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More than a Checkbox: How Proactive Fincrime Compliance can Speed up Time to Market and Foster Innovation

Compliance as more than a checkbox

Few fintech entrepreneurs view compliance as more than a necessary roadblock to growth when starting a business. Focusing on growth can mean that compliance gets pushed to the bottom of a long list of other seemingly more important functions. That can be a big mistake.

A compliance function that’s built to a minimum standard can cause lasting damage and leave you with a poorly integrated solution, making it difficult to grow the business effectively. You don’t need to build out a mature compliance department from day one, but you should start out with a proactive compliance mindset.

If you do it right the first time, you’ll save time, money, and stress in the long run. Not only that, but proactive compliance can promote innovation and help bring new products to market more quickly. Viewing compliance as a business driver rather than a constraint will set a foundation of sustainable growth and innovation. Here are 6 points to consider:

Establishing trust

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 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 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 compliance mindset and technology can help show the banks that the business is legitimate and trustworthy, reducing risk perception.

Building it right from day one

As a startup, it’s easy to focus on the most urgent demands. However, building the compliance function proactively from the beginning can help to avoid pitfalls as the business scales. For example, fintech startups often saddle themselves with a Frankenstein’s monster of patchwork solutions that will 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 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 startup 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 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 compliance. At Hawk AI, we’ve been part of multiple successful license applications.

Creating an accelerator, not a bottleneck

Compliance can slow down the whole business if it isn’t agile enough. But it can also be an accelerator if it adopts a proactive approach.

"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 compliance teams. Building an agile, proactive compliance function from day one allows a financial institution to foster growth and innovation by being just as agile and proactive. While legacy players are typically hampered by a compliance function that acts as a bottleneck, startups can harness compliance as 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 compliance department, which employs multiple cumbersome processes that stand in the way. Some of these processes take days, but the 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 compliance processes enabled by technology.

Understanding the customer

Knowing your customer isn’t a burden. The problem for many financial institutions is that they don’t have an effective strategy for translating information from 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 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 compliance function and benefits the entire organization by providing actionable customer insights.

Using the right 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 compliance problems by reflexively hiring more staff, but it’s not feasible to fight modern FinCrime 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 regulations. However, when they do the math, they realize that they need to increase the size of the 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 compliance team by 2x.

Responding to increasing regulatory scrutiny

Young financial institutions can sometimes get away with less robust 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 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 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 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 compliance function from day one and prepare for regulatory scrutiny. It’s not if, it’s when.

As we’ve seen through multiple cases, a proactive approach to FinCrime compliance can benefit you in more ways than just checking the box. By building compliance right from the start, you can turn a potential bottleneck into an innovation and growth accelerator. A technology solution that complements this approach will help you see the best results possible for your growing financial business.  

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