Neil Jeans at PayPal Headquarters for the FATF Fintech/RegTech Forum

On the 25th and 26thMay, as a co-founder of AML Accelerate www.amlaccelerate.com and through the international recognition the RegTech Association has received since launching, I attended the FATF FinTech/RegTech Forum at PayPal’s Head Quarters in San Jose, California. 

The Forum brought together the public and private sector to collaboratively discuss the AML/CFT reality and challenges within the FinTech and RegTech sectors.  Outreach to the FinTech and RegTech community is one of the FATF’s priorities for 2016-2017. 

The FATF’s aim is to provide a platform for a constructive dialogue and thereby support innovation in financial services while addressing the regulatory and supervisory challenges posed by emerging technologies.

There are many takeaways from the two days, but the willingness between all parties to engage and explore how FinTech and RegTech can play an important role in the fight against money laundering and terrorist financing was a clear standout.

The forum identified that FinTech solutions do not necessarily present any more ML/TF risk than traditional financial service providers. It was accepted that the ML/TF risks are similar, but may present themselves in different ways. 

There was an appreciation that lack of knowledge or understanding of FinTech solutions is contributing to a higher risk perception, with a general acceptance that even the ML/FT risk of Bitcoin, which has been around for a number of years, aren’t fully understood or able to be articulated.

The forum discussed how authorities and the private sector were navigating a world where transactions and relationships were increasingly digitised, and shared their experiences in adapting their practices to continue to identify and mitigate the different ML/TF risks brought about by these developments.

The use of technology to support customer due diligence was discussed in detail, including on the various different models and what that meant for the roles and responsibilities of the user(s) and provider(s).

The Forum was also provided with a number of examples of how FinTech and RegTech solutions are providing new and innovative way of detecting ML/TF, strengthening AML/CFT environments, and supporting supervisory efforts.

The Forum developed a set of high level Principles for FinTech and RegTech, and agreed to formalise FinTech and RegTech on the FATF agenda.  

Guiding Principles (The San Jose Principles):

Fight terrorism financing and money laundering as a common goal. Combatting ML deals a significant blow to the many profit-driven criminal activities, while countering terrorism financing limits the capabilities of terrorist groups to prepare or carry out attacks. As stakeholders, we have a shared interest to prevent the misuse of the financial system from the threats of ML and TF, thereby strengthening financial sector integrity and contributing to safety and security. Only by working together may governments and the private sector effectively achieve these goals.

Encourage public and private sector engagement. Close engagement between governments, the private sector and academia on financial innovations helps to foster a shared understanding of these developments, identify pertinent issues, and facilitates collaboration to address any concerns as they arise.

Pursue positive and responsible innovation. Be on the lookout for innovations that present opportunities to mitigate risks, increase the effectiveness of anti-money laundering and countering the financing of terrorism (AML/CFT) measures, and benefit society in general.

Set clear regulatory expectations and smart regulation which address risks as well as allow for innovation. Better understanding of how existing AML/CFT obligations apply to new technologies, products, services, and new paradigms for the provision of financial services is best achieved by governments and the private sector working together to increase awareness and establish clear guidelines as needed.

Fair and consistent regulation. Aim for a regulatory environment that is commercially neutral, respects the level playing-field and minimises regulatory inconsistency both domestically and internationally.

Through the discussions on FinTech and RegTech, the FATF further underscored its desire to increase its focus on the effectiveness of AML/CFT regimes as part of the Mutual Evaluation Process, in particular understanding and assessing an AML/CFT regime’s success on stopping and detecting predicate-crimes, as well as, money laundering and terrorist financing. 

The focus on effectiveness and how RegTech can play a role was also re-enforced by the establishment of a new concept – SupTech.  SupTech is the use of new technology to support AML/CFT regulatory and supervisory objectives.