Monday, August 24, 2009

Compliance in real-time banking is difficult

The biggest challenges of regulatory compliance for transformational banking is the real-time nature of the transactions. Transformational banking provides a platform for true real-time payment transactions. If properly implemented, the volume of transactions are also huge (even though the average value of transactions may be low).

Compliance management in traditional systems are typically off-line solutions. These systems work through transaction history and attempt to identify non-compliant transactions (money laundering, funding of terrorism, or other illegal transactions). Banks have a regulatory obligation to find these transactions, correct them and report on them. The inability to be proactive in doing this have lead to banks being fined in the past.

Banks are now confronted with a new category of systems where transactions occur in real-time from locations that are not necessarily known (could even be outside the geographical boundaries where the bank have jurisdiction). It is often also easier to open these accounts and to easily discard them again. Sometime regulation allows for account holders not to provide proof of residence. These factors necessitate the need for a new kind of compliance management.

We at Fundamo have been doing ground-breaking work in this area during the past months. We are doing this with our clients and industry experts in the space. I believe that as these systems start to evolve, the real-time management of compliance will become more important. As banks
are starting to tackle this issue, they will find that it is significantly more difficult than what it looked like initially.

2 comments:

Barend said...

Hannes

Would like to discuss this article on managing the AML type thinking. I am a solutions architect needing to implement a branchless banking strategy in Africa - which includes mobile.

Nikesh said...

I would be keenly looking forward to more en-lighting perspectives and solution options you might propose. But along with AML issues, I'd also be concerned with reduced ability of bank's to address fraudulent activities before its too late, just c'z these activities happen from remote and isolated locations.