Global authorities issued $13.74 billion in anti-money laundering (AML) fines according to Finbold’s Bank Fines 2020 report. This shows that financial organizations are struggling to follow AML regulations. One of the reasons why is because there are many AML directives, locally and globally. This has resulted in the emergence of regtech companies that offer different solutions aimed to help the financial industry and other regulated industries comply with existing directives and laws. This article will give an overview of these companies and the problems they’re working to solve.
- Large money transactions
- Suspicious money transactions
- insider dealing or market manipulation
Or a program that monitors all the regulatory papers, upcoming laws, and enforcement actions.
These are usually developed with AI and machine-learning algorithms, which deliver great results in both scanning and monitoring.
Monitoring exists to make sure that financial organizations are compliant with every AML regulation and operate as they should. This is important for the banks, cryptocurrency exchanges, and other services because a violation of the existing laws and support of money laundering (even non-intendant) can lead to huge penalties or even prohibition to operate.
Companies need to verify the client’s identity to know who they are dealing with and to comply with the law. It does eliminate the risk of dealing with people with fake identities and criminals, and it is also used for age
verification when it comes to age-restricted products, remote access to services like rental cars, telemedicine services, etc.
Automated identity verification speeds up the onboarding process and makes the user experience better.
The Politically Exposed Person (PEP) list includes political leaders who committed crimes, performed bribery or been involved in corruption. PEP lists might also include political party officials and senior executives in the companies. In the list might be close friends and family members too.
Adverse media is a search in the media for any negative news about the person or company.
All of these checks help to ensure that the person or company do not use money transfers to launder money, finance terrorism, etc. Also, many companies refuse to take PEPs as clients because of the future risks and illicit activities they might perform.
KYC and identity verification services also use the types of companies that can check sanctions/PEP lists or do adverse media. Businesses that have KYC solutions in-house can buy access to those lists without even using this type of regtech company.
Different types of statistics and analysis are needed for the authorities so they can understand the weaker points of a company’s compliance strategy. This might also be needed for financial companies, like banks, to improve their performance and not violate any directives.
Javelin Strategy & Research and Fenergo are only a few of the companies that provide these types of analyses.
In my opinion, the biggest potential market nowadays is online identity verification and reporting companies. COVID made a lot of services and institutions switch online, hence many of them needed to start performing online paperless identity verification of their customers. Digital ID’s framework is now discussed in many countries and states (European Commission discussing its implementation as well as the state of Florida in the US). Digital ID will only be rising the demand for online identity verification solutions.
On the other hand, correct reporting to AML authorities has always been on the table for many companies, so that is, in my mind, another sector of the regtech industry that will soon thrive.
According to Markets and Markets research, the regtech market size is expected to grow from USD 6.3 billion in 2020 to USD 16.0 billion by 2025, so I believe that there are many opportunities for investors and players in this market. Of course, the competition will rise, so only the most advanced, user-friendly, and professional solutions will continue to exist.
Dmitri Laush, CEO GetID, part of Checkin.com Group.
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