Navigating compliance in a borderless world

By Jacqui Wardhaugh, Head of Global Markets Compliance, Western Union

Money transfers and compliance

The regulatory landscape for financial services and fintech companies is rapidly changing. The industry continues to be subject to increasingly strict legal and regulatory requirements, and cybersecurity is top of mind for businesses.

The cross-border money transfer space requires navigation of these complexities up and down the payments stack. Cross-border payments by definition require businesses to operate globally immediately, which introduces multinational regulatory requirements from the outset. The time, money, expertise and resources it takes to adhere to the multiple layers of regulation in both originating and receiving markets is an ongoing challenge for businesses. A recent study shows that 59% of companies in the Asia-Pacific region see increased regulation as a major challenge across industries.    

Furthermore, regulation and compliance can be seen as roadblocks to innovation. It is imperative that while regulatory schemes evolve to foster innovation, new entrants are held to the same level of compliance standards as established players in the marketplace. As the landscape changes, financial services businesses must continue to innovate through new partnerships and networks, with the most valuable ideas emerging from partnerships between financial institutions, fintechs, governments and consumers.

However, forging new partnerships and operating in an increasingly borderless world is not without challenges. Organisations must equip themselves with the right tools to successfully navigate compliance.

Technology and collaboration: the tools of the compliance trade

Businesses are embracing disruptive technologies such as AI and machine-learning to gain insight into consumer behaviour and deliver a better customer experience. Those same technologies must also be used to examine behaviour and global patterns in order to detect transactional anomalies and prevent fraud.

For money transfer businesses, which operate in multiple countries and territories across complex regulatory environments, data is leveraged to identify and understand risk, to inform business decisions, and to develop compliance programs that are aligned to that degree of risk.

 Businesses in the financial service sector can use big data to scan transactions against watch lists, and machine learning to help it analyse and continuously improve its own detection tools and systems. It is investing in technology to continually enhance compliance, keeping “bad money” out of the system.

Over the last five years, Western Union has seen the dollar value of reported fraud in consumer-to-consumer transactions compared with the total value of all transactions, drop more than 60 percent.

In addition, collaboration across industries needs to be strengthened. Taking advantage of external expertise can bring synergies to business. In light of growing and rapidly evolving regulatory complexities, financial services businesses and law enforcement should look to collaborate to better navigate the compliance landscape.

Western Union’s work with the AUSTRAC Fintel Alliance allows it to leverage the power of collective partnerships to fight financial crime. The cooperative group, a world-first private-public partnership between industry and government, designs solutions to fight against terrorism financing and organised crime, and continues to prove itself as a best practice model.

Financial institutions, law enforcement and regulators, working together in partnership, will strengthen the world’s financial systems as well as improve national security in the countries where they operate, putting customer safety first.

What’s ahead for compliance?

So, what’s on the horizon for compliance and the financial services businesses at the centre of it all?

In the face of a constantly evolving landscape and an increasingly digital world, agility is key and businesses must be able to adapt to constantly changing circumstances. They must look internally to assess and understand their own unique risks, and prioritise their efforts and resources to ensure they’re protecting vulnerabilities.  

As custodians of large amounts of data, financial institutions will remain attractive targets for cyber criminals and therefore, must remain on the front foot of their enhanced capabilities.

Intelligently deployed technology will continue to play a critical role in compliance, and financial services businesses must embrace new technologies that offer a greater degree of efficiency and automation when detecting illicit activity.

Not leveraging data for business or compliance purposes is analogous to a ship navigating at night in unknown environments, which ultimately exposes the ship and crew to unknown risks. You want to be able to spot the iceberg before the ship hits it.

What’s more is the exponential growth of fintech companies around the world and the inevitable need for regulators to agree upon what standards will be imposed on them. We can expect the continued growth of fintechs to add additional layers of regulation and scrutiny to financial services businesses, with 82% of incumbents predicting an increase in their fintech partnerships over the next three to five years. But encouraging and fostering innovation must remain a priority.

Businesses that get the compliance game right by embracing technology and collaboration will succeed by attracting top talent, enhancing customer confidence, and enjoying a competitive edge overall.