Why regulators need to do more to tackle fraud.

The time has come for the Financial Conduct Authority (FCA) and other regulatory bodies to prioritise tackling money laundering by endorsing particular applications of technology..

The European Supervisory Authorities (ESAs) recently published its new Opinion on the Use of Innovative Solutions by Credit and Financial Institutions in the Customer Due Diligence Process.

In the document, the ESAs endorse the use of regulatory technology (RegTech) by financial services companies to help them comply with strict anti-money laundering (AML) and know your customer (KYC) legislation..

The Opinion explicitly states: “Meeting customer due diligence (CDD) obligations can be challenging for firms, as this process is often associated with significant costs and customer inconvenience.

“Additional challenges arise from the fact that in an increasingly digitised environment, where most services are accessible online, firms may have to move away from traditional face-to-face interactions to non-face-to-face online channels.

“CDD therefore offers considerable scope for financial innovation that can improve the effectiveness and efficiency of AML and terror financing (TF) controls”.

So far so good, but regulated entities need more than this. They need to have the confidence that, if they do adopt a specific new technology, their regulator will support them.

The ESA Opinion also highlights the potential risks of some innovation, stating: “Nevertheless, there is a risk that innovation in this field, if ill understood or badly applied, may weaken firms’ ML and TF safeguards and subsequently, undermine the integrity of the markets in which they operate”.


You can read the full article on FT Advisor


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