In the first post in this series, we discussed how Robinhood and Monzo have struggled to align their compliance activities with their speed of growth. We also promised to explore how the next generation of solutions have been designed to address the challenges facing hypergrowth fintechs. But let’s start by briefly assessing how compliance solutions have evolved.
In the past, financial institutions relied on legacy technology which meant much of the compliance process was manual. Every few hours, batches of data would be circulated for analysts to review, and they would flag any transactions that seemed suspicious. This approach worked for a long time because of the dominance of the traditional banking system.
However, fintech startups have upset this status quo. These days there are far more channels to monitor, a higher volume of transactions and financial crimes are increasingly complex. Relying on the legacy approach to risk management is like trying to power an electric car with unleaded gas.
Next-generation solutions automate compliance activities using artificial intelligence (AI). AI algorithms process vast amounts of data in a fraction of the time required by a human. They can spot patterns, make connections and identify risks that aren’t obvious to the naked eye. Take linguistics for example, which allows an algorithm to recognize spelling or regional variations of a name or entity.
Another benefit offered by AI-powered solutions is they’re always on. Financial crime can occur at any time of the day, so fintechs need a risk management solution that works around the clock and can adjust to their evolving demands. Even if you had a team of analysts working shifts, they still wouldn’t be as accurate or efficient at spotting risks as an AI algorithm.
Of course, an algorithm is only as effective as the data fed into it. The larger the dataset, the more effective it gets. Buying data is a step in the right direction, but if it’s siloed, then you risk missing out on vital links. How would you know if an individual who shows up on a terrorism financing list is also a director of a shell company?
The most disruptive fintechs are data-led. Their c-suite is more likely to have come from Google, Facebook, Twitter, Square or Paypal than the traditional financial sector. Many built their products on technology such as AI, and they need a complementary compliance solution. That’s why we believe our Hyperscale Financial Risk Insights position us as the ideal solution for hypergrowth fintechs. For example, ComplyAdvantage has spent the last seven years building our proprietary dataset, known as ComplyData. It consists of 20,000 sources, such as Publicly Exposed People (PEP) and sanctions lists, and we constantly refresh it as more data becomes available. As ComplyAdvantage’s founder Charles Delingpole likes to say, we’ve built the world’s largest database of individuals and business entities. This dataset feeds into our AI algorithms which are trained to contextualize and uncover even the most subtle indicators of financial crime.
‘The fastest tortoise in the race’
Cameron Winklevoss, co-founder of Gemini- a client of ComplyAdvantage- recently told Yahoo Finance that he wants his crypto exchange to be the ‘fastest tortoise in the race’. Winklevoss believes Gemini’s focus on compliance will pay off in the long term, a policy which appears prudent considering rival Binance’s recent troubles with global regulators.
To learn how ComplyAdvantage can help your hypergrowth fintech keep on top of its compliance activities, get in touch today.
Originally published September 6, 2021, updated May 6, 2022
Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.
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