regtech checking money close up

Checking money close up. Source: Shutterstock

Shaky times for compliance call for flexible regtech

  • AI-based compliance and regtech are playing key roles in combating financial security problems around Southeast Asia (SEA)

To the surprise of no one, financial crime is reaching pretty high levels in 2020, and the speed at which this type of crime is evolving in the information-heavy age has financial players worried, and questioning the role of regtech.

The arrival of the pandemic in Southeast Asia led to a sharp hike in cybersecurity incidents, so governments and regulators are facing challenges on multiple fronts. The economic impact of poor compliance processes cannot be overlooked, especially in such uncertain times. According to the Financial Action Task Force (FATF), a global anti-money laundering (AML) watchdog, a number of countries including Cambodia and Myanmar had strategic deficiencies in their ability to counter money laundering, terrorist financing, and proliferation financing.

COVID-19 has triggered new norms such as remote working practices and a boost in the uptake of digital tools and services. In this new reality, compliance and regulation technology (regtech) approaches and solutions must be upgraded to accommodate flexibility and ease of use.

Thanks to the versatile applications inherent to artificial intelligence (AI), the Integrated AML Compliance Survey by data analytics firm FICO finds the majority of Southeast Asian countries are now committed to using AI to improve AML practices.

The news comes a year after McKinsey found the financial sector at large was having issues embracing new tech. Depending on the complexity of the task, AI as tech has proven adept at performing a variety of functions reliably, including providing automation, analytics, and predictive risk management capabilities much more efficiently than the older tech that preceded the wider-scale implementation of AI that we see today.

To achieve a high level of compliance, businesses need to source for the necessary regtech elements from various service providers in order to ensure comprehensive protection. This is especially true since the digital transformation efforts of many companies have been expedited, squeezing years of development into months, and leaving fresh new security holes open for exploitation.

To avoid losing momentum during a time of crisis, regtech firms should work together to fill these gaps. Jaede Tan, the MD of ComplyAdvantage Asia Pacific told ASEAN Today that “the pandemic has shone a spotlight on the compliance industry” and shared how data suppliers are working closely with identity verification (IDV) and electronic Know Your Customer (eKYC) providers.

Regtech firms like ComplyAdvantage can mitigate compliance risk and detect new AML patterns quickly by harnessing technology. “The pandemic didn’t accentuate the importance of regtech, it highlighted the importance of having flexible systems of compliance that can work in any setting,” said Tan. “Regtech fills that gap. In the future, regtech should no longer be considered a separate identity from other regulatory products, it’ll simply be the standard.”