In 2021, there’s a substantial amount of angst and anxiety, as the upheaval around us is changing the way we live, work and interact. Let’s examine 2021 and try to put a challenging year for many in perspective with a focus on the intersection of identity and technology and all its ramifications. Financial technology for all Creating more prosperity and distributing it more equally is one path forward for a brighter future. As opposed to limiting the tools of wealth creation to an already advantaged few, the opportunity to democratize access to financial services offers the hope of financial inclusion for all. It’s not simply about inclusion but giving people wealth management tools, investment opportunities and the power to participate in new economic structures. From meme stocks to crypto, 2021 has seen increased interest in new financial opportunities. Perhaps it’s a response to the great resignation as people are leaving their jobs in more significant numbers than ever before and looking for other ways to make money. Another factor might be the ease of opening up a new financial service account and the blossoming of the range of financial options available. New services are making it easier than ever to save and invest, and new technologies are removing restrictions (such as high fees and minimum investment levels) while simultaneously offering innovative investment models. One example is the convergence of open banking regulations, API integrations and fintech business models that enable Banking as a Service (BaaS). BaaS is a new financial opportunity and business model for outsourcing banking services to third parties. Banks can act as platforms, providing services to new digital banks or other organizations. BaaS can also work the other way, with fintech companies offering their services to banks. Another example is embedded finance, which simplifies organizations integrating financial services into their offerings. These integrations allow financial services providers to expand customer relationships, increase revenue and profitability and deliver new services and offerings without the time and cost of traditional customer acquisition. Todd Latham, chief growth officer at Currencycloud, states, “Embedded finance will be the next stage in the evolution of fintech. Payments, wallets and banking-like services will become an integral part of internet-led companies spanning all aspects of the global economy.” The growth of the buy now, pay later (BNPL) sector is evidence of the success of the embedded finance model, with Bank of America predicting growth of 10x to 15x by 2025. Transactions may eventually reach $1 trillion annually. Blockchain initiatives have also gained a lot of attention as ways to change financial services. While the price of Bitcoin and other cryptocurrencies make the most news, developments in decentralized finance (DeFi) might prove to be the most significant change in the long term. The World Economic Forum in their DeFi Policy-Maker Toolkit states: “Open-source technology, economic rewards, programmable smart contracts and decentralized governance might offer greater efficiencies, opportunities for inclusion, rapid innovation and entirely new financial service arrangements.” Another possible game-changer is Non-Fungible Tokens (NFTs), which has seen the value of tokens sold in the 3rd quarter of 2021 expand 823% from the previous quarter. NFTs are provable as unique, digital assets so that each NFT can be valued, and sold, individually. They can also be connected to smart contracts, which provide the asset with certain, unalterable attributes. These contracts that auto-execute are only limited by the creativity of programmers and designers. The result is NFTs enable multiple use-cases that promise to change digital interactions. NFTs aren’t just fancy digital collectibles but are a way to bring foundational business concepts such as ownership and contracts into the rapidly developing web 3.0 metaverse. Expanding the Regtech guardrails With the speed of innovation and whole new models of financial services comes additional risks of theft, fraud, hacks, manipulations, money laundering and other financial crimes. As Andrew W. Lo, Director of the MIT Laboratory for Financial Engineering puts it: “Over the last 20 years, the speed of innovation in technology has greatly increased. It’s been going great guns. Historically, regulation has been one or two steps behind. Now they’re maybe three or four steps behind, and that gets to be dangerous.” While lawmakers and regulators are hard at work trying to understand the implications of changing technology and create safe and fair markets, they also want to be very careful not to hinder progress unduly. Industry participants who want to be forward-thinking should consider the intent of current regulatory requirements and how they project onto any future developments. Anticipating any financial innovation that becomes successful will, at some point, draw the attention of regulators is not far-fetched. Consider the Travel Rule, the Financial Action Task Force (FATF) guidance on how governments should “obtain, hold, and transmit required originator and beneficiary information” when it comes to cryptocurrency transactions. Since the FATF is on record as recommending collecting this information, most jurisdictions will either already require it or have plans to do so. One reason behind the FATF decision and numerous financial laws is the continuing threat of money laundering. This year, the Pandora Papers made international news with its comprehensive exposé of financial secrecy. The Papers were a trove of 11.9 million leaked documents exposing shell accounts of over 100 world leaders, billionaires and celebrities, demonstrating the ongoing need for strict Anti-Money Laundering (AML) laws. In the E.U., 6AMLD came into effect, and now employees and officials of organizations — and entities working on behalf of those organizations — can be held criminally liable. The Directive sees no distinction between directly benefiting from money laundering and those overtly aiding and abetting it, so organizations that aid and abet criminals in laundering their illicit gains are also potentially criminally liable and could face very serious consequences. As the E.U. often leads in these types of legal initiatives, it wouldn’t be surprising to see similar penalties start to appear more globally. Identity as a core enabler and protector One common thread amongst all these digital opportunities and threats is the need for trust. There needs to be a way to understand who you are interacting and transacting with online. For compliance purposes, to understand the level of risk, deter fraud and create safe online environments and relationships, there need to be effective identity processes. Trulioo commissioned independent research to examine consumer attitudes and behaviors around online security. These insights are available in the New fraud threats in the digital-first world report, which concludes: “Brands that can reassure consumers that they’re protecting them from online fraud and identity theft efficiently and conveniently can build increased trust, loyalty and engagement. And as our reliance on digital services continues to grow, this will become an even more essential ingredient for success as businesses move into an uncertain future.” This is a critical time in the identity verification industry, as global demand for digital trust, security and compliance solutions skyrocket. There have been numerous developments in identity verification and fraud prevention, with lots of financing and M&A activity in 2021 alone. One example is the Trulioo Series D funding of $394 million at a $1.75 billion valuation. The global pandemic has pushed identity verification to the forefront for businesses and service providers. Anyone who has a stake in onboarding users and transacting with customers online needs to be thinking strategically about their identity verification programs. In 2021, Trulioo celebrated its 10th anniversary. There’s been tremendous progress in the IDV space in the last decade, and Trulioo has been in the forefront, helping build trust online for safer transactions and interactions and advancing financial inclusion around the globe. Over the next ten years, we expect digital identity to become an even bigger part of everyday life for people across the planet, and it’ll be easy and safe to use. One way to effectively deal with anxiety over the present is understanding the context while also planning for necessary changes in the future. At Trulioo, we are growing fast and working hard to get closer to our goal of trust, privacy and inclusion. As we look back at 2021, we are encouraged by the efforts of our team and our business partners to make a better world. We’re not anxious about the future. Rather, we are excited about creating better times to come. We hope your 2022 is a great year. Regulatory technology (regtech) seeks to provide “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions. In the EU, the European Banking Authority (EBA) has the authority to help drive innovative regtech services and regulatory alignment. They have created a report, EBA Analysis of Regtech in the EU Financial Sector, to provide insight into the current regtech landscape and its benefits and challenges. Regtech is now mainstream While use varies by jurisdiction and by use case, many financial institutions (FIs) have adopted at least some regtech solutions. Anti-Money Laundering (AML) has been the most popular use case, with 75% of FIs reporting experience of using the technology. Other significant use cases include ICT security‐related, adopted by 50% of the FIs, and fraud prevention, used by 40% of the respondents. It’s no surprise that most regtech providers are new, as the term itself was coined in 2015. The results are that 39% of regtech providers are smaller companies and have less than six FI clients. Establishing credibility with FIs is a significant hurdle. Larger regtech companies from outside the EU seem to have more traction; the survey found that non‐EEA‐based have 2.3 times more customers than the average EEA‐based provider. These non-European companies also seem to be farther along in their corporate development, with 40% already in advanced rounds of venture financing. When it comes to actual implementation, 60% of AML, fraud prevention and ICT projects are already in production. While some regtech technologies might still be speculative, their use is well developed in many jurisdictions across the EU. Most FIs will continue to spend the same amount or slightly increase budgets for regtech. The reason for regtech Interestingly, the benefits the FIs see and what the industry believes don’t sync up. The most significant use, from the FI side, is the ability to improve risk management. But from the provider side, they see improvements in efficiency as the main advantage. It seems both regtech providers and FIs need to understand better how regtech can best fit into the FIs compliance stack to improve results. Solutions that help compliance professionals better use their time provide a sweet spot that might satisfy all parties. Both sides agree that greater accuracy, speed and data optimization is a decisive advantage. Barriers to regtech success The most significant barriers to ongoing regtech success with FIs are around the use of data, which makes sense, considering all the news around data hacks and ever-tightening privacy requirements. There are cybersecurity factors, as well as how best to handle data across legacy systems. Other regulatory requirements need consideration as the legal landscape continues to change. It’s difficult to determine a future-proof technology when future requirements are still to be determined. The ongoing shift in the specifications raises the cost, increases the need for education and training and adds to an environment where the FIs often consider regtech solutions immature. From the regtech point of view, the FIs tech stacks can lack standardization and integration abilities. Trying to implement their modern API solutions on legacy platforms can lead to slow roll-outs and performance hits. Without a holistic view of regtech, a point solution doesn’t enable all the technology’s opportunities. Many regtech companies are disadvantaged due to their smaller size. They can’t offer a breadth of solutions. They are more susceptible to changes in regulations or the marketplace. They don’t have bargaining power when it comes to dealing with large FIs. And they have competitive pressures from numerous other regtechs, all fighting to establish themselves. Path to regtech success It’s important to note that the biggest barriers to success are internal factors of the organization. As the EBA analysis states, “As the majority of identified challenges that hold back the regtech market development are linked to internal factors of FIs and regtech providers, it would be primarily for these companies to take further actions to address the challenges.” There are concrete steps that can assist regtech in the eyes of regulators: Improve awareness and education of regulators and supervisors to understand the capabilities and opportunities of regtech better Look for ways to harmonize laws and regulations across the EU to simplify and speed adoption Foster collaboration with industry and regulators by using regulatory sandboxes and other forums to demonstrate usefulness and compliance The analysis also points to having a central database of providers or having a certification program to help build trust in regtech solutions. Many technologies hold great promise to reduce risk and fraud and provide better compliance. Ensuring these technologies can succeed will offer robust benefits to the industry, FIs and regulators alike. Working together, understanding and overcoming the potential problems is an initiative that can appeal to all EU compliance professionals. Posts navigation 1 2 … 34 Next
In 2021, there’s a substantial amount of angst and anxiety, as the upheaval around us is changing the way we live, work and interact. Let’s examine 2021 and try to put a challenging year for many in perspective with a focus on the intersection of identity and technology and all its ramifications. Financial technology for all Creating more prosperity and distributing it more equally is one path forward for a brighter future. As opposed to limiting the tools of wealth creation to an already advantaged few, the opportunity to democratize access to financial services offers the hope of financial inclusion for all. It’s not simply about inclusion but giving people wealth management tools, investment opportunities and the power to participate in new economic structures. From meme stocks to crypto, 2021 has seen increased interest in new financial opportunities. Perhaps it’s a response to the great resignation as people are leaving their jobs in more significant numbers than ever before and looking for other ways to make money. Another factor might be the ease of opening up a new financial service account and the blossoming of the range of financial options available. New services are making it easier than ever to save and invest, and new technologies are removing restrictions (such as high fees and minimum investment levels) while simultaneously offering innovative investment models. One example is the convergence of open banking regulations, API integrations and fintech business models that enable Banking as a Service (BaaS). BaaS is a new financial opportunity and business model for outsourcing banking services to third parties. Banks can act as platforms, providing services to new digital banks or other organizations. BaaS can also work the other way, with fintech companies offering their services to banks. Another example is embedded finance, which simplifies organizations integrating financial services into their offerings. These integrations allow financial services providers to expand customer relationships, increase revenue and profitability and deliver new services and offerings without the time and cost of traditional customer acquisition. Todd Latham, chief growth officer at Currencycloud, states, “Embedded finance will be the next stage in the evolution of fintech. Payments, wallets and banking-like services will become an integral part of internet-led companies spanning all aspects of the global economy.” The growth of the buy now, pay later (BNPL) sector is evidence of the success of the embedded finance model, with Bank of America predicting growth of 10x to 15x by 2025. Transactions may eventually reach $1 trillion annually. Blockchain initiatives have also gained a lot of attention as ways to change financial services. While the price of Bitcoin and other cryptocurrencies make the most news, developments in decentralized finance (DeFi) might prove to be the most significant change in the long term. The World Economic Forum in their DeFi Policy-Maker Toolkit states: “Open-source technology, economic rewards, programmable smart contracts and decentralized governance might offer greater efficiencies, opportunities for inclusion, rapid innovation and entirely new financial service arrangements.” Another possible game-changer is Non-Fungible Tokens (NFTs), which has seen the value of tokens sold in the 3rd quarter of 2021 expand 823% from the previous quarter. NFTs are provable as unique, digital assets so that each NFT can be valued, and sold, individually. They can also be connected to smart contracts, which provide the asset with certain, unalterable attributes. These contracts that auto-execute are only limited by the creativity of programmers and designers. The result is NFTs enable multiple use-cases that promise to change digital interactions. NFTs aren’t just fancy digital collectibles but are a way to bring foundational business concepts such as ownership and contracts into the rapidly developing web 3.0 metaverse. Expanding the Regtech guardrails With the speed of innovation and whole new models of financial services comes additional risks of theft, fraud, hacks, manipulations, money laundering and other financial crimes. As Andrew W. Lo, Director of the MIT Laboratory for Financial Engineering puts it: “Over the last 20 years, the speed of innovation in technology has greatly increased. It’s been going great guns. Historically, regulation has been one or two steps behind. Now they’re maybe three or four steps behind, and that gets to be dangerous.” While lawmakers and regulators are hard at work trying to understand the implications of changing technology and create safe and fair markets, they also want to be very careful not to hinder progress unduly. Industry participants who want to be forward-thinking should consider the intent of current regulatory requirements and how they project onto any future developments. Anticipating any financial innovation that becomes successful will, at some point, draw the attention of regulators is not far-fetched. Consider the Travel Rule, the Financial Action Task Force (FATF) guidance on how governments should “obtain, hold, and transmit required originator and beneficiary information” when it comes to cryptocurrency transactions. Since the FATF is on record as recommending collecting this information, most jurisdictions will either already require it or have plans to do so. One reason behind the FATF decision and numerous financial laws is the continuing threat of money laundering. This year, the Pandora Papers made international news with its comprehensive exposé of financial secrecy. The Papers were a trove of 11.9 million leaked documents exposing shell accounts of over 100 world leaders, billionaires and celebrities, demonstrating the ongoing need for strict Anti-Money Laundering (AML) laws. In the E.U., 6AMLD came into effect, and now employees and officials of organizations — and entities working on behalf of those organizations — can be held criminally liable. The Directive sees no distinction between directly benefiting from money laundering and those overtly aiding and abetting it, so organizations that aid and abet criminals in laundering their illicit gains are also potentially criminally liable and could face very serious consequences. As the E.U. often leads in these types of legal initiatives, it wouldn’t be surprising to see similar penalties start to appear more globally. Identity as a core enabler and protector One common thread amongst all these digital opportunities and threats is the need for trust. There needs to be a way to understand who you are interacting and transacting with online. For compliance purposes, to understand the level of risk, deter fraud and create safe online environments and relationships, there need to be effective identity processes. Trulioo commissioned independent research to examine consumer attitudes and behaviors around online security. These insights are available in the New fraud threats in the digital-first world report, which concludes: “Brands that can reassure consumers that they’re protecting them from online fraud and identity theft efficiently and conveniently can build increased trust, loyalty and engagement. And as our reliance on digital services continues to grow, this will become an even more essential ingredient for success as businesses move into an uncertain future.” This is a critical time in the identity verification industry, as global demand for digital trust, security and compliance solutions skyrocket. There have been numerous developments in identity verification and fraud prevention, with lots of financing and M&A activity in 2021 alone. One example is the Trulioo Series D funding of $394 million at a $1.75 billion valuation. The global pandemic has pushed identity verification to the forefront for businesses and service providers. Anyone who has a stake in onboarding users and transacting with customers online needs to be thinking strategically about their identity verification programs. In 2021, Trulioo celebrated its 10th anniversary. There’s been tremendous progress in the IDV space in the last decade, and Trulioo has been in the forefront, helping build trust online for safer transactions and interactions and advancing financial inclusion around the globe. Over the next ten years, we expect digital identity to become an even bigger part of everyday life for people across the planet, and it’ll be easy and safe to use. One way to effectively deal with anxiety over the present is understanding the context while also planning for necessary changes in the future. At Trulioo, we are growing fast and working hard to get closer to our goal of trust, privacy and inclusion. As we look back at 2021, we are encouraged by the efforts of our team and our business partners to make a better world. We’re not anxious about the future. Rather, we are excited about creating better times to come. We hope your 2022 is a great year.
Regulatory technology (regtech) seeks to provide “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions. In the EU, the European Banking Authority (EBA) has the authority to help drive innovative regtech services and regulatory alignment. They have created a report, EBA Analysis of Regtech in the EU Financial Sector, to provide insight into the current regtech landscape and its benefits and challenges. Regtech is now mainstream While use varies by jurisdiction and by use case, many financial institutions (FIs) have adopted at least some regtech solutions. Anti-Money Laundering (AML) has been the most popular use case, with 75% of FIs reporting experience of using the technology. Other significant use cases include ICT security‐related, adopted by 50% of the FIs, and fraud prevention, used by 40% of the respondents. It’s no surprise that most regtech providers are new, as the term itself was coined in 2015. The results are that 39% of regtech providers are smaller companies and have less than six FI clients. Establishing credibility with FIs is a significant hurdle. Larger regtech companies from outside the EU seem to have more traction; the survey found that non‐EEA‐based have 2.3 times more customers than the average EEA‐based provider. These non-European companies also seem to be farther along in their corporate development, with 40% already in advanced rounds of venture financing. When it comes to actual implementation, 60% of AML, fraud prevention and ICT projects are already in production. While some regtech technologies might still be speculative, their use is well developed in many jurisdictions across the EU. Most FIs will continue to spend the same amount or slightly increase budgets for regtech. The reason for regtech Interestingly, the benefits the FIs see and what the industry believes don’t sync up. The most significant use, from the FI side, is the ability to improve risk management. But from the provider side, they see improvements in efficiency as the main advantage. It seems both regtech providers and FIs need to understand better how regtech can best fit into the FIs compliance stack to improve results. Solutions that help compliance professionals better use their time provide a sweet spot that might satisfy all parties. Both sides agree that greater accuracy, speed and data optimization is a decisive advantage. Barriers to regtech success The most significant barriers to ongoing regtech success with FIs are around the use of data, which makes sense, considering all the news around data hacks and ever-tightening privacy requirements. There are cybersecurity factors, as well as how best to handle data across legacy systems. Other regulatory requirements need consideration as the legal landscape continues to change. It’s difficult to determine a future-proof technology when future requirements are still to be determined. The ongoing shift in the specifications raises the cost, increases the need for education and training and adds to an environment where the FIs often consider regtech solutions immature. From the regtech point of view, the FIs tech stacks can lack standardization and integration abilities. Trying to implement their modern API solutions on legacy platforms can lead to slow roll-outs and performance hits. Without a holistic view of regtech, a point solution doesn’t enable all the technology’s opportunities. Many regtech companies are disadvantaged due to their smaller size. They can’t offer a breadth of solutions. They are more susceptible to changes in regulations or the marketplace. They don’t have bargaining power when it comes to dealing with large FIs. And they have competitive pressures from numerous other regtechs, all fighting to establish themselves. Path to regtech success It’s important to note that the biggest barriers to success are internal factors of the organization. As the EBA analysis states, “As the majority of identified challenges that hold back the regtech market development are linked to internal factors of FIs and regtech providers, it would be primarily for these companies to take further actions to address the challenges.” There are concrete steps that can assist regtech in the eyes of regulators: Improve awareness and education of regulators and supervisors to understand the capabilities and opportunities of regtech better Look for ways to harmonize laws and regulations across the EU to simplify and speed adoption Foster collaboration with industry and regulators by using regulatory sandboxes and other forums to demonstrate usefulness and compliance The analysis also points to having a central database of providers or having a certification program to help build trust in regtech solutions. Many technologies hold great promise to reduce risk and fraud and provide better compliance. Ensuring these technologies can succeed will offer robust benefits to the industry, FIs and regulators alike. Working together, understanding and overcoming the potential problems is an initiative that can appeal to all EU compliance professionals.