Intelligence Delivers Excellence

Why Adopting a Threat-Focused and Intelligent Approach to Financial Crime Will Help Drive Fintech Success

The 21st century has been characterized by an interconnectedness that impacts every aspect of business and society. This level of connection itself is not new, especially in business, where there have always been long, connected chains of actors, actions, and goods. Two key forces have increased this global interconnectedness in recent years: the globalization of business and society in all forms – including friendships, cultural influence, criminality, and terrorism – and the rapid development of information and communication technology.

A new set of assumptions is emerging about operating in this technology-enabled, interconnected financial services environment. Actions and relationships are expected to be fast (if not instantaneous), and they should be rendered both transparent and permanent by the information and communications technology that enable them. Moreover, regulators’ expectations of what one needs to know about the connections within any given financial system have also increased.

In 2016, a large-scale leak of client data from Panamanian law firm Mossack Fonseca revealed details of offshore companies and transactions, some of which were alleged by investigative journalists to involve criminality in various forms. The response from global government bodies was to request information from financial institutions almost indiscriminately – even the governments themselves did not know which actors and activities were illicit or licit. Financial institutions faced a choice: investigate every actor and transaction with a potential link to Mossack Fonseca, or explain to government institutions what they knew about their exposure to Mossack Fonseca and their understanding of the financial crime risk associated with that exposure.

Though the latter choice was manifestly less labor intensive, it required companies to know, in detail, who their clients were at any given point in time. This was the only way they could state with confidence whether their business with various clients fell within or exceeded the company’s desired level of risk. In other words, companies needed to know who their clients were, what they were doing, and what they were expected to be doing – they needed good intelligence.

Academic debate on the definition of intelligence continues to rage, but for the purposes of this article, we regard it as the ongoing process of gathering requirements (a need for information, a need for a service), collecting information pertinent to those requirements (market data, customer profiles), and analyzing and assessing that information to draw out conclusions. This, in turn, drives the next set of actions (product development) or requirements (more research). Intelligence in practice is a constant iterative cycle of activity that matures as a company learns and gathers more information.

The concept of applying an intelligence process is not new for fintech or financial services companies on the product side of business. An examination of how successful firms build and iterate their products is enough to illustrate that the ability to generate good intelligence already exists within the core DNA of how fintech companies operate. The methods they apply to product development are a great example. Fintech companies identify a market opportunity or process that is prime for disruption before collecting supporting data, planning a method or solution, producing a product, issuing it to customers, and then learning from their feedback. They are continuously iterating at pace. In fact, many good fintech CEOs state that they value the feedback loop with users most, as this feedback allows them to identify areas for improvement and focus on the things customers really want and are willing to pay for.

Donald Gillies, CEO of PassFort, a rapidly growing technology firm that provides anti-money laundering (AML) and know your customer (KYC) solutions for regulated business, elaborated on this: “For companies that are truly innovating, there is no more valuable commodity than engagement and feedback from customers. It’s more valuable than revenue. More valuable than funding. It’s feedback and, more specifically, the learning that results from it that allows you to deliver excellence. Minimizing the time between feedback being given by a customer, that feedback being understood and evaluated by the product team, and evolving [that feedback] into tangible product outcomes enhances process credibility. Enhanced process credibility increases customers’ willingness to devote time and resources to contribute more feedback. In such a set up, more feedback leads to better product outcomes.”

Gillies goes on to state that “excellence itself is where such efficiency and desirable outcomes are achieved repeatedly. This ability to repeatedly deliver excellent outcomes is what enables businesses to scale quickly and efficiently – no matter what line of business they operate in.”

It is this innate mindset and thirst for knowledge and feedback that positions fintech firms to have an exciting opportunity to build the same intelligence-led concepts and associated excellence into the financial crime controls they develop. There is huge potential commercial benefit as these companies build proportionate, progressive controls that foster trust across customers, partners, and regulators while also addressing the complexity of interconnected, diversified, and evolving global financial crime risks.

In February 2002, then US Secretary of State for Defense, Donald Rumsfeld, stated the now globally recognized words: “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know.” This phrase has become synonymous with the often explored and debated issues around intelligence and analysis, but its sentiment also rings very true in the battle against financial crime. The application of a very static, compliance-only financial crime risk-management methodology will always enable a company to identify and deal with the known knowns. However, in most cases it is not the known knowns that cause debilitating consequences. These come more often from the left field of known unknowns. However, our work with fintech firms has brought an interesting trend to our attention: an increasing appetite for and ability to look for known unknowns.

This development is probably being driven by the personality type of those working in fast-paced fintech firms in combination with increases in access to data and technical knowledge. This new trend is exciting and has the potential not only to effect positive change in how the financial services industry addresses financial crime, but also to delineate additional areas of competitive advantage for fintech. Developing intelligent processes and working to fill the void of information created by known unknowns will drive excellence across all fronts: it will enable competitors to disrupt existing structures, processes, and services; it will allow them to see opportunity in risk and manage it proactively and intelligently; and, crucially for startups in the financial services space, it will allow them to drive customer trust through their effective and frictionless financial crime risk management practices. In the context of globalization and interconnectedness, intelligence and excellence are a powerful combination. This combination can rebalance the complex equation behind the efficient management of financial crime without hindering the exciting commercial and social potential of disruptive financial services. Fintech can lead that charge, as they already have the inbuilt personality traits, data, and technical capabilities to think intelligently about financial crime controls. And, in this sense, intelligence leads to excellence.

the author

Gemma Rogers

Gemma Rogers is cofounder of FINTRAIL.

the author

Robert Evans

Robert Evans is cofounder of FINTRAIL.