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Leverage Payment Data to Mitigate Compliance Risk

November 21, 2023

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Compliance Risk Management for FinTech

Extracting value from the wealth of payment data available in the FinTech industry is key to compliance risk management. Learn how.

The FinTech industry is expanding at a phenomenal rate with the rapid worldwide adoption of digital payments and ecommerce. This has created numerous opportunities for those looking to capitalize on the consumer’s affinity for convenience and speed, offered seamlessly by online payments. Unfortunately, the fraud economy is growing at an unprecedented rate, too. In response, regulators across the world are tightening their oversight of financial products and services to ensure the highest levels of security for consumers and the protection of their interests. In a rapidly evolving regulatory environment, ensuring compliance at all times and for all stakeholders in the financial sector can be difficult.

Payment data analytics and RegTech can be a great way to mitigate compliance risks and ensure consumer protection. Here’s what you need to know.

The Cost of Non-Compliance

Regulatory compliance is a key aspect of risk management for financial products and services providers. Here’s why:

  • In 2022, American multinational FinServ Wells Fargo and a group of smaller firms were fined $549 million for violating the compliance requirement of maintaining electronic records of all employee communications.
  • Wirecard’s insufficient monitoring and management practices resulted in the bankruptcy of the lauded payments processing firm. German authorities were quick to act upon an allegation that exposed the ongoing malpractices in the organization.
  • In November 2023, the US government imposed a penalty of $206,000 on Swift Prepaid Solutions for misconduct. The cross-border payments, currency exchange, and digital wallet services provider was fined after it voluntarily disclosed its failure to ensure due diligence, which led to sanction violations when it issued prepaid reward cards to users in Iran, Cuba, Cuba, Syria, and Crimea.

Such incidents are resounding reminders of the dire consequences of non-compliance. Whether intended or unintended, fraud and financial misconduct can be damaging or even lethal for a financial organization. The global digital economy loses customer trust at a broader level, which is detrimental to everyone.

How Does Payments Data Help Mitigate Compliance-Related Risk?

The payments industry has abundant data on how, when, and where capital flows are taking place. Data analytics help extract insights and identify patterns and anomalies, offering greater transparency regarding operations and other aspects of business. This provides a clear picture of compliance and the associated risk landscape, which in turn helps fintech firms make swift decisions in real-time by flagging risky events.

Here’s a deeper dive.

Improved Transparency

Greater transparency offers a complete view of all payments-related communications and trade-related messages across all branches of the organization, as well as third parties, helping identify and quantify risks. Increased visibility enhances the identification of anomalies. Flagging irregular activities, such as abnormally high traffic or high-value transactions, helps organizations proactively implement risk prevention measures. Real-time decision-making capabilities also enhance risk management.

Enhanced Policies and Processes

Compliance guidelines advise on the appropriate extraction, use, storage, and sharing of consumer data. Data insights help identify policy blind spots and technical flaws with a stronger focus on the payment originator and beneficiary. This helps enhance data quality and improve compliance practices, which, in turn, improves risk identification and mitigation.

Build Resilience with Comprehensive Insights

Technology can continuously monitor and help organizations stay updated on the latest regulatory requirements in the domestic and international markets. RegTech is hence becoming a critical part of the Fintech environment. Additionally, data analytics provide exhaustive descriptive, predictive, and prescriptive insights to create a resilient framework. Prioritizing regular audits to evaluate the outcomes of risk strategies and fine-tune them to specific business requirements regularly helps build a resilient operational framework.

Challenges Faced by Banks, FinTechs, and Credit Unions in Ensuring Compliance

A key challenge for FinTechs to ensure compliance is the availability of scalable and up-to-the-minute technical framework to monitor, assess, and highlight risk incidents. Additionally, the regulatory landscape is continuously evolving. This requires firms to stay abreast of the latest updates and make necessary changes in policies and processes.

The regulatory landscape is vast, and ensuring comprehensive compliance can be overwhelming. It starts with effective customer verification through KYC/AML procedures and goes on to adherence to data security standards for the payment industry, consumer data privacy laws, payment network protection and third-party collaboration oversight, consumer security regulations, and much more.

Harness the Power of Data to Enhance Compliance and Mitigate Associated Risk

The need for robust risk monitoring systems across operational, compliance, and governance verticals cannot be overemphasized. Even inadvertent regulatory violations have had significantly adverse consequences for businesses in recent years. Therefore, an unwavering focus on risk prevention and mitigation is crucial to ensuring continued growth and sustaining consumer trust in the digital financial ecosystem.

One of the most effective ways to do so is to optimally utilize the available wealth of data and extract value to enhance risk assessment and deploy innovative risk practices.

The industry requires a collaborative approach to build and configure effective risk assessment and management tools. However, compliance teams struggle to arrive at mutually agreeable and cost-effective solutions. Further, there is a lack of legal infrastructure and standardization in the complex systems, which can overwhelm compliance teams.

This is where experts with advanced data analytics and risk exposure assessment experience can prove invaluable. They help you in building data-driven policies with real-time adaptability using machine learning-based advanced analysis. Opus Technologies ensures that customers are protected against financial or reputational consequences by making the most of available data-driven insights.

We help our clients build comprehensive risk and compliance frameworks to strengthen the operational resilience of their businesses. Our experts can help you navigate the complex compliance landscape via exceptional services across the domestic and international markets. With effective data collation and visualization, our team of experts provides consultation and support for the implementation of customized data strategies and governance frameworks. Contact our experts now to learn more.

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