regtech
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Where is Regtech Missing The Mark? Insight from Salv, Smarsh & Qredo

Like brakes to a bicycle, fintech must exist within the realms of regulation if it is to ditch its ‘wild west’ persona. Indeed, the adoption of various elements of the industry, like cryptocurrency, has ultimately suffered due to the lack of regulation that surrounds and supports them. Throughout the entire month of May, The Fintech Times will be dedicating its focus to highlighting the most current developments in this ever-perplexing and constantly-changing foundation of regtech.

Regulations have evolved to protect financial institutions, their customers and the wider economy from financial crime. But slow, risk-averse regulation doesn’t work for rapidly changing technology. We hear from industry experts on where regtech is currently missing the mark.

Robert Cruz, Smarsh
Robert Cruz, Smarsh

Robert Cruz, VP of information governance solutions at Smarsh, explains that the regtech industry is now serving a different mix of clients, with new products, through new methods of engagement (for example, social and mobile applications). He says that many of the new regulatory frameworks acknowledge the glaring reality of the growing gap between the pace of innovation of technology and existing regulation.

He says: “Regtech continues to evolve, with greater emphasis now being placed on the aspects that directly touch upon the interaction with the public.

“Unstructured data elements had historically been less of a focus for regtech innovation, but that now seems to be changing given recent enforcement activity from regulators.”

UK regulation
Taavi Tamkivi, CEO of regtech Salv,
Taavi Tamkivi, CEO of regtech Salv

For Taavi Tamkivi, CEO of regtech Salv, regulators can be risk-averse as they don’t want to make a blunder, but warns that this hinders innovation and holds back progress. He believes that banks, regulators and tech companies working in tandem can help fight financial crime more effectively.

“Specific problems with the Financial Conduct Authority in the UK and the regulators from other countries is that, though pragmatically they understand the power of sharing information between banks, they are very slow to encourage banks to implement measures that are not mandatory but would help the banks with their anti-money laundering (AML), counter-terrorist financing (CTF) or anti-fraud efforts.

“Data breaches continue to be a key enabler of fraud. By harvesting personal and financial information, criminals are able to commit fraud and damage people, businesses and services. One of the most prevalent is authorised push payments (APP) fraud, where fraudsters deceive consumers or businesses into sending them a payment under false pretences to a bank account controlled by the fraudster. In the first half of 2021, a total of £355.3million was via APP fraud in the UK, representing a 71 per cent increase compared with the same previous year.

“Modern regtech tools can help with APP fraud, and data in the right hands can be an extremely powerful tool to fight financial crime. We happened to be in the middle of building Salv’s AML Bridge tool, which enables safe, encrypted, and immediate data sharing between financial institutions when the APP cases went up incrementally in Estonia. Salv collaborated with Estonia’s regulators Financial Supervision and Resolution Authority (FSA), Data Protection Inspectorate (DPI) and Financial Intelligence Unit (FIU).

“The authorities recognised that the intelligence sharing tool, built to combat money laundering and financial crime, could be used to stop APP fraud. Subsequently, the AML Bridge was recommended to the country’s financial institutions, all of whom took part in the first European countrywide AML pilot project, which demonstrated that collaborative information sharing could be an incredibly effective weapon against financial crime.

“The completion of our successful AML Bridge pilot project proved that inter-institutional AML tactical data exchange is legally, operationally, and technically possible. Now that a proof of concept for the project exists the structure could be easily replicated by other banks and institutions if followed step by step.

“The regulators in other countries should follow suit and suggest greater collaboration between institutions and utilising innovative technological solutions. Most of the regtech is currently used for compliance, but when banks, regulators, and tech companies work in tandem, it can also be used effectively to fight financial crime.”

Regulation of stablecoins
Ben Whitby
Ben Whitby, Qredo

Stablecoins have grown to become an integral part of the crypto ecosystem, facilitating trading by individuals and institutions alike across assets. We asked Ben Whitby, VP Strategic Partnerships and Regulatory Affairs at Qredo to share his views on the Stablecoin Transparency Act bill.

As the name suggests, the Stablecoin Transparency Act bill introduced in both the House of Representatives and Senate in April aims to bring more clarity and certainty around the reserves backing crypto stablecoins.

“Stablecoins have grown to become an integral part of the crypto ecosystem, facilitating trading by individuals and institutions alike across assets, and my prediction that 2022 would be the year stablecoins entered mainstream FX markets is looking ever more accurate.

“The pricing certainty provided by digital assets tied to fiat currencies such as the US dollar has proved in high demand, but the reserves which maintain those pegs have come under question multiple times.

“Given that they represent digital equivalents of government-issued currencies, stablecoins have attracted considerable attention from states and regulators.

“The sector is set to come under some form of regulation sooner or later, and this first bill provides an insight into how that legislation may look when it comes to fruition as the US government accelerates its efforts to create a workable framework for crypto.

“Rep. Trey Hollingsworth (R-Indiana), who introduced the bill to the House and Senate alongside Sen. Bill Hagerty (R-Tenn.), told CoinDesk that the legislation was aimed at separating good actors in the space from the bad. And on top of that, the legislation clearly signals the intent of legislators and regulators in the months to come.”

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