With the digital upgrades and innovations in payments, crimes in the industry rode the digital wave as well. A study entitled, True Cost of Financial Crime Compliance Global Report, by LexisNexis Risk Solutions reports, “financial institutions are being exposed to an increasing level of various types of financial crime, including those involving digital payments, cryptocurrency, third parties and trafficking of proceeds”.
These unlawful activities could jeopardize the trustworthiness of financial institutions, a “multi-layered solution approach to financial crime compliance and identity proofing is essential as criminals become more sophisticated,” the LexisNexis study added.
Amidst the huge changes in the financial landscape in the past few years, LexisNexis Risk Solutions vice president, APAC, Nick Wilson, believes that there is a need to adapt to new trends and advancements in technology, especially in securing and protecting from unlawful financial activities.
How has the payment changed from 2020 to the present (2023)?
Nick Wilson: In 2020, there were 70 billion real-time instant payments (annually) and we are expecting to get to 500 billion by 2025.
Customers expect to move money immediately and not worry about the banking networking systems, the various platforms, or all the payments systems that exist in the world. According to the True Cost of Compliance, there are something like 60 real-time payment systems (globally) today and that number is increasing.
Whether it is banks or payment service providers or foreign exchange businesses, they are expected to provide better services and to do so with speed.
How have banks (and other institutions) changed how they manage risks post-pandemic?
Nick Wilson: While regulations (among banks) have not changed, regulations in other verticals and markets have increased. It has scaled significantly putting a lot of pressure in banks – both from an IT infrastructure as well as the resources needed to manage it.
According to the LexisNexis True Cost of Compliance study, spending around compliance has increased 30% year-on-year, with some banks are spending more than a billion dollars a year just to manage compliance.
What remains the key issue that businesses especially those who are looking to adopt more advanced digital technologies, as part of their payments approach?
Nick Wilson: It is the role technology plays, and to what extent we can trust it. I think in the world of compliance we have to be careful not to rely fully on technology. Although regulators are becoming more flexible and open-minded to innovation, they are not totally comfortable fully relying on technology.
In terms of the payments ecosystem or the payments system as it is today, what trends do you expect most likely to influence organisations that continue to evolve?
Nick Wilson: With the introduction of the latest SWIFT ISO standard – ISO 20022 – banks now have to look at how they conform to the new messaging format. We will have to see how banks will respond. They will have to put a lot of investment into that space that allows them to then think about how they approach compliance.
What issues or developments or trends are important for the CTO to consider as he starts to plan what technologies will support future business direction?
Nick Wilson: How technology is an enabler and how they can support scale. It is also about how they (technologies) can reduce costs. They are looking at human resources versus what technology can be substituted for and reduce the overall cost of ownership.
The other big trend is data residency as businesses adopt the cloud. In Asia, each country is adopting different regulations around how data is stored and moved in the cloud. This presents a big challenge for both vendors or providers of technology and also those who are looking to invest in it. In some markets, they don’t want that data to exit their countries or their jurisdictions.
With pressures to reduce cost, companies must figure out whether they will adopt SaaS solutions or operate their software on a private cloud. We are seeing a lot of customers now starting to go in that direction because it comes back to wanting to try to reduce costs and wanting to find a way that technology can enable faster decisions to grow their business.
How should the CIO support/realise the technology directions that the CTO has outlined?
Nick Wilson: While CTOs are more optimistic and see the opportunities, I think the CIO is more concerned about risks, information security, and data being used for fraudulent purposes. When you start offering data (in the cloud), you must explain how quickly you update it. What’s the source of that data and where is it coming from? And I think those are the questions we tend to hear from CIOs. For those in compliance functions, you need to go to securely manage that data.
What is the advice that you will offer for organisations if they look to try and adopt better risk practices and assessments?
Nick Wilson: It is about looking at how technology enables and plays a part in it when tackling payments and obligations of cross-border payments or moving money overseas.
It is a balancing act between meeting those expectations on how I am going to move money there, technology will play a huge part in that, but if we rely solely on that technology, we have seen it from a compliance and risk perspective, this is very dangerous.
You have got to make sure that you continue to have policies, and processes in place, the right individuals that are accountable to withhold the culture of compliance within the business. Those are the things that will support, and basically, the layer that sits below all that technology, to make sure that it is functioning the way it needs to. And alongside that, you need to educate the culture of business.
Financial Crime Compliance
With higher digital risks in payments, there is a great need for financial crime compliance to ensure that organisations are meeting the standards, policies and regulations both internally and externally according to Splunk.com.
LexisNexis Risk Solutions highlights the importance of assessing both the individual and business with a need for real-time behavioural data/analytics.