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A Cost-Effective Solution To Preventing Financial Crime

Budget concerns are a common stumbling block, especially for newer startups that are still expanding and finding their footing.


Fintech is a broad term that describes a variety of established areas of business. When it comes to putting together a compliance strategy and addressing regulatory needs, this may be a real pain. Budget concerns are a common stumbling block, especially for newer startups that are still expanding and finding their footing. Often, these startups lack the financial means to invest in a comprehensive compliance strategy.

However, if you were to get in trouble with law enforcement, saying you don't have the money for a complete setup may not help. Whether using manual or automated processes, compliance must be prioritized to the best possible standard and tailored to the specific risks. Fintechs should budget for compliance as early as possible in their business planning. Spending early can help avoid major problems later on.

Fintechs are not always aware of which of their procedures should be automated and which require manual intervention. Among the advantages of automated operations include faster transaction speeds and a reduction in fraud. There is no correct answer to the question of how much to rely on technology. Fintechs are, of course, fundamentally technological products. When it comes to compliance, however, a human element is usually prescribed to provide a perspective that technology cannot. It is recommended to combine and balance multilayered technology and human oversight at key decision points.

Tackling compliance challenges

Compliance requirements are one of the most challenging factors in a rapidly - evolving financial world, leading fintechs to explore new ways to achieve compliance. The acceptance of a fintech culture that can bring the power of technology into the scene to address compliance and regulatory challenges is critical for the financial industry to thrive fully and competitively.

However, the rise of fintechs in the financial industry is not without risk. Regulators who are unfamiliar with new technology advancements, such as non-bank financial firms, must understand the need for new technologies that will improve service for the entire industry while also ensuring that these rapidly growing institutions are regulated.

Concerns about personal data privacy, transparency, and security have created certain regulatory compliance challenges for non-bank financial institutions. As a result, maintaining compliance standards in such a complex digital world is much more difficult for fintechs. The major areas on which fintechs may need to focus are related to the most common services they provide, such as real-time transaction monitoring and customer identification, which are vulnerable to financial crimes. As a result, KYC (Know Your Customer) due diligence, AML (Anti-Money Laundering), and CTF (Counter-Terrorist Funding) rules, among others, are the ones that most concern them.

Regulatory technology (Regtech) has emerged as a specific innovation to assist fintech institutions in being well-informed about the compliance requirements that directly or indirectly affect their operations. Regtech plays a key role in streamlining regulatory compliance in the financial services business, much like fintech has done in the delivery of financial services. Regtech's solutions are cloud-based, which provides four important benefits: security, flexibility, scalability, and cost-effectiveness. So, on the one hand, it provides the most efficient means of meeting compliance, while on the other hand, it ensures efficiency. Compliance processes for fintech institutions are easier due to these economical and functional regtech features, which address concerns such as real-time monitoring, customer identification, affordability, and staying up to date with new legislation.

Real-time transaction monitoring

Financial institutions are responsible for monitoring, detecting, and reporting suspicious transactions that may be linked to illicit activity, such as money laundering or terrorism financing. AML and CTF regulations are among the most important and compelling ones that require the indication of suspicious cross-border transactions because there is a massive global system of transactions that is very difficult to trace and there is no single payment standard.

Regtech allows for real-time monitoring of transactions by facilitating an interface that reduces the need for many systems to communicate with one another.

Customer identification

The Financial Action Task Force (FATF) devised a methodology called KYC (Know Your Customer) guidelines that financial institutions can use to achieve customer due diligence with respect to AML and CTF legislation that requires customer due diligence.

It is critical to have a centralized source like reference data utilities to provide better customer identification verification and a more effective KYC standards application. However, there may be restrictions on how data is used and transferred in cross-border transactions.

At this phase, the capability of regtech solutions to analyze a variety of identity verification systems has the potential to make a significant contribution toward the removal of such limitations.

Monitoring new regulations

Because the pace of technology is tough to keep up with, compliance and regulatory requirements are continuously changing and forcing the financial industry to follow and modify its systems. However, there really is no other option than to remain compliant to avoid penalties. Compliance procedures can be much more difficult for organizations that operate on a global scale.

Cloud-based regtech solutions offer the best compliance services to fintechs at this point, as their services can track the most recent legislation in each specific area, region, or country and conduct audit accordingly.

Cost-effectiveness

The cloud-based regtech services' standardized technique allows you to establish specific parameters to match the needs of diverse datasets. Instead of inventing new rules all the time, a common set of controls would suffice to maintain a high level of quality and effectiveness in the face of constantly changing regulations. Adoption of this strategy, while initially requiring some investment (at the implementation stage), proves to be a wonderful long-term investment by avoiding recurring costs.

Another benefit of regtech is that you only pay for what you use because cloud-based solutions can manage, update, and back up data from anywhere. As a result, they provide improved security (encrypted data), scalability (adding/removing features with ease), flexibility (data customization), and affordability.

Using Flagright

To summarize, regulatory challenges that push fintechs in a number of different ways can be efficiently resolved with a strategic initiative that incorporates the assistance of a technology-based solution: Regtechs. Just as fintechs have introduced innovative methods for providing financial services, regtechs are paving the road to a more efficient and cost-effective method of keeping up with the constantly evolving regulatory landscape.

Flagright provides fincrime prevention tools such as real-time transaction monitoring, customer risk scoring, KYC, crypto & sanctions screening, and even fintech license application automation. All pricing is based on usage, with no upfront fees, and now includes a free tier for early-stage as well as further discounts for annual prices, which you can begin utilizing to get a sense of how seamless our platform functions, ensuring a secure and functional compliance integration process.

Contact us to get started, or request a demo to discuss larger projects with more complex requirements.

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