With the evolution of technology, the constant assessment of risk factors have become integral to every organisation. Strictly speaking of the ever expanding FSI landscape, the need to understand, predict and mitigate risks has significantly grown in the midst of the pandemic. As the pandemic forced most businesses to operate in a new fashion, it also exposed the whole industry to unethical activity and disruption. To better understand how to manage risk effectively and become cognizant of the role risk management solutions can play in the FSI landscape, we interviewed Douglas Wolfson, Director of Financial Crime Compliance at LexisNexis Risk Solutions.
With significant advances in technology, please talk to us about some of the emerging risks related with it?
Douglas Wolfson: There is always anticipation that criminals will adapt to new technologies quicker, this can oftentimes lead to better risk management solutions in the long run. Take cryptocurrencies as an example; at first, there was real concern around money laundering due to anonymity in the cryptocurrency landscape. However, once Financial Action Task Force (FATF) released the interpretive notes for recommendations 15 (New Technologies) and 16 (Wire Transfers), which required KYC and AML screening for virtual asset service providers and transaction tracking, the mechanisms of cryptocurrency made it possible to track transactions and potentially know end users. Further, as all transactions are public and the blockchain is immutable, specific coins can be tracked forever. This is a significantly better situation than with cash, which is extremely difficult to monitor and track. Hence while significant advances in technology do court various risks, these are often addressed through effective risk management solutions.
Talk to us about the evolving role of risk solution providers in such a dynamic regulatory environment?
Douglas Wolfson: Risk solution providers are essential to regulated entities in terms of helping them understand evolving regulations both in terms of consulting on how the regulatory environment is evolving and what it means for these entities in terms of solutions provided to their clients. For instance, in a situation where individuals and entities are increasingly being added to sanctions lists, end users must have rapid updates to the lists that they require for screening regular and potential new customers to ensure that they are capturing all of the risk in their client base. Here is where reliance on solution providers comes into the picture. Additionally, the need to have tools to match evolving or dynamic use cases forces solution providers to be nimble in how their products can help solve compliance issues, while constantly improving efficiency in customer workflows.
With increased monitoring of transactions, AML and fraud checks and extensive regulatory requirements, how can risks in the financial services industry be effectively managed?
Douglas Wolfson: The increasing use of data analytics, machine learning and artificial intelligence is essential to effectively manage and assess risk. End users require highly efficient processes to ensure that they can onboard and monitor as many customers as possible as businesses continue to evolve and expand. Therefore, compliance departments must be able to monitor risk without slowing down the business. This results in a reduction in false positives without a corresponding increase in false negatives. The best way to achieve this is through data analytics and algorithms that can find and automatically flag false positives, so that these transactions can pass, while ensuring that risky transactions are reviewed further.
What are some of the impact of Covid-19 on Financial Crime Compliance and how is it set to evolve in light of the pandemic?
Douglas Wolfson: COVID-19 has seen a very swift move to digital across all industry types, which further implies that those companies with digital platforms have seen a sharp uptick in onboardings and transactions. This emphasizes the ability to be able to quickly onboard new customers and monitor transactions at significantly increased rates than previously expected. However, this can essentially strain companies that haven’t been using compliance technology to its fullest potential as increase in onboarding customers means increased workloads for employees, slower onboarding and potentially slower transaction processing times. This is just one of the many impacts of Covid-19 that is currently plaguing the industry. Hence, we see that companies that are now quickly adapting to new trends, are focused more on technology and have also realized more success.
Considering APAC, significant strides have been made in the banking sector by extending licenses to allow new business models to compete with incumbents. What are some of the immediate opportunities for LexisNexis Risk Solutions with regard to this?
Douglas Wolfson: LexisNexis Risk Solutions supports the APAC-wide extension of licenses to new banking business models. Competition will help the banking business flourish and bring in new technologies and advances that will change the way that we all bank. With this comes a need for end-to-end e-KYC solution, which we provide. We are excited to discuss with this sector of the market how we can help support digital and device KYC, identity verification and authentication, KYC/AML and sanctions screening and ongoing monitoring of the business, all using exception-only processing. Further, we also believe that this is key to the future of digital banking.
Looking at the next 5 years, what are some of the changes in risk management and compliance that could shape the workings of the financial services industry?
Douglas Wolfson: Over the past five to ten years, we have seen the development of risk based approaches in major APAC markets and we expect this is to continue to expand throughout the region. Regulators overwhelmingly agree that check box compliance management does not work and thus there is a need to continue expanding the RBA approach throughout the region. This, along with the implementation of more and better technological solutions, will help to improve the efficiency and effectiveness of compliance departments, which will help to grow overall businesses.