Why banks need RegTech to make transaction monitoring more effective & efficient

Big banks are looking towards RegTech to find more effective solutions for transaction monitoring according to Maarten Ligthart, ING’s global head client activity monitoring

Over the past few years a number of RegTech companies have sprung up, providing solutions in the areas of regulatory reporting, risk management, identity management & control, and compliance, among others.

Global RegTech investment doubled between Q1 and Q4 2017, reaching just under $420m at the end of last year according to data by RegTech Analyst. Funding over the past four quarters has been on an upward trajectory reaching $532.7m in Q1 2018, almost three times the amount raised in Q2 2017.

However, a big trend for banks finding more effective ways of transaction monitoring by replacing the traditional systems with regulatory technologies, like machine learning or article intelligence.

“The big banks are looking into this area because at the end of the day they want the process to be effective and efficient,” Ligthart added. “At the moment there are lots of false positives, we are complaining as a banking industry, we are doing lots of work,

Whilst there are professionals or vendors who are going to offer support in machine learning technogoly i.e. consultants, he claims he is yet to see a vendor that offers a solution based on advanced analytics, despite being very interested. “Maybe I missed the boat, but I am yet to see it,” he added.

“that to happen you need make sure you have the right data and control framework in place ,” he added.

“Data availability and data quality are an issue, you need to have all the data in your models, in terms of accuracy and completeness. Now the issue of data is coming in we need to able to come up with a system to extract all the data, in a compliant manner, which is a big challenge for the industry.”

Last year, global investment in companies providing transaction monitoring solutions reached more than $244.67m, a significant increase on the $166.1m invested in 2016. The biggest deal in 2017 came in June, with Riskified landing $33m in a round led by Pitango Venture Capital. Other investors in the round, which took the company’s total funding to $63.7m, included C4 Ventures, Qumra Capital, Genesis Partners, Capital One Growth Ventures, Groupe Arnault and Phoenix Insurance Company.


Despite RegTech promising to provide a number of solutions to the financial services industry, wide spread integrations with banks is still some way off. Ligthart, who previously worked in financial crime specialist division at the Financial Conduct Authority, suggests the onus on the regulators to ease the process.

“You cannot only say that the banks have to come up with more intelligent systems to be more effective. Of course you have to further innovative in this space, but we can’t do it on their own, simply because there are white spots in the money flows. We really need the help of government bodies and the public domain to be effective.” So collaboration is key and if I remembered it correctly, this was one of the key messages from the so called RUSI report.

Despite suggesting that the regulators need to approve the RegTechs, he also points to the fact that it is much easier to validate current risk models, in terms of credit risk pricing.

“That’s because we have a lot more experience with the quantitative data models, and as an industry we are quite comfortable with it and we accept it. However, as we are now dealing with non-quantitative data, it has to do with an integrity and behaviour, which is non-financial data. In this respect, it’s quite challenging to adopt a similar approach.” But we have to enter into this journey, which we started.

The problem lies in how you are going to conduct quantitative analysis on non- quantitative data. “The regulator may need to step in and also come up with some validation on that. From their perspective, that is a risk within itself.”

Whilst the regulator could help the integration process, Ligthart wants to see more collaboration in the industry. And I am positive on that, within the Netherlands so called ‘private-public’ initiatives appeared to be successful.

The journey started a couple of years ago and Ligthart believes the whole industry agrees that they need to come up with new data techniques and need to multi discipline their teams to understand this change.

“Both the private and public domain need to collaborate with each other more to become more effective. But at the end of day, to minimise the risk of doing business with a criminal or a terrorist, we all have the same objective: to keep the financial industry clean.

“Taking that into account, the whole industry, including banks and financial institutions, need to collaborate with the public domain in the broader sense. All the public bodies have to share, or have the ability to share, data.”

Global RegTech Summit 

Maarten Ligthart is speaking on the fighting fraud & financial crime panel at the Global RegTech Summit. On the panel, he will discuss: What are the challenges for a global bank taking an integrated approach to client activity monitoring, what does the risk-based approach specified by 4AMLD and 5AMLD mean in practice, and what is the impact of AI and Big Data technology on anti-fraud and financial crime compliance?

Copyright © 2018 RegTech Analyst

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