Last year was another blockbuster year for anti money-laundering related fines which reached $2.7 billion and 80 financial institutions fined.
But financial institutions aren't the only ones beholden to AML and KYC regulations.
Because banks and financial institutions need to comply with AML regulations, their company customers need to build the right compliance systems, too.
That's not easy to do. Compliance with AML and knowing your customer regulations is not a core competency of many companies, especially startups that have small teams.
As a result, many larger companies devote teams of people to the process—who most often cobble together a variety of software tools and solutions—to pass muster with bank underwriters, while startups struggle to get the same work done with fewer resources.
All of this takes time. That can cause delays in getting products and services to market. Such delays, especially for startups battling other fast-moving competitors, can be a death knell.
Lost time = lost sales
Time can be lost in several places on the new compliance journey.
To design a program, companies need to do such things as put someone in charge, document how they screen customers and transactions in a risk-based way, figure out how to train employees to watch out for fraud or sanctioned individuals and businesses, deal with record retention, information protection and even law enforcement requests. Customers often hire consultants to help, but they can be costly.
Then, there's the actual building of a system and integrating with vendors to get an end-to-end solution up and running. If the program isn't up to snuff, banks will likely take longer to do their due diligence because it is they, after all, who'll most likely be fined if their customers don't run rigorous compliance programs.
Other costs of setting up one's own compliance program from scratch include:
- Overhead. Companies that need to hire and support large teams to review compliance cases manually end up with large operational overhead.
- Distraction. Creating a customizable compliance and fraud prevention system can take scarce engineering time away from other mission-critical projects.
- Lost customers. Sophisticated fraud targeting fintech products is on the rise, making it critical to keep up with compliance best practices. As such, fintech products need to build fast and easy user onboarding flows while minimizing fraud. But customers can be lost in the process if the compliance program isn't top notch. False positives on compliance or fraud checks, for instance, can prevent legitimate users from signing up for a fintech's services. At the same time, collecting too much information or delaying user onboarding can cause customers to drop out of the sales funnel before deals get closed.
- Incorrect decisions. Most companies have multiple systems for payment operations—the movement of money—and compliance. That's not only inefficient but can cause delays and incorrect decisions. That's because payments data is essential for making compliance decisions, requiring either an integration of systems or manual processes for cross-referencing data. These requirements can cause delays and incorrect decisions. At the same time, supporting multiple systems requires financial and operational overhead.
Technology solutions expand
Because compliance and anti-fraud are a must-have, software solutions are expanding to meet the market need as online commerce continues to grow.
Other new products bring more of the work of setting up and managing a compliance and fraud program into one unified solution along with payments operations.
This is especially critical for the flurry of new fintech companies that are experiencing rapid growth and acquiring customers quickly. They don't have time to wait weeks to get a compliance program up to speed; instead they need to effectively manage risk and compliance from day one, while they battle to secure market share in an increasingly crowded market.
Modern Treasury now offers an integrated solution for KYC/AML and transaction monitoring, plus payment operations, which provides an out-of-the-box compliance program and a much easier path than integrating a bunch of different vendors.
With solutions like ours, companies can focus on their core business instead of managing multiple vendors and systems for compliance, fraud, and payment operations.