Opinion by: Michael Carbonara, CEO of Ibanera
Each year, an estimated $800 billion to $2 trillion is laundered globally , accounting for 2%–5% of global gross domestic product. The money moves through the world’s biggest banks, whose penalties for regulatory failures often make headline news. TD Bank accrued $3 billion in charges over alleged Anti-Money Laundering (AML) failures this past quarter. Citigroup was fined $136 million for “insufficient progress toward compliance.” Even disruptor Starling Bank, which celebrated its 10th anniversary this year, was fined $39 million last month for “shockingly lax” AML screening.
At first glance, compliance may seem straightforward — implementing Know Your Customer (KYC), verifying legitimacy and monitoring each transaction to prevent illicit activity. These basic principles should be easy to implement, especially for some of the world’s largest banks. That’s not the case.
Compliance failures as a competitive threat
As the fintech landscape continues to grow, these compliance failures are becoming a competitive threat to the industry’s most established players. They are now being outcompeted by innovative challengers that have built compliance into their DNA.
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All too often, compliance due diligence falls by the wayside. Those in the firing line will point to challenges like a lack of funding, insufficient resources or the wrong talent. Despite warning signals from regulators and prosecutors, fines accumulate before anything can be done. Banks that struggle to balance risk and fail to meet evolving compliance standards face penalties for noncompliance, which erodes their reputation the longer the issue remains unresolved.
The challenge of achieving full compliance is understandable. Traditionally, as is often the case today, compliance processes take time. Onboarding, verifying and vetting customers remains a primarily manually driven process, which many large banks struggle to scale alongside growing volumes of transactions.
For big banks, regulators have certainly been more stringent, given their significant influence on the financial world and their established presence across global markets. Barclays, for example, failed to disclose details of its capital raising with Qatari entities during the financial crisis of 2008. These banks have borne the brunt of the heightened scrutiny, with authorities more focused on the most prominent players rather than applying a broad net over the industry. That is understandable, considering the top banks hold a 32% market share of global wealth management.
KYC processes and AML screenings
Technology is evolving to address manual challenges with compliance. KYC processes and AML screenings are increasingly becoming automated, with platforms offering built-in adaptability to keep systems updated and aligned with the latest global regulations. Many organizations are integrating this as part of a broader move to reprioritize compliance — embedding it into the backbone of its financial services.
This concept of “nested compliance” builds a culture that puts compliance first rather than a “nice to have.”
We are increasingly entering an age where traditional banks are being trumped by challenger platforms in the services they provide and their approach to compliance .
Challenger offerings use emerging technology like blockchain and artificial intelligence to enhance the efficiency of tedious processes and improve reporting, enabling operators to make more decisive actions. AI, in particular, is set to significantly change how fintechs and banks — should they adopt it — operate and manage compliance. Through maintaining thorough audit trails and detecting anomalies in record time, AI is transforming the efficiency and accuracy of compliance operations.
This strength enables institutions to establish robust policies and practices and have the tools to operate efficiently within their framework. Meanwhile, other disruptors will supersede traditional platforms on mobile usability and UX design — while seamlessly adopting automated and intelligent integrations that secure compliance.
New entrants to the global financial industry benefit from technological agility — the ability to adapt solutions to cater to many niche customer demands. They’ve learned from the mistakes of big players, who are continually punished for noncompliance.
As these challengers continue to develop their platforms, they are learning one crucial lesson from the big banks: It pays to be compliant.
TD and Citibank may be able to absorb their fines, but the need to be compliant will continue to linger. Until banks stop over-gambling with risk, they risk having the rug pulled from underneath them, as disruptors with more robust practices overtake them on the most unsuspecting of upper hands: compliance.
Michael Carbonara is the CEO of Ibanera, and a business leader with experience navigating complex regulatory environments and establishing licenses globally.