What's this all about?
At LEVERIS, we believe that the future of banking starts at the core. Core by LEVERIS is an interview series where we address the issues at the core of banking, fintech and financial services. We speak to those working at the intersection between tech and finance about everything from the future of money to investment in fintechs. Through their insights, we explore current trends, predict future outcomes and get a taste of what it takes to succeed in the new age of banking.
Our latest guest in the series is co-founder and CEO of a company at the cutting-edge of AML data and technology helping financial institutions protect themselves from money laundering and ensuring their AML compliance. And judging from the latest industry figures, there’s a hell of a lot at stake. Fenergo’s annual findings on global financial institution fines show that in 2020, penalties totalled $10.6 billion for non-compliance with Anti-Money Laundering (AML), Know your Customer (KYC), data privacy and MiFID (Markets in Financial Instruments Directive) regulations.
As Charlie Delingpole, Founder and CEO, ComplyAdvantage, tells us, “The existential threats of knowing that your business could be shut down as well as the possibility of fines, reputational damage, additional costs mean that everyone has to take it seriously.”
In the following interview, Charlie gives us the lowdown on the biggest financial crime threats to the financial services industry, shares the findings of ComplyAdvantage’s State of Financial Crime report, tells us why AML-related stories should be front-page news, and fills us in on his habit of shredding his documents before binning them.
LEVERIS: Could you give us a brief background on ComplyAdvantage and what you guys are all about?
Charlie Delingpole: The mission of ComplyAdvantage is to eliminate money laundering by using advanced technology to help companies more effectively screen, onboard and monitor their clients.
LEVERIS: How has COVID-19 impacted the world of financial crime? Has it shaped how ComplyAdvantage does things?
Charlie Delingpole: Due to COVID-19, there has been a radical shift in the way we work, shop and socialise. Activities that were once held face-to-face are now, for the most part, virtual. And because COVID changed our patterns of behaviour very quickly, if a business wants to conduct any form of anomaly detection by looking for patterns associated with criminal activity, it’s very hard to find a baseline for what normal behaviour is. I think those are the two key changes during COVID and they’ve had a very material impact.
In terms of fraud, what you see are fraud rates that are 40 times higher amongst fintechs than they are amongst the community local banks. Government stimulus plans designed to help businesses impacted by COVID-19 have led to huge amounts of fraud as well.
LEVERIS: In 2021, what's the understanding among financial institutions around the importance of AML compliance? How do newer fintechs stack up against the more traditional institutions?
Charlie Delingpole: I think pre-COVID-19, the number one topic, particularly in the EU and also in the US, was financial crime and how it can be prevented by using data and advanced methods in machine learning. Given the sheer volume, velocity, complexity and sophistication of criminal initiatives stretched across all financial service verticals, you can bet that this conversation is not going to go away anytime soon.
There continues to be a growing groundswell of public opinion against financial crimes, including terrorist financing, money laundering, that regulations are only going one way. The bigger question is, how will these regulations impact different services?
I think the perception often is that “big banks can’t whereas fintechs won’t”. What I mean by this is that many big banks have made significant investments in their compliance strategies yet their technology stack to fight money laundering is still very, very old. Therefore, they lack the capabilities to move and improve their compliance strategies quickly.
Whereas fintechs might be far more agile than the big financial incumbents, their founders often think of compliance as an afterthought only to soon realise that it’s actually a huge part of their business viability and that compliance will probably become one of their biggest teams going forward.
Although some may anticipate the need for rigorous compliance, if they don’t do it properly they’ll be shut down and cease to exist. The existential threats of knowing that your business could be shut down as well as the possibility of fines, reputational damage, additional costs mean that everyone has to take it seriously.
LEVERIS: You recently published your State Of Financial Crime 2021 report. Could you talk us through some of the main findings?
Charlie Delingpole: Of course! As it particularly relates to the US, this will be a banner year for AML because what you’ll see is the biggest regulation change since 1970 – the BSA AML Act being updated. That’s the AML Act 2020 being implemented.
Meanwhile, in the EU, you have the fifth money laundering directive. You’ve got PSD2 and open banking. You’ve got Brexit. In Asia, we’ve seen continued improvement in regulation as well as innovation from the Monetary Authority of Singapore. And so, with all these changes taking place, I think it’s a very exciting year.
Geopolitically, it’s also a very interesting time because you’ve got a change of the guard in terms of Biden and his new administration’s intensification of conflict with China. I think global conflict always breeds enhancement and regulation given the sanctions, especially as a geopolitical weapon and tool. Overall, I think 2021 will be a most exciting year for AML.
LEVERIS: What do you see as the biggest financial crime threat to the financial services industry in 2021?
Charlie Delingpole: I think fraud continues to be the biggest threat. You have to look at the sheer cost that it has had to national exchequers, in part because there continue to be huge holes in our financial services infrastructures around identity verification and payment mechanisms.
The world wasn’t prepared to go fully remote, at least in terms of fintech, so businesses and people are losing money, hand over fist. I think that’s more a fraud thing than an AML thing. Outside of fraud, I believe that sanctions and how they are used politically should also be considered a major threat.
For example, let’s take what’s happening in Hong Kong. Carrie Lam, the country’s Chief Executive, has to keep all Hong Kong-related funds in cash because the Chinese government has said you can’t comply with US regulations, but the banks based in the US must comply with US sanction otherwise there’s no access to the dollar clearing. I think that’s probably the biggest story of 2021.
LEVERIS: One of the other major financial stories last year was the FinCEN files. What are the key takeaways for you? In your opinion, did it warrant more media coverage than it received?
Charlie Delingpole: Perhaps cheekily, I believe that all AML-related stories deserve to be front-page news every day. When you think about it, the topic of money laundering continues to make appearances in pop culture, for example, even in shows on Netflix such as the series Ozark or the movie Jack Ryan: Shadow Agent, different aspects of money laundering feature in their narratives.
We are now seeing how the general population is rediscovering what Suspicious Activity Reports (SAR) are and, none of the recent high-profile SARs is particularly surprising. But when you have organisations like the Organized Crime and Corruption Reporting Project (OCCRP) presenting things like WikiLeaks and other questionable activities as hidden secrets then there’s always an electric public reaction. Even if these secrets are hiding in plain sight.
In general, it amazes me that in 2021, we still have money laundering to the extent that we do. We created ComplyAdvantage as a way to eliminate these sorts of threats.
LEVERIS: What regulatory changes addressing financial crime are coming down the tracks and how will they impact how you do things or how we do things?
Charlie Delingpole: The biggest change is related to Ultimate Beneficial Ownership (UBO) and data around that. For those that may not know, a UBO is an individual that benefits from or is impacted positively by a company even though they are not formally named as the owner of a business. New legislation is designed to bring more transparency to UBOs in an effort to stop money laundering.
One question we will face is: “Okay, this company is applying and yet, we have no idea who controls it.” Even if people finally get an answer to that question, it doesn’t remove the complexity of global AML. This is why it’s so important to have AML functionality like Know Your Business (KYB), which ComplyAdvantage will be releasing quite soon. All to say, that we still have a lot of work to do.
LEVERIS: How is ComplyAdvantage's role evolving amid the rise of cryptocurrencies? Is it an area you are covering?
Charlie Delingpole: We have a very large crypto client base, including some of the leading brands in the space. The same technology that we developed for broker-dealers or payment companies or challenger banks is also directly applicable to crypto companies.
Our intention was always to design solutions that provide the widest array of clients with the same fantastic risk reductions and cost savings regardless of which financial services sector they sit in.
But as it relates to crypto and how we service our customers, I think a big question, particularly in the US, will be, how will regulators approach unhosted wallets? US Secretary of the Treasury Janet Yellen has said that she doesn’t want these wallets to become the equivalent of Swiss bank accounts, so no doubt her regulatory point of view will impact our current and future crypto customers.
LEVERIS: Given your role as founder and CEO of ComplyAdvantage, how cautious are you personally when sharing your own customer data with various companies?
Charlie Delingpole: I think intuitively I have nothing to hide and therefore, I’m fairly open with my data, but that’s not to say that I haven’t had my own issues. Personally, I had someone register a bank account with Barclays in my name. Then this person bought 15 iPhones on my account. So now I do rip up all my documents. I try and hide any materials from bins just to ensure that I don’t have fraudsters ripping me off.
LEVERIS: Any major industry trends to keep an eye on towards the second half of the year?
Charlie Delingpole: For starters, the big trends in the first half of the year weren’t necessarily that predictable, specifically the boom with GameStop and RobinHood and crypto.
However, I think moving forward you will see more speculative bubbles popping up that will lead to huge numbers of accounts being created and looming risks.
The one thing that you can bet on is the whole back-to-work trade and what happens with hybrid working environments. We’ll get used to working in an office and at home at the same time, hopefully, that might mean some changes.
Some companies will struggle with that. I think that will have an impact in terms of fraud, in terms of AML. How do you know, is somebody who they say they are and how do we adapt to a hybrid work environment?
LEVERIS: You announced last year a $50 million raise in your Series C round. What has this meant for the growth of the company and what's next?
Charlie Delingpole: When we started the company, it was always a deliberately impossible goal to build what we’re building. Really, the big change for the company in the past year has been the addition of very seasoned executives to the roster; a new CTO, COO, CMO, CRO. Really it’s that different tier of management given that we are now approaching 300 people in how many countries.
We have new executives that bring deep experiences to our company, which means we have the ability to move faster and with greater confidence. We’re really ramping up to a position of market leadership as it relates to real-time AML solutions and that’s very exciting.
LEVERIS: As a partner of ComplyAdvantage – gaining your tech support for our compliance processes – we don't need to be told. But, for those who do, what's your 60-second business pitch?
Charlie Delingpole: One of the biggest threats to your company’s viability is money laundering, which is why many companies have large compliance teams and why it takes them ages to onboard clients. With ComplyAdvantage you can onboard clients faster, you can reduce your costs, you can avoid fines and be a much better, more responsible company.