For Startups

Future of Compliance is RegTech?

In the early December 2018, a number of the US financial regulators issued the Joint statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing. Among them are the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency – the main US financial regulators.

This statement stressed an emerging possibility for banks to employ new technologies in order to fulfill the Bank Secrecy Act and Anti-Money Laundering obligations. The agencies believe that innovations and experiment technologies, such as artificial intelligence or digital identity technologies, can strengthen BSA/AML compliance approaches, as well as enhance transaction monitoring systems though the blockchain was not listed among them. We believe that this may be considered as the best practice for the Money Service Businesses (MSB) as well.

Likewise, later in January 2019, FINRA, which is the primary regulator for the US broker-dealers, issued the Annual Risk Monitoring and Examination Priorities Letter, which describes the main areas of regulatory scrutiny in 2019. Among the topics that the oversighted firms should consider in course of improvement of their compliance strategies - is regulatory technology, or RegTech (actually, you can add “tech” suffix virtually to anything, and you will get the entire industry).

In the meantime, FINRA does not elaborated in greater details on its approach to RegTech, as their peers from other regulatory agencies. It is stated that FINRA will engage with firms to understand how they are using such tools and addressing related risks, challenges or regulatory concerns, including those relating to supervision and governance systems, third-party vendor management, safeguarding customer data and cybersecurity.

So, the main question that arises here is whether the approach of FINRA would be cautious or would it be persuasive?

However, considering the FINRA’s Report on Technology Based Innovations for Regulatory Compliance in the Securities Industry as of September 2018, personally we believe it would be the first option.

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, financial, or other advice.

Serhii Mokhniev, CAMS

Kristina Nikipolska

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