Jamie Miles, KYC Lead at Onfido, spoke at the APPG FinTech Summer Reception on July 5th.
It’s time to talk about RegTech: regulation technology. Simply put, RegTech is FinTech’s best friend. Since 2008 a storm has been brewing. With regulatory pressure coming from one side and commercial pressure from the other, the margins of the financial service industry have shrunk.
These pressures have seen the manual operations of financial service companies swell. In 2014, J.P. Morgan announced it would be adding 30,000 people to its compliance team, raising an army to tackle regulation. Meanwhile, Deutsche Bank spent an extra $2 billion to fulfil its regulatory requirements.
RegTech’s sole purpose is to drive down the cost of compliance. We take manual processes and automate them through technology. With this approach, we are able to help financial service companies fulfil their regulatory requirements in a more affordable way. Not only is it cheaper, it is also faster and more accurate.
At Onfido, we automate KYC & AML processes. Put simply, these processes prove that someone is who they say they are – a requirement to meet the anti-money laundering measures.
This is a big challenge, made even harder given that today’s customers now sit behind computers and smartphones rather than in branch and in person. Our approach is to use the cameras on these devices to capture identity documents coupled with facial recognition – a proven way to prevent the fraudsters getting through. With 84% of fraud being committed online, the need is certainly there: we are already working with the gold-tiers in FinTech, including JustGiving, Mondo Bank, Nutmeg and Crowdcube.
Instead of requiring a compliance army to inspect a passport, our machine-learning software does it in seconds, and head-to-head testing shows that the eyes of our software are far sharper than human eyes when it comes to spotting fraudulent documents.
There is one issue, though: the adoption of these cheaper, faster and more accurate solutions is being stifled. Our regulators do fantastic work, but have provided little in terms of formal processes around assessing new suppliers. In this risk-averse climate, it means that financial service companies are reluctant to adopt solutions that would significantly reduce their operational costs.
My recommendation is that we implement a formal process for assessing these new RegTech approaches. One of our FinTech customers has saved 1800 business hours by using our automated solution instead of their manual one over the course of a year. Imagine if we could do that for all financial service companies.
With FinTech currently valued at £6.6 billion, consider what removing this handicap would mean for the industry. If FinTech and RegTech were to combine forces, think what that £6.6 billion could become.
Since FinTech and RegTech are best friends, we should hangout more. Thus, fostering this relationship should be a focus for the next 12 months.
Onfido was featured in the 2016 All-Party Parliamentary Group paper, 'Stepping forward for FinTech', as one of the driving forces behind building a more pluralistic, inclusive and secure financial environment.