Virtual Banking is coming - are you ready?

Written by International Compliance Association on Saturday October 5, 2019

Malcolm Wright, Chief Compliance Officer, Diginex, and keynote speaker at ICA’s 2^nd APAC Conference, discusses the latest trends and challenges in virtual banking and how it’s impacting the skills and competencies of compliance professionals.

ICA: What is the drive behind virtual banking and what market need is it serving?

Malcolm: Consumer demands are changing. As we see more tech-savvy users of banking services, alongside a shift towards a more instant way of life, this is driving a new level of consumer demand. For example, being able to conduct your banking via a mobile app at a time convenient to you rather than booking a meeting with your bank manager at a branch offers a different, more responsive user experience.

ICA: How is virtual banking disrupting the financial industry and what does this means for compliance and financial crime professionals globally?

Malcolm: From what we see in other markets the disruption is leading to new, innovative services and ways of doing business. It also challenges some of the pre-existing ways that financial crime handles such as an easier ability to introduce artificial intelligence and big data analytics into KYC / AML by not having to handle customer records stored across multiple legacy banking applications. For compliance staff, this will mean a new way of thinking. The role will shift from a purely compliance focus to one where an understanding of technology and how it might be exploited becomes key.

ICA: Hong Kong is leading the way in the virtual banking space. What can we learn from their experience?

Malcolm: At the moment, Hong Kong has issued licenses, but the successful candidates have yet to launch. It may be better at this stage to look at the successful challenger banks in the UK such as Monzo and Starling where an appealing customer narrative, superior customer support, and innovative user experience apps has led to a high update of customers.

ICA: APAC is at the forefront of virtual banking and other disruptive technology. Why is that do you think?

Malcolm: I believe that the UK has led the way in this space for some time. There are a number of neo banks already operating with significant customer growth. However, Asia has a unique advantage now in that it can view the UK’s route into this space and then adopt what has worked and protect against what was less successful. This allows the Asia virtual banks to build a service that optimises the customer experience, security, and compliance of their operations.

Regulation has often been accused of being reactive rather than proactive. Do you feel the industry is leading the regulators at the moment in this space?

Malcolm: I think this goes back to my earlier point that today’s society often expects an instant response. But regulators have an important role to fulfil, they need to measure the impact and risks of introducing new approaches and regulation. They also need to ensure they have the technical expertise to draw upon before enacting new regulation, and in order to supervise post regulation.

Finally, they need to ensure there are no unintended consequences in the process of regulating. At times it may seem that the industry is leading, but that’s not to say that regulators may be doing nothing behind the scenes, even if just monitoring on the growth and development of an industry before determining the appropriate course of action.

ICA: Who needs to be part of the collaborative team to ensure the success of FinTech developments such as virtual banking?

Malcolm: Internally, there needs be a very close collaboration between a FinTech’s technology and compliance teams. It is hand-in-glove where one relies on the other. Externally, FinTech needs to support regulators, and regulators need to support FinTech – both on a national level, but also through international initiatives such as the UK’s last AML TechSprint. It also requires wider government support for bringing in talent to a country as well as having training initiatives in place to educate the next generation of FinTech staff. Finally, vendors have a large part to play in guiding FinTechs on how technology may solve certain problems such as AML transaction monitoring.

ICA: Change can bring new risks and opportunities for exploitation by those with criminal intent. How is virtual banking addressing these?

Malcolm: This goes back to my earlier point about Technology and Compliance working closely with one another. Every new technology product is open to exploitation and it does not take long for criminals to figure out how. The Virtual Banks need to ensure they have the right skillset on board, and the right internal governance to build a risk log, maintain with every product release, and have a compliance team that is tech-savvy, and a tech team that is compliance-savvy.

ICA: lastly, what do you think the main challenges are for regulatory and financial crime compliance practitioners in terms of the tech revolution, and how can these be best overcome?

Malcolm: To me it is all about education. Practitioners need to take every opportunity to upskill starting now, as I wrote in inCompliance in March 2018. The biggest challenge I see is if staff believe that in some way the tech revolution can be avoided, and their skills are fine as they are. Compliance is now moving rapidly. I now work on the cutting edge of this in the virtual asset space and see this unfolding at an astonishing speed. My one word of advice then, is to seek out every opportunity to learn whether through courses, job shadowing, following LinkedIn posting, or attending conferences.

Drawing on experiences from Hong Kong, Malcolm will explore some of the key challenges in the virtual banking space, focussing particularly on the area on non face-to-face onboarding. He will also deliver the keynote address on day two, 17 October, entitled ‘Crypto regulation is coming - what are you doing about it?’.

ICA’s 2^nd APAC Conference will take place from 16-17 October 2019 in Marina Bay Sands Expo & Convention Centre, Singapore. To learn more about the event and view the full list of topics and speakers visit the conference website.

This article forms part of the #BigCompConvo - Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the Big Compliance Conversation get in touch with us at contributions@int-comp.org