Regtech, short for regulatory technology, entails the process of automating the identification of issues associated with regulatory compliance. This practice is crucial for reinforcing the regulatory measures in order to undermine the financial risks.
In 2021, approximately 45 regtech firms were operated in Sweden, all with the aim to combat cybersecurity attacks, identity theft, and privacy concerns.
Some of the most critical strides of regtech modules are observed in anti-money laundering compliance. Regtech AML stimulates the detection and prevention of money laundering operations in the fintech sector. These solutions enable the fintech industries to automate identity authentication and KYC compliance activities.
This blog provides a detailed analysis of how the regtech AML modules are operated and the different regulations that stimulate its efficiency in the fintech sector.
Understanding Regtech AML – A Quick Synopsis
Regtech AML solutions help financial institutions comply with the official KYC and anti-money laundering regulations through automated channels. These AML checks facilitate the rectification of money laundering and drug trafficking activities.
Regulatory technology significantly enhances the accuracy of compliance measures. Additionally, these operations reduce the potential human errors, which often affect the credibility and reliability of regulatory practices. Regtech AML assists the fintech industry in expediting its customer onboarding procedures as all the identification and screening operations are conducted through digital measures.
Significance of Regtech AML Compliance in the Fintech Sector
Regtech AML compliance is significant for ensuring effective operations in the fintech sector. These measures automate fintech’s AML and KYC regulations in multiple ways, some of which are briefly examined below:
Digital Identity Authentication
Regtech AML modules assist the fintech sector in automating the customer onboarding procedures, as all the identification is carried out through digital screening and biometric authentication modules. These checks undermine money laundering practices as customer’s financial documents are extensively detected and screened through Optical Character Recognition (OCR) scanners.
Watchlist Screening
Regtech AML solutions are powered by advanced machine-learning measures, ensuring a detailed screening of potential customers against sanction and PEP lists. These lists provide detailed insights into a customer’s risk profile and their demographics in real-time.
Transaction Screening
Automated regulatory technology facilitates a detailed evaluation of customers’ transactional patterns through customer due diligence operations, allowing examiners to evaluate variations in financial activities. These screening modules are an effective indicator of money laundering practices as they effectively flag all unusual financial activities instantly.
Overcome Risk Management Challenges With RegTech Solutions
Before the evolution of regtech AML solutions, the fintech sector was vulnerable to various cybercriminal activities. In the past, AML practices were dependent on manual data entry and record analysis operations. Additionally, an extensive amount of customer’s transactional records were evaluated manually, which often led to inaccurate and unreliable results. These practices opened ways for imposters to easily launder money from one place to another.
Thanks to regtech AML solutions, all the transaction monitoring and identity authentication procedures were automated, leading to effective compliance with the international regulatory guidelines. Additionally, regtech measures are essential for rectifying money laundering and related transactional crimes.
Critical Aspects of Regtech in AML Practices
Regtech AML measures are backed by the latest technologies, which stimulate adherence to the official AML and KYC regulations. Some of the most critical aspects of regtech AML are as follows:
- Machine learning and artificial intelligence modules have skyrocketed the effectiveness of regtech AML solutions. These modules automate the indication of malicious transactional activities, ensuring effective assessment of customers’ risk profiles and financial demographics.
- Blockchain technology is used to function regtech operations. These algorithms ensure transparent data networking across the authorized channels and parties. This ensures the protection of customer’s transactional information from identity theft and data breaches.
Regtech Regulatory Stances – A Dive Into Official AML Regulations
The Financial Conduct Authority (FCA) has established various guidelines to stimulate the regtech solutions. This regulation stresses the intersection of regulated entities with the regulations imposed by higher authorities.
Additionally, the European Banking Authority (EBA) focuses on continuous innovation in anti-money laundering compliance controls. EBA requires the fintech institutions to adopt a proactive approach in order to assist the regtech solutions to effectively comply with the AML regulations.
Furthermore, the adherence to the Counter-Terrorism Financing (CTF) and AML measures assist the regtech modules to swiftly evaluate the customer’s identity and risk profiles against multiple watchlists, ensuring a reliable analysis of their transactional activities in real-time.
Concluding
The adherence to an effective regulatory module requires the businesses to incorporate the latest technologies in compliance methods. This is where the significance of regtech AML is understood. Regtech AML helps the fintech sector effectively evaluate the customer’s transactional activities through automated checks.
The automated identity evaluation and risk management modules make these measures highly demandable by the fintech institutions. The fintech sector can benefit from such regulatory technologies as they automate remote onboarding and identity screening operations instantly, ensuring reliable and accurate results.
