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Can Regtech Fix Treasury and Finance’s Compliance Conundrum?

  • By Andrew Deichler
  • Published: 5/26/2017

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TORONTO -- Compliance can be a headache for corporate treasury professionals—particularly know your customer (KYC). During a panel session Wednesday at the Payments Canada Summit, experts looked at the “compliance conundrum” banks are facing in trying to offer their corporate clients new services while enforcing often onerous regulations.

In recent years, customer loyalty to banks has eroded substantially, noted Robert Dawkins, partner with Borden Ladner Gervais LLP. And layering on top of that is the overwhelming compliance burden. “The compliance obligations, particularly around KYC—the gathering of information, the assessment of risk of customers—has increased exponentially,” he said.

The irony about these regulations is that while banks demand a plethora of information from their clients, much of it is often never even read by banks. “The breadth of disclosures and the level of detail that is required—quite frankly, not one reads it,” he said. “In most litigation, it’s substantially irrelevant because judges know no one reads it. But it’s all there because it appeases regulators that think you’re making your required disclosures.”

Furthermore, while many corporates have held gripe sessions with each other over how ridiculous their banking partners have made the KYC process, it’s important to note that the banks don’t really want to be enforcing these rules any more than the corporates want to comply with them. “FIs hate compliance as much as their clients but they have to do it,” Dawkins said.

Fintech and regtech

Dawkins explained that at Payment’s Canada’s annual event last year, there was a major focus on how fintech can improve the overall experience for banks’ customers. “Substantially absent from the discussion was compliance,” he said.

According to Dawkins, financial services companies need to adopt a new way of thinking about compliance. “Compliance needs to be at the table in product development,” he said. “Compliance needs to be at the table, and not just at the end of the day when you’re in an implementation stage to make sure you do it right. It needs to be built into the fabric of a financial services organization.”

This is an important point for corporates, because while banks may be bending over backwards to enhance the customer experience through fintech, they need to incorporate compliance. If they don’t, it can ultimately be very bad for the client in the long run. “To not draw attention to a limitation of liability—which means your customer might hold the entire loss of a fraud—and tell them later when they’re looking at a loss is not a good customer experience,” Dawkins said.

Thus, compliance can no longer be “the department of no” and must begin thinking more creatively, Dawkins said. The way to do that, he believes, is by embracing “regtech”—fintech companies whose services center on improving regulatory compliance.

And from the perspective of Anatoly Kvitnitsky, vice president of growth for regtech startup Trulioo, banks need help. He noted that banks and other financial services providers face enormous costs handling the KYC compliance process themselves. “Regtech companies, we think, make that job a lot easier,” he said. “They are able to perform the same functions, and arguably better, than some of the top 10 banks and do it with half a dozen people, as opposed to 10,000. The reason being is that instead of spreadsheets, they use technologies that make it a lot easier to do.”

Kvitnitsky added that attendees would be “amazed” at how poorly some banks are at handling compliance. “I met with a top 20 bank that actually still uses spreadsheets for their AML/KYC compliance,” he said. “I’ve also met with other types of companies who think, ‘We’ll worry about compliance when we get bigger. We’re too small to have to worry about regulators.’ If I were a betting man or an investor, I would bet against those companies, versus the ones who are using compliance to drive their businesses forward.”

Concluded Dawkins: “The only way to make [compliance] faster—the gathering, the sharing, the cross-referencing information—is going to be regtech. It’s what going to come in and solve the conundrum where fintech is trying to create the great experience—they can’t do it the right way without these guys helping them out.”

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