How can Big Data Analytics & AI simplify meeting compliance requirements?

Sophie Smith

Head of Marketing, Spyrosoft Ltd.

In many regions fintech companies have had stricter compliance requirements applied by regulatory bodies. These regulations are likely to increase and tighten in the future, so fintech companies must set up optimised frameworks and methods to comply with the law that apply to them. 

At the same time, the demands of consumers have changed as far as regulatory protection is concerned. When the use of financial services from fintech companies, which are similar in nature to banking services, they want the same level of legal protection.  

The channels of delivery for services are different when they are offered by fintech companies, but the expectations and demands of consumers for greater protection has made them more willing to come under the regulatory umbrella.  

The collaborations between banks and fintech companies have also led to greater significance being placed on meeting regulatory requirements. Along with this, some fintech companies want to diversify their offerings by providing bank-like services. This is another vital factor in favour of an emphasis on compliance with regulatory requirements.  

Some leading fintech companies such as Varo Money and Social Finance Inc. have already filed applications before the Federal Deposit Insurance Corporation (FDIC) for charters of national banking services. 

The Office of The Controller for Currency (OCC) provided their vision for innovations in the banking system in 2016 by publishing a paper on this subject. The vision focused on responsible innovations allowing fintech companies to concentrate on their growth by working closely with regulators to formulate regulations suitable for the nature of their offering and services.  

 Reports from the Financial Stability Board (FSB) have concluded that innovations within the fintech industry have not created any serious financial risks, but they have highlighted some issues which require supervision and regulation authorities. 

Fintech companies must create effective mechanisms for risk control & management if they are to enjoy continued growth. 

Problems faced by fintech companies in complying with regulatory requirements 

Fintech companies don’t exist or operate in a vacuum. Contrary to the general perception, fintech companies not only have to comply with governmental regulations, but also those put into place by other companies handling the underlying infrastructure of their applications or services.  

Regulators are strict in their dealings with products or services that have potential to put consumers in a position of risk. It must also be noted that regulatory compliance is one of the biggest difficulties fintech companies face when introducing new services. They must make themselves aware of the comprehensive nature of regulatory requirements and the steps they need to take to comply.  

 Three of the most prominent factors in ensuring optimum regulatory compliance include: 

  • Know Your Customer (KYC) compliances – When new customers are brought onboard lots of information must be collected about them. When a fintech company forms a business relationship with customers, the potential risks must be identified. Regulations in this aspect are put into place to make sure that fintech companies aren’t used by customers for money laundering and other illegal activities.  

Many fintech companies fail to use data-driven processes for KYC, leading to potentially high impact risks.  Verifying the identity of customers and making sure they aren’t on the list of known or suspected money launderers or linked to terrorist organisations, is essential. KYC is a multidimensional process that can slow down the process of onboarding.  

  • Compliances related to Data Governance - Protecting and securing the data of the organisation and its users is a critical aspect of complying with regulations. The General Data Protection Regulation (GDPR) and other laws provide details about the requirements and methods of data security, which fintech companies must abide by. Regulations also emphasise proper documentation and reporting of the data collected by fintech companies.  

The amount of data that comes into the possession of fintech companies during various stages of their operation is voluminous. If hackers gain access to this data it can have detrimental effects on the company operations and on the entire industry.  

  • Cyber security and protective measures to avoid identity theft, fraud, etc. - fintech companies that fail to use data encryption, multi-level authentication and other effective cyber security methods, leave themselves vulnerable to cyber-attacks. 

As far as cyber security is concerned, meeting regulatory requirements isn’t sufficient. Fintech companies need to come up with superior mechanisms that ensure data security, prevent identity theft and stop other methods of fraud.  

How can Data Sciences and Artificial Intelligence tools help in meeting compliance requirements? 

The role of Big Data Analytics, AI and ML aren’t limited to compliance with governmental and other regulations, but they have tremendous significance in these areas. These technologies can reduce the time and limit the cost of complying with regulations and fulfilling reporting needs. 

Cyber security related compliances can be achieved easily by fintech companies making use of ML and AI-powered solutions in their security mechanism. These solutions are empowered and made even more effective with the use of Big Data Analytics. Big Data allows companies to identify the most sensitive and critical pieces of information and provide them with additional protection. 

Data owned by fintech companies can be protected by encryption before they are transferred or shared. Secure storage can also be achieved by AI and ML enabled tools. So, the regulatory requirements in this area will be satisfied appropriately. 

The KYC compliances mandated for fintech companies and other financial institutions can be made more powerful by Big Data tools such as Predictive Analytics. Fintech companies quickly obtain the ability to process large datasetsstructured as well as unstructured, about their customers with the use of Big Data Analytics. So, they can identify the potential risks of embarking on a relationship and make informed decisions about the ideal course of action.  

How we approach compliance requirements at Spyrosoft?

Compliance requirements are highly significant in risk management and some of the business processes of fintech companies. As a result, Spyrosoft aims to provide clients with excellent risk management and business process optimisation solutions to enhance operations in these areas. As a result, coping up with governmental regulations related to operating mechanisms as well as risk management becomes straightforward and efficient. 

It is a well-established fact that complying with regulations is seldom enough in today’s era of consistently evolving cyberthreats and attempts to provide seamless services 

Spyrosoft benefits companies which operate in multiple countries because waccurately analyse all compliance requirements placed on our clients by different regulators and authorities. A thorough assessment of necessary compliances and comprehensive skillsets in AI and ML allows us to formulate efficient solutions, which ensure complete compliance with all relevant regulations.