Regulatory reporting and financial crime compliance are data problems too

In a modern economy, the most important costs are transaction costs. And the cost of compliance is fast becoming a major tax on financial businesses. Deloitte has put the cost of regulatory reporting in the banking industry alone at 10 per cent of operating costs, or €230 billion a year. LexisNexis has estimated the cost of running KYC, AML, CFT and sanctions screening checks at US$115 billion a year across North America and just five countries in western Europe. What drives these costs is the same as what could mitigate them: data. If banks, asset managers, brokerage firms, wealth managers and insurers could source, normalise and integrate their own data into a single view of the client, and marry it to external sources of data as well, the cost of compliance could fall dramatically. One company which believes it can help to make that happen is Identitii, a RegTech company set up to help companies automate regulatory reporting. Significantly, it is now extending its reach into financial crime. Dominic Hobson, co-founder of Future of Finance, spoke to Joe Higginson, chief commercial officer at Identitii, who joined the company in 2021, having spent most of his career in the payments industry.

Questions being asked

1. Is it safe to describe Identitii as a RegTech?

2. Identitii provides regulatory reporting services. A Deloitte study put the total cost of regulatory reporting in the banking industry alone at €230 billion a year, a sum equivalent to 10 per cent of operating costs. How hard is it to fix this by improving data quality, automating processes and integrating data and systems?

3. AML, KYC, CFT and sanctions screening are also notoriously expensive. Lexis Nexis put the total cost of AML compliance in the financial services industry of the United States at US$26.4 billion, Canada at $5.1 billion and just five countries in Europe at $83.5 billion a year – without even counting the cost of financial crime. When it costs that much why do forms struggle to fix it?

4. The main problem in regulatory compliance is data, scattered across systems, business silos and formats. How do you create a single view?

5. What part do legacy systems play in slowing down the responsiveness of banks to new opportunities and risks -and how do you get round them?

6. Identitii is offering a Cloud-based SaaS (or, rather CaaS) service. How willing are banks to outsource compliance obligations such as regulatory reporting and customer due diligence checks to a third party – and are any objections they air (e. g. loss of control, lack of security, risk of regulatory fines) reasonable?

7. Did the Pandemic accentuate the problems your clients were experiencing (e. g. have you seen increased requests for information or leads?)

8. How much responsibility (indeed, liability) does Identitii take for delivering accurate regulatory reports?

9. An obvious direction for the company to go in is payments – which the Pandemic has obviously exacerbated. Has the Pandemic accentuated the problems your clients were experiencing (e. g. companies and banks switching to digital payments without proper systems and processes in place)?

10. Payments is a very complex industry, with many thousands of service providers, multiple infrastructures and a lot of practices and processes peculiar to individual countries. How do you shape a strategy to tackle it?

11. Do all the problems in payments, as in regulatory reporting, really reduce to data problems?

12. Cross-border payments in particular are a huge opportunity (because of the transaction costs, which regulators want to see reduced) but also an area of increased risk (which is why correspondent banks are exiting the business). What should banks (and their clients) do?

13. Is the traditional system of making cross-border payments (namely, correspondent banks as gatekeepers to domestic RTGS systems) doomed?

14. How do you expect to see CBDCs impact cross-border payments?

15. In cross-border payments, the incumbent is SWIFT. How should they adapt their offering to what is happening?

16. What impact(s) will CBDCs have on domestic payments industries (and especially intermediaries)?

17. The world has been moving towards instant payment. When is that not a good idea?

18. In the future, in what ways will intermediaries add value to payments?

19. Are the technologies currently deployed by banks and corporates sufficiently powerful and intuitive to cope with multiple currencies (e. g. an app on your smartphone tells you which currency is best to use in each purchase)?

20. Do you believe that we are heading for an economy in which consumers and companies are comfortable with multiple forms of “money” – CBDCs, Stablecoins, crypto-currencies, perhaps even loyalty points – or do you think single national currencies will persist?

21. Payments revolutionaries often leave liquidity out of the picture. How big a constraint on change is liquidity?

22. The payments industry is meant to be migrating to ISO 20022 between 2022 and 2025. Do you believe it will actually work, i. e. will banks’ and their customers’ and their regulators’ systems be ready in time or will there be a prolonged period of coexistence with translation between formats?

23. ISO 20022 is sold as being able to carry more data. How might being on ISO 20022 help payments banks (a) report to regulators and (b) combat financial crime?

24. Are standards – or parts of standards, such as the ISO 20022 common data dictionary – part of the solution or part of the problem?

25. Do APIs need standards or standardisation?

26. The decision by Amazon to drop Visa was an interesting move. What is the future for the card networks?

27. The company name suggests digital identity, but that’s not what you do. Where do digital identities fit into what you do? Is tying digital assets to digital identities a better solution to digitisation of money and payments than reliance on private keys?

28. Identitii has just raised an additional A$6 million. What is it going to be spent on?

29. You’ve run payments for large global organisations and are now working at Identitii, what was the draw for you?