The Top Compliance Concerns for Financial Services

the top compliance concerns for financial services

Top Compliance Concerns for Financial Services

Banks and Financial Institutions have many complex compliance requirements. The companies involved in financial services need to be particularly vigilant on compliance concerns.

Penalties and fines, legal proceedings, loss of income and damage to reputation may be the consequences for neglecting or downplaying compliance.

In order to address the challenges of compliance in financial services it is fundamentally important to understand them. In order to assist you in your compliance journey, I am listing the top compliance concerns for financial services and how you can address them. They are listed below :

Keeping Pace with Changing Regulations

Staying updated on the rules (which are often changing) is extremely important to keep a competitive edge in any financial services. If you fail to do so it may lead to incurring penalties and legal issues. This would potentially cause a dent in your bottom line.

The regulatory framework for financial services would be guiding your broader strategy. Thus it is important to periodically refresh your systems and incorporate what is changing.
If you keep an eye on the regulatory surroundings each could help you pay big time in the end, saving your time, money and brand reputation. This is intact the top compliance concern any bank or financial services provider will have.

Controlling Compliance Costs

Duff & Phelps did a survey on the financial services sector and found out that compliance costs in the financial sector are set to double by 2022. Most financial institutions and financial services provider pour roughly 4% of their revenue into compliance which unfortunately is going to grow to 10% over the next five years.

So, What is causing this increase in compliance spending?

complying with rules is fundamental but budgeting for the salaries, regulatory penalties, and cases of individual liability on the part of high ranking executives guilty of misconduct are the likely factors.
All of these add up-to a need for companies to use advance technologies and compliance management solutions to better manage compliance costs.

The Fintech Factor

Often referred to as ‘fintech’ financial technologies such as mobile e-commerce, digital currency and wallets, and web-based businesses in general has introduced newer and larger risks. For financial institutions and financial services provider it is mandatorily necessary to master a balance between risk, security, consumer protection and bottom line.

Choosing the Right Platform

To absorb changing regulations, avoid unnecessary penalties it has becomes important for banks and financial Institutions to choose advanced, convenient, affordable, accurate, and easy to implement systems.

PiChain’s compliance management solution ‘DeepPi’ typically is a cognitive and proactive compliance solution that in an automated way handles compliance.

Hence in this Digital Era, Advance and Automated Compliance Products Powered by AI and driven by Block-chain allows safe, easy KYB (Know Your Business) for any Business or Financial Institution.

© 2018 PiChain Innovations Pvt. Ltd. All rights reserve

KYB (Know Your Business)- All You Need to Know

KYB (Know Your Business)- All You Need to Know

Businesses that offer their services to other businesses have to be extremely careful in their customer on boarding processes. If you are a regulated entity like a Bank, Financial Institution or a Business entity from which the money are directed into bank accounts of corrupt business owners or shareholders, the question of money launderers or even terrorism financiers may land your business into danger. 

For say, The Panama Papers that have rocked the tax compliance world with 200,000 shell companies hiding billions and billions of dollars unlawfully from lawful taxation.

What is KYB (Know Your Business)?

In Simple words,  Like KYC (Know Your Customer), the process of a business verifying the identity of its clients in B2B i.e for any Business or Financial Institution with whom the host company is working is know as KYB ( Know Your Business ).

The KYC helps to safeguard the reputation of the host business , and also helps fundamentally to know your  ultimate beneficial owners (UBO) of companies you are doing business with.

 So, under the rules of KYB (Know your business) laws that require investigating the UBO structure is part of the CDD (Customer Due Diligence) process. 

Why KYB (Know Your Business) ?

KYB (know your business) practice enables organizations to determine whether they are dealing with an authentic company or just a shell company that is just present on papers.

KYB checks include AML checks for business and proper documentation. Guidelines such as 5th AML Directive from EU dictate the KYB laws to corporate entities. 

KYB Verification Process for EU (European Union) 

In the EU region to enforce a thorough KYB(Know your business) the due diligence requirements are as follows:- 

1. Identify and verify the customer’s identity based on documents, data or information obtained from a reliable and independent source.

2. Identify the Ultimate Beneficial Owner (UBO) is must and to take reasonable measures to verify that person’s identity and also to understand the ownership and control structure of the customer.

3. The purpose and nature of the business relationship needs to be assessed and information in-detail needs to be obtained.

4. Business relationship needs to monitored on an ongoing basis. This includes scrutiny of transactions to ensure that the transactions conducted are inline with the  entity’s knowledge of the customer, source of funds and risk profile. It is also necessary to ensure that the documents, data or information are kept up-to-date.

5. As per AML directive Identify the beneficial owner and take reasonable measures to verify that a person’s identity so that the obliged entity is satisfied that it knows who the beneficial owner is. 

Challenges in KYB (Know Your Business) 

Finding Beneficial ownership is often the most difficult task. Nominee shareholders can hide true ownership. Shell companies and trusts can hide information within filings. One can also hide it within different jurisdictions. 

These registrations can, in turn, be registered by other shell companies or trusts in yet other jurisdictions. The percentage of ownership is potentially hidden by complex paper trails making the identification process complex and costly. 

In some jurisdictions there are no documentation requirements for beneficial ownership thus there is no shareholder information to investigate. 

Most companies today are applying KYB (Know Your Business) processes as the same to KYC (Know Your Customer), using slow, manual-intensive and time-consuming processes. 

KYB Checks- A Nightmare for the Compliance Team 

1. Compliance teams now need to look at multiple reports and different data sets.
2. The working location and the location of the data could be different.
3. Data is often old or inaccurate.
4. Data can be in a variety of different formats that are hard to reconcile.
5. Company structures are different and can change over time, so the data is difficult to gather and difficult to interpret. 

Thus applying a traditional resource-intensive manual approach and reliance on self-certification is no longer sustainable. 

Hence in this Digital Era, Advance and Automated Compliance Products Powered by AI and driven by Block-chain allows safe, easy KYB (Know Your Business) for any Business or Financial Institution.

© 2018 PiChain Innovations Pvt. Ltd. All rights reserve

Transaction Monitoring in Anti-Money-Laundering

Transaction Monitoring in Anti-Money-Laundering

Transaction Monitoring in Anti-Money-Laundering

As the volume of transactions continues to increase and money laundering techniques become ever more sophisticated. The financial institutions face fundamental challenges on anti-money laundering (AML) in  transaction monitoring, making this an increasingly expensive task.

What is Transaction Monitoring?

In simple words, Transaction monitoring is an Anti-Money Laundering and fraud prevention security process that reviews and analyzes suspicious financial transfers or commercial transactions in digital and fiat currencies, ultimately exposing the origins.

Why Transaction Monitoring?

Companies and Financial Institution are using transaction monitoring to prevent terrorism financing, financial fraud, evasion of taxes, and other types of money laundering.
A vital part of any bank or Financial institution is to Monitor the client’s profiles and their transactions.

The AML monitoring Transactions are

1. Deposits
2. Transfers between accounts
3. Withdrawals
4. Exchanges of currency
5. Extensions of credit
6. Any monetary instrument or investment security;
7. Any other payment or transfer, etc.

Money-Laundering Alerts in Monitoring Transactions

1. Monitoring of cash deposits,
2. Withdrawals, wire transfers that exceed statistical thresholds
3. Complete assessment of money transaction history of the Customer
4. Blacklist screenings
5. Sanctions screening
6. High-risk transaction regulation and exposure.

The 5 Real-time Indicators of Transaction Monitoring in AML

1.Suspicious Activity Report

This is the final result of an investigation, and broadly indicates the meeting of overall Transaction monitoring system objective related to the suspicious activity. There is a need to make sure the Case categorization along with other details is represented to provide to the investigation.

2.Quantum of False Positives

a well-performing transaction monitoring system makes sure that the number of false positives is greatly reduced which accounts for about 87%.

3.Changes in Regulations

Understanding changes will drive investigative activities. current transaction monitoring systems are oblivious to the current regulatory changes which need to missing of suspicious transactions. a robust transaction monitoring will have the changes in the regulations incorporated so that suspicious transactions are tracked in real-time

4.Different Monitoring scenarios

Lack of proper customer and account segmentation, new products will need to more scenarios to be created. Transaction monitoring systems have to be well aware of the above to make a difference in the operations.

5.Operational costs

Cost related to the Operations teams used to complete investigations and systems tasks needs to be taken into account along with the system infrastructure to support the transaction monitoring system.

© 2018 PiChain Innovations Pvt. Ltd. All rights reserve

Managing Business Risk with AI

Managing Business Risk with AI

Managing Business Risk with AI

Developed countries in AI and cyber capabilities have a clear head start in establishing the control mechanisms to provide security for their citizens. Unfortunately maintaining that comparative advantage requires significant ongoing commitment from a plethora of resources.

First of the three specific risks includes hidden biases, not necessarily derived from the part of the designer but from the data provided to train the system. For example, if a system learns which job applicants to select for an job by using a data set of decisions made by human recruiters in the past, it may unknowingly learn to perpetuate racial, gender, ethnic or other biases. These biases may not appear as an explicit rule but embedded in interactions among the thousands of factors considered.

The second risk is that, unlike traditional systems neural networks deal with statistical truths rather than literal truths. Thus it makes it difficult to prove with complete certainty that a system will work in all cases. Particularly in situations where it is not represented in training data. Limitations to verifiability can be a concern in mission-critical applications.

The third risk is that, when learning systems make errors, diagnosing and correcting the precise nature of the problem can be a bit difficult. What led to the solution set may be complex, and the solution may far from optimal. If the conditions under which the system was trained happen to change the appropriate benchmark is not the pursuit of perfection, but rather, the best available alternative.

Risk managers are more prone to integrate unknown unknowns into their risk calculations, but this presumes that they do have a firm grounding in the subject matter.

For instance, as cyberrisk evolved, many risk managers had the opportunity to become more familiar with this risk actually is. The insurers have had time to develop new insurance products to address these risks.

The truth however is not he same for AI, most risk managers and decision makers have relatively little knowledge about what AI and machine learning are, how they function, how the sector is advancing, or what impact all this is likely to have on their ability to protect their organisations against the threats that naturally emanate from AI and machine learning.

Risk managers clearly need to become more knowledgeable about the threats that continue to be produced from AI. Some organisations devote resources to develop these systems internally, but few recognise the need to anticipate the threats to allocate resources specifically designed to address such threats.

Risk managers have a vital role to play by ensuring that management is well aware of the potential threats while proposing solutions for those threats to be neutralised.

The AI world that getting created will be kinder to organisations that excel at embracing the technology and anticipating its impacts. In future, these organisations that attempt to maintain this wall between human and machine are going to be at a ever-greater competitive disadvantage when compared to their rivals who prefer to break this barrier and make use of Artificial Intelligence in every possible way to effectively integrate their capabilities with those of humans. These organisations that can quickly sense and respond to opportunities will acquire the opportunities in the AI landscape. In the near term, AI will not replace risk managers, but risk managers who use AI will replace the rest.

© 2018 PiChain Innovations Pvt. Ltd. All rights reserved

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