, education, consumer and retail, public and utility services, and agriculture. The implementation of AI will require employees to learn continuously and acquire new skill sets to keep pace with the developing rate of technology. Therefore, companies are placing greater emphasis on cultural fit and adaptability in their hiring process.
Despite the numerous benefits that AI can offer, there are also challenges associated with it. The data used in AI systems can carry bias, which can reflect societal inequities or implicit biases of the designers who input the data. Another challenge is the limitation of computation and processing power. Moreover, as might be expected from the fact that AI-exposed jobs are predominantly those involving high levels of education and accumulated experience, it is the older workers who are most exposed to AI. This means that companies will need to invest in new technology and adapt their business models. This may mean retraining employees to work alongside AI or hiring new employees with specialized skills like machine learning and data analysis.
Overall, while AI may seem like a threat to the job market, it also has the potential to create new job opportunities and increase efficiency. Companies will need to adapt and invest in new technology and strategies to stay competitive, but there will still be a need for human judgment and problem-solving. In the end, the key to success will be finding a way for humans and AI to work together in harmony, leveraging the strengths of both to achieve better outcomes.
The rise of financial crimes such as money laundering and terrorist financing has increased the need for Anti-Money Laundering (AML) compliance programs. AML compliance programs aim to prevent and detect such illegal activities by implementing a series of measures that comply with local and international laws and regulations. A comprehensive AML compliance program can help protect businesses from financial and reputational damage. Therefore, it is important to understand the key elements of an effective AML compliance program.
Defining your objective for building a compliance program can help give context to employees and other stakeholders. Risk assessment is an essential element of an effective AML compliance program, and a risk-based approach can help businesses tailor their compliance program to the specific risks they face. An effective AML compliance program should also hold clear and concise policies and procedures in place to include customer due diligence (CDD) requirements and transaction monitoring procedures. Building a systematic workflow can help in the realization of the defined goals.
Hiring a compliance professional is also a key step which includes attention to detail, analytical skills, communication skills, and the ability to work collaboratively. Fostering a culture of compliance throughout the organization by promoting a shared understanding of the importance of compliance and establishing a set of values and behaviours that support compliance efforts is also a crucial part of building the right team. For such efforts to be successful, training and awareness become critical components of an AML compliance program. Employees must be trained on AML laws and regulations and how to identify and report suspicious activity; to ensure that employees are up to date with the latest regulations.
For the AML compliance program to be effective, there should be regular audits and testing to ensure that policies and procedures are being followed correctly. Internal and external audits can help identify areas for improvement and ensure that the program is updated with the latest regulations. Reporting becomes an integral part of AML compliance, as it involves reporting suspicious activity to the appropriate authorities. Technology can assist in the automation of reporting processes, allowing for the timely and accurate reporting of suspicious activity. Additionally, reporting the results of the compliance program to the senior management and employees through tools such as dashboards would increase the credibility of the program.
In addition to these key elements, the use of technology is becoming increasingly important in AML compliance programs. KYC automation, transaction monitoring, data analytics, and reporting are just a few examples of how technology can be used to improve the effectiveness and efficiency of AML compliance programs by enabling teams to reduce manual effort, increase accuracy, and improve the speed of compliance-related tasks.
Even though proving the return on investment may be challenging, the steep rise in financial penalties and the negative impact on reputation resulting from enforcement actions highlight that the expenses incurred from non-compliance are considerably greater than those associated with curating a compliance program. With the rise of financial crimes, businesses must implement comprehensive AML compliance programs to prevent and detect illegal activities. To conclude, incorporating technology can indefinitely help businesses stay ahead in the constantly evolving regulatory environment and mitigate the risks associated with money laundering activities.
With financial crime being more prevalent than ever, the connectivity that news and social media provide is a great asset to compliance professionals. Financial compliance gets critical with the rise of new-age technology. Aimed at preventing financial crime, adverse media screening keeps track of news and other information sources for your organisation.
By monitoring news sources and social media platforms, financial institutions detect patterns of fraudulent behaviour and take preventive measures to mitigate the risk of future fraud.
By monitoring news sources and social media platforms, financial institutions detect patterns of fraudulent behaviour and take preventive measures to mitigate the risk of future fraud.
Adverse media screening is widely used to keep track of suspicious activities, such as large cash transactions, offshore transactions, or transactions with high-risk countries or individuals.
It can add more information to back up an inquiry into possibly dubious behaviour generated by the initial media screening process, for example, concerning a customer’s source of wealth and/or source of funds adverse news.
Financial institutions can now identify potential regulatory violations and take corrective action to comply with regulatory requirements.
Organizations can identify potential cybersecurity risks by looking out for any information on cyber threats and attacks.
Even though screening through manual search strings on Google might be a widely used method of adverse media screening, it fails when it comes to real-time monitoring of risk, as risk levels of individuals might change over time, making it an unfeasible process. Using adverse media screening software can help a business to cut down on time and resources and carry out the process with peak efficiency. The software also broadens the perspective of the search as it can overcome language barriers and take care of information overload.
Opting for a risk-based approach to media screening plays a key role in the efficient use of resources. The level of screening parameters must be based on the profile of the individual. For instance, a high net-worth individual will pose a greater risk of fraud than a regular retail customer, and therefore more resources must be employed for adverse media screening of the former.
According to a report by Wolfsberg Group, businesses would benefit from evaluating their third-party adverse media screening platform on merits such as coverage, completeness of data, matching accuracy, scalability, transparency, and reporting methods. They must also evaluate the criteria employed to judge media sources’ credibility. By following these best practices, businesses can effectively identify potential risks to take corrective action. They will thereby be able to keep their reputation safe and comply with regulatory requirements up-to-date.
In today’s global financial landscape, the fight against money laundering and terrorist financing is a top priority for governments and financial institutions. As a result, Anti-Money Laundering (AML) regulations have become increasingly stringent, and financial institutions are required to have robust onboarding processes in place. AML onboarding refers to the procedures and practices employed by financial institutions to verify the identity of their customers, assess the associated risks, and ensure compliance with AML regulations. This article will delve into the fundamentals of AML onboarding and highlight the key elements that contribute to effective onboarding processes.
Customer Due Diligence (CDD) forms the foundation of AML onboarding. It involves the process of gathering information about customers to establish their true identities, assess their potential risk level, and ascertain the nature and purpose of the business relationship. The CDD process typically includes collecting identification documents, verifying the authenticity of those documents, and conducting enhanced due diligence for high-risk customers. The aim is to ensure that the financial institution has sufficient knowledge about its customers to detect and prevent any suspicious or illegal activities.
Conducting a comprehensive risk assessment is another critical component of AML onboarding. Financial institutions must evaluate the potential risks associated with each customer and transaction. This assessment considers factors such as the customer’s geographic location, business activities, sources of funds, and previous transaction history. By assigning a risk rating to each customer, financial institutions can tailor their due diligence efforts accordingly. High-risk customers may require additional scrutiny and ongoing monitoring, while low-risk customers can undergo standard procedures. Regular review and updating of risk assessments are essential to ensure they remain relevant and up to date.
Financial institutions must establish and maintain robust AML policies and procedures to guide their onboarding processes. These policies should outline the institution’s commitment to compliance, set out the procedures for customer identification, due diligence, and risk assessment, and provide guidelines for reporting suspicious activities. It is essential to ensure that these policies are aligned with the latest regulatory requirements and are effectively communicated to all relevant staff members. Regular training and awareness programs are crucial to ensure that employees understand their roles and responsibilities in the AML onboarding process.
Advancements in technology have significantly impacted AML onboarding processes. Financial institutions are increasingly adopting innovative solutions such as automated identity verification, data analytics, and artificial intelligence to streamline and enhance their onboarding procedures. These technologies enable institutions to perform real-time checks, analyze large volumes of data for suspicious patterns, and flag potential risks more efficiently. The use of technology not only improves the efficiency and accuracy of onboarding but also helps in meeting regulatory obligations by maintaining robust audit trails and documentation.
AML onboarding is not a one-time process but requires continuous monitoring of customer activities. Financial institutions must establish mechanisms to detect and report any suspicious transactions or behaviour. Transaction monitoring systems and data analytics play a vital role in identifying patterns that may indicate money laundering or other illicit activities. If any suspicious activities are detected, financial institutions must report them to the appropriate regulatory authorities promptly. Ongoing monitoring ensures that the institution remains vigilant and can respond proactively to emerging risks.
AML onboarding is a critical aspect of compliance for financial institutions in the fight against money laundering and terrorist financing. By implementing effective customer due diligence, conducting risk assessments, adhering to robust AML policies and procedures, leveraging technology, and maintaining ongoing monitoring and reporting, institutions can mitigate the risks associated with financial crime. Compliance with AML regulations not only safeguards the institution’s reputation but also contributes to the overall integrity and stability of the global financial system.
