FATF FinTech And RegTech

FATF embraces technology

It’s great to see that the global standard-setter on anti-money laundering and counter-terrorist financing (FATF) is embracing the galloping trend toward technology solutions and taking a consultative approach on FinTech and RegTech.

Specifically, it announced on 22 March 2017 that it has been discussing:

  • the use of biometric technology and centralised databases as part of identity verification;
  • artificial intelligence and machine learning as part of transaction monitoring and screening; and
  • the opportunities for technology to enhance financial inclusion and reduce reliance on cash – the latter a risk mitigant in itself.

These discussions formed part of its FATF Private Sector Consultative Forum in Vienna.  An earlier roundtable on Fintech and RegTech in February 2017 also covered:

  • distributed ledger technologies (blockchain);
  • new payment methods and techniques;
  • digital currency;
  • regulatory reporting solutions; and
  • products and technologies supporting compliance with customer due diligence measures.

What is heartening about all this is that technology is on the table.

Is FATF really new to technology?

FATF actually has a great track record in examining the impacts of new technologies.   For example, it continues to be a thought-leader, covering issues such as new payment methods (prepaid cards, mobile payments etc) as far back as 2013, and virtual currencies in 2015.  However, to date, these have largely looked at risk and regulation.  The latest developments signal an elevated focus on opportunity.

Why should this matter to you?

There is significant movement on FinTech and RegTech solutions, but the problem for many of our clients remains that the law simply cannot keep up with the pace of innovation.

Some insist that “the law is technology-neutral”, and that there is flexibility in the requirements.  However, what we understand by “technology” is no longer limited to basic tech evolutions like e-statements, which we can sometimes squeeze into existing provisions.   The world really has changed.  This means that protocols that refer, for example, to collecting “documents”, do not contemplate that identity can be verified through a physical biometric directly linked to an individual, rather than an identity document.

As the FATF Spanish Presidency prioritises innovation, this means that:

  • better regulation – you can expect to see FATF Recommendations and/or guidance adapt to better reflect the opportunities that technology has to offer – we are already starting to see this engagement at the domestic level throughout several APAC markets;
  • better understanding of risk – new risks and vulnerabilities will be identified by both financial institutions and regulators alike – this should be embraced because it makes AML/CTF far more meaningful; and
  • new opportunities – regulatory support and certainty will encourage more innovative solutions that make customer due diligence, screening and monitoring better, more customer-friendly and (hopefully) cheaper in the near-term.

Engagement is key

Good regulation cannot be developed in a vacuum.   It’s clear from FAFT’s private sector discussions that FATF understands this.  We are also seeing good engagement in domestic markets including Hong Kong, where ideas such as digital identity are fast gaining traction.

This means if you see a problem or have a great solution, make sure you are speaking to the right people.  Things are moving quickly – don’t wait to be asked.

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