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How Proactive AML Compliance can Speed up Time to Market and Foster Innovation

Compliance as more than a checkbox

For fintechs, AML Compliance can be so much more than a box to tick. When you build AML compliance right from the start, you can save time, money, and stress in the long run. Not only that, but proactive AML compliance can promote innovation and help bring new products to market more quickly. Viewing AML compliance as a business driver will set a foundation of sustainable growth and innovation. 

In this article, we'll discuss the following topics, with hypothetical cases to illustrate how tech-first proactive AML compliance can help fintechs' growth goals:

  • Establishing Trust with AML Compliance
  • Building AML Compliance Right from Day One
  • Creating an AML Compliance Accelerator
  • Understanding Your Customers
  • Responding to Increasing Regulatory Scrutiny
  • Using the Right AML Compliance Tools

Establishing Trust with AML Compliance

Reputation is hard won and easily lost. Showing potential clients and customers that they can trust you with their business is critical, and one of the best ways to do this is through a committed and serious approach to AML compliance. Building a good reputation can’t start soon enough in your journey. It’s far easier and more effective to establish trust at the beginning than it is to bolt it on down the road, especially if that trust has been breached by a regulatory violation.

Case: Crypto exchange expansion

Problem: The exchange is running into problems getting banks to process its transactions. Banks are reluctant to work with the business because they perceive it as risky.

Solution: A proactive AML compliance mindset, and accompanying technology, can help show the banks that the business is legitimate and trustworthy, reducing risk perception.

Building AML Compliance Right from Day One

As a startup, it’s easy to focus on the most urgent demands. However, building the AML compliance function proactively from the beginning can help to avoid pitfalls as a business scales. For example, fintech startups often saddle themselves with a Frankenstein’s monster of patchwork solutions that cause problems down the road. They smash solutions together to solve immediate needs, without considering the long-term costs. We often see established businesses go through multi-year AML compliance transformation projects to reverse engineer these patchwork solutions and consolidate them into something vastly more efficient. However, this process costs them millions in resources, time, and infrastructure. The last thing any fintech company wants is to get locked into outdated technology with enterprise pricing.

Ambitious financial institutions need a solution that complements their scalability and agility, growing with them. What will AML compliance look like in year one, year two, and year three? Putting the foundations in place early and thinking ahead will pay dividends throughout the life of the business.

Case: Neobank licensing

Problem: A founder tries to start a new bank. They go through the lengthy process of applying for a license in their home country but are eventually rejected. They suffer the same fate in several other jurisdictions and are eventually forced to take the expensive option of buying a bank to obtain a license.

Solution: A robust, scalable solution that proves to regulators you’re serious about AML compliance. At Hawk AI, we’ve been part of multiple successful license applications.

Creating an AML Compliance Accelerator

AML compliance can accelerate growth when fintechs adopts a proactive approach, supporting an agile methodology.

"You don't want to wait six to nine months to launch your product or business because you are waiting for the compliance go-ahead, you want to turn things on and go,” said Sean Jones, Solutions Consultant at Hawk AI.

Financial institutions need processes and systems that can adapt quickly to new rules and regulations without creating additional workload for AML compliance teams. Building an agile, proactive AML compliance function from day one allows a financial institution to foster growth and innovation by matching the organization's agility and proactivity. While legacy players typically get hampered by an AML compliance function that acts as a bottleneck, fintechs can harness AML compliance and turn it into an accelerator.

Case: Bank product line expansion

Problem: A bank wants to provide instant payments for customers. The plans are looking good until they involve the AML compliance department, which employs multiple cumbersome processes that stand in the way. Some of these processes take days, but the AML compliance team says they can’t easily change them. Solving the bottlenecks is a major project involving expensive consultants and close involvement of the C-suite.

Solution: Agile AML compliance processes enabled by technology.

Understanding Your Customers

Knowing your customers empowers your business to grow and innovate. The problem for many financial institutions is that they don’t have an effective strategy for translating information from AML compliance into business insights. Without the appropriate processes in place, this information gets stuck in a silo. Even worse, other parts of the business often invest in procuring the same information.

Starting with AML compliance in mind can help to spread customer insights throughout the business. Understanding your customers better enables financial institutions to serve them better. Ultimately, that means selling more products and services.

Case: Bank reporting

Problem: Authorities are requesting specific reports from the bank that it can’t deliver.

Solution: The bank sets up a technology solution for database interface and report generation. Use of the technology expands from the AML compliance function and benefits the entire organization by providing actionable customer insights.

Responding to Increasing Regulatory Scrutiny

Young financial institutions can sometimes get away with less robust AML compliance programs, but regulators will inevitably look at them more closely as they grow. Regulators might want to make examples of larger players who don’t comply, but criminals tend to target newer or smaller businesses that haven’t yet fully developed their compliance function. That’s why it’s important to take AML compliance seriously, even when regulators might not be looking closely.

The level of scrutiny from regulators can also change due to external factors beyond your control. In Germany, the regulator has responded to its own failings in the Wirecard fraud scandal by increasing its oversight. Many fintechs are now feeling the pressure. Similarly, the crypto industry is now under the spotlight in the wake of the FTX collapse. You never know if the heat will turn up on you, so it’s best to prepare now.

Many AML compliance items are long-term plays. You may not “need” them right now, but eventually you will. It’s better to take a proactive approach to AML compliance in anticipation of that need. As the adage goes, an ounce of prevention is worth a pound of cure.

Case: Wirecard collapse

Problem: The German payment processor has ambitious plans for international expansion, but weak internal controls from the outset allow the company to be taken over by an elaborate and long-running fraud.

Solution: Build a strong AML compliance function from day one and prepare for regulatory scrutiny. It’s not if, it’s when.

Using the Right AML Compliance Tools

Choosing a technology provider that complements your ambitions can set you up for long-term success. You don’t need a Rolls-Royce solution from day one, but you do want to work with a provider who can scale with your business without sacrificing functionality.

The right tools can prevent costs from ballooning unnecessarily. Many financial institutions respond to AML compliance problems by reflexively hiring more staff, but it’s not feasible to fight modern financial crime with people alone. Solutions that create more false positives without detecting more crime aren’t solutions at all. As your business scales, the tools you use should become more accurate, not less.

Case: Crypto exchange expansion

Problem: The exchange has big global expansion plans. They want to keep everything above board, do things right, and comply with AML regulations. However, when they do the math, they realize that they need to increase the size of the AML compliance team by 8x.

Solution: Technology that acts as a virtual team member to scale operations. Armed with the right tool, they only need to increase the AML compliance team by 2x.

How Hawk AI's Technology Supports a Proactive AML Compliance Approach

As we’ve seen through multiple cases, a proactive approach to AML compliance can benefit your business in more ways than just checking a box. Hawk AI's technology solutions complement this proactive approach by providing the flexibility you need to leverage limited resources. Using this technology will help you see the best results possible for your growing financial business, while remaining compliant with AML regulations.  

To learn more about Hawk AI's AML compliance technology, book a demo today. 

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