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Technology Automation Crime Regulation

Preparing for a Regulated Future

An interview with Co-founder and CEO of encompass

This is the final article in a special series on financial crime. Previous entries can be read herehere, herehere, and here.

As the regulatory framework becomes more stringent in Asia and calls for greater financial compliance, companies operating in the region will be faced with several challenges relating to a more regulated future. These include, but are not limited to, higher costs, a lack of sufficient resources and implementation of processes.

Wayne Johnson, the chief executive officer of encompass, spoke to BRINK Asia about how increased digitization and a more prominent role for technology can help companies in this endeavor. He also described how regulators can make use of technology to attain their objectives of a more secure financial system.  

BRINK Asia: What do you see as the big trends in anti-money laundering (AML) or, more broadly, financial crime in Asia?

Wayne Johnson: When it comes to anti-money laundering and financial crime compliance, Asia is playing catch up with Europe and the U.S. We currently see a lot of activity across the region, both on the part of regulators and regulated firms, to bring laws, enforcement and compliance standards up to the standards of the West. Some of the key trends include the shift from check-the-box compliance to a risk-based approach, more stringent customer due diligence, and a focus on employing technology to streamline and improve compliance processes. 

BRINK Asia: Where in Asia are you seeing financial institutions investing in digitization and automation in their AML activities?

Mr. Johnson: China’s Belt and Road Initiative has led to increased inbound and outbound investment and greater numbers of customers seeking international banking facilities across Asia. Before onboarding these new customers, regulated firms have to carry out exhaustive know your customer due diligence to ascertain whether they present a compliance risk from an AML or anti-bribery and corruption perspective. As a result, firms need to access a far wider set of data sources to get the full picture of their customers—both individuals and corporates.

There is a notable increase in activity in Hong Kong and Singapore, where regulators are actively encouraging the adoption of technology, focused on automating KYC information gathering and analysis processes. This repetitive, low-skilled manual work can now be automated using robotic process automation technology, such as that offered by Encompass.

When conducted by an analyst, information gathering takes an average of three hours for a simple case—but this is reduced to less than five minutes when automated. Robotic process automation also offers the additional benefits of ensuring that internal policies and procedures are followed accurately and consistently while reducing costs.

BRINK Asia: Where do you think Asian regtech companies will succeed in the AML space? And in general, what advice would you have for financial institutions that are interfacing with regtechs in Asia?

Mr. Johnson: I don’t think that Asian businesses are necessarily just using home-grown regtech, because the banks in Asia are very tech-savvy and will be looking for best-in-class regtech solutions to meet their needs. Some see this as an opportunity to leapfrog the problems experienced by U.S. and European banks over the past decade by moving directly to more advanced technology solutions.

Most regtech solutions are often point solutions, and therefore banks in Asia need to review their process in detail to understand how they can quickly and effectively integrate these solutions into a bank-wide operating environment. 

BRINK Asia: A lot of companies from China are moving across the region, mainly due to the Belt and Road Initiative. Do you potentially see problems arising from this?

Mr. Johnson: The international banking community has pushed for improved regulation in China, and the Chinese government has responded with more stringent laws and, interestingly, increased enforcement. However, many Chinese businesses tend to invest in the Belt and Road Initiative via Hong Kong. So, while there is a tremendous number of new customers looking to invest in different aspects of the Belt and Road Initiative, most will be looking to open bank accounts with large, established Hong Kong banks. These global players are regulated in the same way that they would be in London.

There’s been a huge increase in the amount of data available on companies and individuals—and banks need to ensure they are equipped to make use of it.

However, here in Asia, there is definitely a need for improving and enhancing the quality and availability of information—including corporate registry data, premium company information, politically exposed persons and sanctions lists, and news for adverse media checks. It is only with this breadth of information that companies can truly understand the risk profile of a customer and decide whether or not they should be brought on board.

There’s been a huge increase in the amount of data available on companies and individuals in China, and banks need to ensure they are equipped to make use of it.

Ultimately, for Chinese banks, this is a challenging period—one in which they need to adopt and adhere to new processes, however this will reap positive results in the long run.

BRINK Asia: How do you convince regulators in Asia to take up digitization and automation in the AML space?

Mr. Johnson: Rapid adoption of innovation is certainly not new throughout Asia. Automation gives companies the ability to streamline and condense processes that would usually take hours into minutes and to improve accuracy. From a customer onboarding perspective, this means robust compliance while improving the overall customer experience and time to revenue. For that reason, I think that technology supports the dual goal of the regulators to achieve effective compliance controls at the lowest cost impact to a bank’s customers.

BRINK Asia: How do you see AML and financial crime compliance functions evolving in Asia in the near future?

Mr. Johnson: The process has been hugely labor-intensive so far, because in many parts of Asia, labor costs are relatively low compared to other regions. Having said that, banks are starting to use technology to solve their problems, both because it is more efficient and because labor costs in the region’s key markets, such as China, are increasing. Of course, shifts in technology do not happen overnight. So while Asia as a region is heading in the right direction, its economies need to do a lot more.

 Regulated firms in Asia currently benefit from a large talent pool of skilled individuals in the compliance function. But given the mobility of skilled talent, it’s going to be important for Asian banks to retain the talent that can support them in their transition to using more technology to improve processes.

BRINK Asia: Which country’s policies and regulations within Asia would you call a standout and an example for other nations in the region?

Mr. Johnson: Traditional financial centers Hong Kong and Singapore are leading the way. I also see that Chinese banks are investing heavily in infrastructure to ensure robust compliance, and this is a result of an increasingly active regulatory regime. However, I believe that economies that want to improve their regulatory frameworks should look to Hong Kong and Singapore. 

My sense is that the mix of greater regulation, improved availability of technology and better access to quality data as a consequence of the technology has got us to a position where banks in the region that delay in planning for adoption will lose competitive advantage. This is already changing how financial institutions operate in the region.

Even institutions in nontraditional channels are starting to understand the importance of regulations. For instance, we now see a lot of cryptocurrency exchanges coming to us and asking us to help them build very similar compliance processes as those of the banks. Cryptocurrency exchanges are becoming more mainstream and, thus, the system of onboarding customers into that process is becoming similar to that for banks.

BRINK Asia: What is your prediction for the region when it comes to AML and financial crime?

Mr. Johnson: We can expect an increase in regulation as existing pressures from counter-terrorism financing and organized crime are matched by a focus on tax crime. While Hong Kong, Singapore and India are leading the way, especially in terms of banking regulations, measures are increasingly being undertaken in regional developing economies as well.

The use of technology, robotics and the availability of information is now enabling banks to improve processes more easily than before and also allowing for more effective detection of financial crime in line with increasingly stringent regulations. 

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