Railsbank, the open banking and compliance platform, has picked up further investment, following the company’s $10 million Series A in September 2019.

This time backing comes from Visa — a strategic investment, if you will — along with Global Brain, a venture capital firm based in Tokyo, Japan. The exact amount isn’t being disclosed, though sources peg it as “several million” U.S. dollars.

In addition to investment, Railsbank  is announcing that it has signed a 5 year partnership with Visa to deliver Banking as a Service (BaaS) innovation in Southeast Asia, and recently became a Visa “principal issuing” member.

“Being a principal Visa member and by joining Visa’s Fintech Fast Track Programme, Railsbank can now access Visa’s growing partner network, technologies and experts, enabling Railsbank’s customers to rapidly and effectively launch Visa based products throughout Asia and beyond,” explains the company.

Railsbank co-founder and CEO Nigel Verdon, who previously founded Currencycloud, says the partnership with Visa signals the fintech’s intent to be “the most innovative banking platform business” in Asia-Pacific. “Our API focussed platform is the simplest way for any business or brands to quickly conceptualise, build and launch digital finance products that easily incorporate Visa’s product suite and capabilities,” he adds.

To that end, Railsbank positions itself as a “utility” on which other companies — spanning fintech upstarts, challenger brands, to incumbent banks that want to re-factor their tech — can build and sell various financial services or add fintech features to their products.

When the company closed it Series A, Verdon likened it to what Amazon has done for data centres with AWS. “Railsbank is a utility for the compete financial services backend: platform, connectivity, operations, scheme memberships (e.g. Visa), regulation, and compliance,” he told me at the time.

Cue statement from Naoki Kamimaeda, Partner and Europe Office Representative of Global Brain Corporation: “We see huge potential in Railsbank’s vision and open banking platform. Corporates, especially in Asia, are more willing to have banking services and Railsbank can provide them with a turnkey solution for this. We are very excited to join Railsbank’s bold vision and look forward to actively supporting its expansion and penetration in Japan and Asia.”

Railsbank is headquartered in London, but also has offices in Singapore, Lithuania, the Philippines, Vietnam and Sri Lanka. Meanwhile, I understand that it could announce U.S. expansion plans in the coming weeks.

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In June, Singapore’s regulator will hand licences to three new wholesale digital banks in a bid to better serve under-banked SMEs. Euromoney talks to Arival Bank, a fintech firm aiming to snag a licence and use it to fuel its global ambitions.

And so to the next stage of digital financial disruption. Last summer, the Monetary Authority of Singapore (MAS) said it would accept bids for five new virtual banking licences, with the winners to be announced around June 2020.

The MAS says it received 21 tenders and that the bids break down into two types. At least five bids have been lodged for full-service digital banks, to be whittled down to two by mid-year. Licensees have to stump up S$1.5 billion ($1.08 billion) in paid-up capital, must be based in Singapore and ultimately controlled by a local business interest.

Then there are the licences for new digital wholesale banks, coveted by at least nine companies and consortia. This is new and a further sign that disruption is moving beyond retail to the nuts and bolts of wholesale banking. 

The applicants include some of the biggest names in fintech and in technology in general. Among those bidding for a wholesale licence are Chinese firms Ant Financial and TikTok, and Singaporean internet operators Sea and Razer. Several are consortia, bringing together Hong Kong financial group AMTD with Chinese smartphone maker Xiaomi, and telecoms operator Singtel with delivery firm Grab.

Some are firms few will know outside the world of fintech. Take Arival, founded in 2017 in Singapore with a stated mission to “bring a new level of banking service” to small and medium-sized enterprises. 

Our initial customer focus is tech startups. That is the world where we most resonate. Within two years, we will be a leading financial provider for these firms, their go-to digital bank   

Jeremy Berger, Arival

When Euromoney meets its co-founder and COO Jeremy Berger, he is in Miami overseeing a Puerto Rico-based team in the final throes of applying for a US digital bank licence. 

Berger spends a lot of time in the air. Arival is also applying for a full digital banking licence in Lithuania, where Berger’s team is about to open an office in the capital Vilnius. 

Other markets on the firm’s radar are Malaysia, the UK, Australia and the UAE, with Hong Kong and Taiwan also on its wish list. But it is Singapore that interests the young firm most. 

Berger met his business partners, chief executive Vladislav Solodkiy and president Igor Pesin, both Russian nationals, at Money 20/20, an annual conference in Las Vegas about the future of payments and fintech. 

Solodkiy, who cut his teeth in media and marketing at two of Russia’s largest lenders, Russian Standard Bank and Alfa Bank, before jumping into fintech, launched Arival in October 2017. Pesin and Berger joined a few months later. 

Solodkiy’s CV is surely a sign of things to come as banking becomes more seamless and online. The leading providers of the future, Berger reckons, will be a melting pot of “industry experts, designers, artists, marketing gurus and young entrepreneurs”. 

He says that as a rule, virtual lenders “prefer to hire young, hungry and driven individuals with a clear mind and the willingness to learn, adapt and innovate” rather than employing “old bankers”.

‘Startup paradise’

Singapore was the obvious place to locate Arival’s global operations, Berger says, pointing to its global outlook and willingness to welcome outsiders. 

“It’s a startup paradise, with a lot of foreign-run fintechs, a supportive ecosystem and real fintech talent,” he says. “It’s full of ambitious digital firms looking for innovative digital financial services.” 

The firm spent its early days helping corporates and mainstream lenders tackle compliance issues, including money laundering, and little else. But given its history – Arival sprung out of a $40 million venture capital firm called Life.Sreda, whose early fintech deals include a profitable investment in Russian neo-lender Rocketbank – its ambitions were always set on becoming a transnational digital bank.

Then came last year’s announcement by the MAS. 

Singapore at the state level is a cautious operator, focused on pursuing accretive gains while keeping an eye on the bigger, long-term picture. The new wholesale licences fit into this framework. It involves risk, but it is contained. 

Innovation is the aim, but it is kept caged until it is fully trusted. Successful applicants will be allowed to serve SMEs and other non-retail segments, and can only take fixed deposits of over S$250,000 from individuals. 

Each licensee must have to hand minimum paid-up capital of S$100 million and will be restricted at first to just one physical place of business. After the winners are announced, there will be a period of bedding-in, before operations start in earnest from mid 2021. If the regulator likes what it sees, the new banks will be allowed progressively to expand their capital base, up to a limit of S$1.5 billion, and their service offering. 

Berger wants Arival to be “a real borderless fintech bank for rejected businesses and entrepreneurs”, eventually with operations around the world. 

While the application process in Singapore is still at a “very nascent” stage, he is “confident that we will be one of the finalists”.

Should it win, the firm will target its product offering at fintechs and the wider digital community, including bloggers, streamers and influencers, but also charities and freelancers. 

“Our initial customer focus is tech startups,” Berger says. “That is the world where we most resonate.” 

Higher-risk customers are the reason why we go to bed thinking about compliance and wake up to the very same thought   

Jeremy Berger

Based on an internal digital analysis of 2,000 customers, Arival identified 12 products to integrate into its platform, including business bank accounts (delivered via its own banking platform, ArivalOS), international payment transfers, foreign exchange, business expense and debit cards, factoring, and financial management services, including analytics and accounting. 

“Within two years, we will be a leading financial provider for these firms, their go-to digital bank,” Berger says. 

He is keen to stress that Arival will be “the first fintech bank for SMEs. We’re not a neobank or challenger bank.” 

He says neobanks that align with traditional lenders are too restricted in their ability to serve the under-banked, while challenger banks such as N26 and Revolut are often seen as back-up banks rather than primary providers. 

Arival’s “full range of products and services” and open infrastructure will, he hopes, result in customers ditching their traditional provider and hopping on board.

He is careful not to rock the boat too much, however, balancing the firm’s ambitions with a nod to Singapore’s need to create growth and guarantee social cohesion. That means focusing on job creation and on innovation, but not at the expense of allowing margins and good ideas to be crushed by over-competition. 

To that end, he says: “I don’t think we will disrupt the local market. It’s dominated by three or four banks and that’s not going to change anytime soon. But more fintechs will spring up here or come to Singapore, and that development coexists nicely with our wider strategy.”

Insiders reckon the bidding battle for a full digital licence will come down to which firms are better known and more reputable, implicitly trusted by government and bolted firmly to the economy. 

That should put the Singtel-Grab consortium in prime position. Many see it as a shoo-in for one of the full licences, although Eugene Tarzimanov, Asia senior credit officer at Moody’s financial institutions group, points to the threat of a telecommunications firm “entering the retail banking space and actively cross-selling banking products to its already vast client base, by adding perks such as free Wi-Fi. If they get the right partner who knows how to do banking and credit, they will certainly pose a competitive threat.”

On the wholesale side, the ball is still up in the air. 

Dennis Khoo, TMRW Digital Dennis Khoo, regional head at TMRW Digital Group, Singapore lender UOB’s first fully digital bank, says: “The questions the regulator will ask are: ‘First, what are you bringing to the table that your rivals aren’t; and second, are you raising productivity?’ That’s a key question given Singapore’s incremental gains-based growth model.” 

In terms of paid-up capital, the MAS has set the bar at a reasonable height for applicants. It’s a decent chunk of money. But as Khoo notes sagely: “Banking isn’t necessarily something you can ‘try’.” 

He believes the big opportunity for new digital wholesale banks will be in disbursing credit to underserved or unbanked SMEs. But he adds that a new entrant “must have a different way to underwrite. New digital wholesale players will likely focus on the credit business and then expand into FX and remittances. 

“Data will be key in the credit business. If you can find better, quicker and more seamless ways to underwrite, you’re always going to have an advantage. And there, good data and interpreting that data will be important.” 

USP

Arival clearly marked out several of those questions in advance. Berger says the firm will “seek to bundle fintechs together. The regulator wants to encourage more fintechs to work together on one banking platform. That’s where we come in.” 

Where the firm can offer a unique selling proposition in the eyes of the regulator is its expertise in compliance and background checks. This is no small thing.  Arival’s A.ID platform is described by Berger as “cutting-edge compliance”, a “differentiator” that performs know-your-customer checks, tackles money laundering and meets compliance needs. 

Most banks, he says, view compliance as “an obligation, a headache and an expense. It isn’t their passion or key feature, or a channel to generating money for their founders and shareholders. Compliance is our ‘secret sauce’.”

You can call that good marketing or good anticipation, a sign of a company working to its strengths. Arival was aware from the start that the regulator’s chief concerns would revolve around compliance. 

“We wanted to be able to answer questions around how we check our clients and on-board them, and why our bank won’t be used for money laundering or other criminal activities,” says Berger. 

Compliance, he says, is “really what keeps the regulators’ blood flowing. Higher-risk customers are the reason why we go to bed thinking about compliance and wake up to the very same thought”. 

The regulator will be heartened by those words. If there is a concern over the new digital wholesale banking applicants, beyond an ability to stay the course, it is the threat presented by the darker side of the digital world. 

Hackers working for bad actors like to prod and poke at new digital platforms, locate any soft spots and use them to launder and pilfer for profit. 

Disruption in retail banking is established, a fact and a way of life. There is no turning back the clock. This summer in Singapore, a new chapter in this story will start, as three new financial providers are handed the right to offer digital wholesale products to underserved corporates in the Lion City. 

After that, it’s up to the disruptors to prove they are worthy of the customer’s and the regulator’s trust. 

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Europe has emerged as a key region for hatching and scaling fintech companies. And today, one of the more prominent fintech startups is announcing a large round of funding, from a mix of strategic investors, to keep growing its business.

Dublin-based Fenergo builds solutions for banks and other financial management companies to help with regulatory compliance, customer onboarding and other “lifecycle management” requirements. It has raised $80 million in funding at a post-money valuation of around $800 million, one of the bigger rounds for an Irish fintech company to date. (I’m not counting Stripe, which was founded by Irish brothers but is based out of San Francisco.)

The funding is coming from two investors: the multinational banking giant ABN AMRO (via its Ventures arm) and DXC Technology, which provides a wide range of IT, systems integration and consulting services to businesses (and thus a key partner for a company like Fenergo). The pair has taken a 10 percent stake in the company.

It will be used to continue building more products and for acquisitions—a notable point as we are in the middle of a strong period of consolidation in the world of fintech. With this round, Fenergo has raised around $155 million to date, with previous backers including strategics like BNP Paribas, Investec, Ergo and Insight Partners.

“ABN AMRO and DXC Technology’s investment and partnership with Fenergo is testament to the credibility of both firms. They will be joining the ranks of BNP Paribas, Insight Venture Partners and our other equity holders,” said Spencer Lake, vice chairman of Fenergo, in a statement. “We look forward to further accelerating digital transformation, enabling better client experiences and delivering even greater value to our shared customers going forward.”

While banks might, in some regards, look a lot like tech companies — and for that reason, in places like London, there has long been a push and pull between tech and finance when it comes to recruiting top tech talent — there is a case to be made for startups that are built around the idea of hatching and developing interesting technology for the banking sector, while at the same time not competing against it directly. That is one reason why Fenergo has so many strategic investors.

“Ultimately, we only exist to serve the needs of our customers,” said Marc Murphy, Fenergo’s founder and CEO, in a statement. “Their pedigrees, deep experience and industry knowledge make them both ideal investment partners for Fenergo. ABN ARMO joins BNP Paribas on our list of clients that are also investors. Our goal is to ensure they can digitally transform, be regulatory assured and able to deliver award-winning customer experiences.”

So while you might think of Fenergo as sitting in the same “fintech” category as Transferwise, Starling and the many other startups building services that are disrupting and stealing away customers from traditional financial services providers, it’s more of a financially-focused enterprise services business, giving bigger banks the tools to help compete and generally run their businesses better.

“This investment will contribute to ABN AMRO’s strategic priority to build a future proof bank and fight financial crime. We are impressed with the management team and solution Fenergo offers,” Hugo Bongers, Director, ABN AMRO Ventures, said. “In addition, this gives us additional exposure to a group of tier one investors.”

Fenergo’s services speak to a lot of the headaches that banks have to deal with in the new era of digital banking. That includes a host of regulatory requirements; client lifecycle management (onboarding and making digital interfaces usable); and rolling out digital interfaces for the services that banks typically offer (corporate/institutional banking, asset management, private banking and wealth management); as well as client and regulatory technology for financial services. Fenergo also, critically, covers internal-facing services, too, so that the data gleaned from the client-facing products can more easily parsed.

The company today has 70 customers on its books, which may not sound like a lot until you consider that the customers are leviathans like ANZ, PNC, Banc of California, National Australia Bank, Canadian Imperial Bank of Commerce, UBS Asset Management, Anglo Gulf Trading Bank, Royal Bank of Canada, First Abu Dhabi Bank, Tricor, Exos Financial and Mizuho, in addition to the two strategics announced today. ABN AMRO alone has nearly €200 billion in assets under management, so providing services for this small but at the same time huge list has proven to be a lucrative route for Fenergo, which has had growth of 21 percent in its revenues this year.

The growth of the company is also coming at a notable time for financial technology startups in Europe.

London has traditionally been seen as one of the world’s financial centers, a focus specifically around its position in investment banking. But with the UK’s departure from the European Union, some believe that position could be up for grabs, or at least disrupted a little more. Departures of ventures like N26 from the U.K. market would seem to underscore that idea. However, I’d argue that you have to look at any actual underlying business before jumping to any conclusions. If a company is thriving, would it leave, for example? Or is the implication here that the prospects for thriving have now been cut?

In any case, Dublin has, for the last several years, emerged as a very critical hub for a number of technology and other businesses. They have turned to the city to base their international HQs, to tap into its lower cost of living, English-language lingua franca, ability to attract talent, and sympathetic tax policies. Fenergo’s positioning in the city and its growth are a testament to that continuing trend as it plays out in the worlds of enterprise and fintech services.

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The Financial Times reported since the start of 2019 Revolut has had problems with the Financial Conduct Authority in the U.K., the Advertising Standards Authority and the parliament in Lithuania. The company’s founder and CEO Nikolay Storonsky has also been accused this year of being a bully.  “All these claims in the press are completely untrue,” he told The Financial Times during two and a half hours of briefings with Revolut’s senior leadership. “The reality is we have never done anything wrong.”  He did note the rapid growth in the company has created “growing pains” but that as the company grows it’s changing its culture. While the executive defended his hard-charging style in the FT interview, he did acknowledge there were issues when the company was starting out. “We didn’t really have enough budget to hire a lot of great people in compliance,” he said.

Revolut now has a compliance team that is more than 200 people strong with plans to double the size of the compliance team over the course of the next year. It has also recently hired a head of learning and development, and in March it named Martin Gilbert, the co-chief executive of Standard Life Aberdeen, to be an adviser to Storonsky. The company, which is seeking a banking license in Lituhia, also sent a letter to Stasys Jakeliunas, the ruling Farmers and Greens Union lawmaker, apologizing for its actions. Revolut is also finding that it needs to improve its relationship with the traditional banks it is trying to disrupt. A lot of its customers use banks for things such as cross-border money transfers, and Revolut needs them when issuing prepaid debit cards in new areas.

Revolut has plans to expand into Australia, Singapore, Japan and Canada in addition to the U.S. and as a result may need to raise more money this year. It raised $250 million led by DST Globa a year ago, marking the longest period Revolut has gone through without raising capital. It is still losing money, although its revenue is growing. “Investors always want to invest. It is up to us to choose the right timing,” said Storonsky in the report. “For now we are fine. Maybe in the near future we will start fundraising.”

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Binance, the world’s largest cryptocurrency exchange by adjusted trading volume, is implementing stronger know-your-customer (KYC) and anti-money laundering (AML) regulations to ensure data security and compliance across their global operations.

Following the launch of Bitcoin Lite in Australia, Binance announced today a new partnership with Medici Ventures portfolio firm, IdentityMind. This collaboration is part of a joint mission to help raise the blockchain industry’s standards by improving existing data protection and compliance measures.

The partnership between Binance and IdentityMind further strengthens our compliance capabilities and our commitment to re-invest in the blockchain ecosystem and grow it, said Samuel Lim, Chief Compliance Officer of Binance. We continue to evolve and enhance security systems while adhering to regulatory mandates in the countries we operate in. The goal is to foster greater trust among financial institutions worldwide.”

Worldwide Regulations

While Binance also partners with Chainalysis and Refinitiv, the company chose to collaborate with IdentityMind particularly because the platform enables digital currency exchanges to comply with KYC and AML regulations worldwide. This was necessary for Binance, as its users come from over 190 countries and regions.  Moreover, Binance is capable of processing more than 1.4 million orders per second, making it the largest crypto exchange by trade volume in the world.

With Binance’s tremendous trading volumes and its rapid expansion plans, compliance is naturally more challenging, especially in this fast-changing market, said Garrett Gafke, President and CEO of IdentityMind. Our risk and compliance platform powered by a patented digital identities engine meet the scale demands of Binance’s global operations while providing a highly accurate system for assessing any global risk factors from outside entities for transactions. We are excited to provide the necessary tools that will allow them to continue growing and serving more users around the world in a secure and compliant manner.”

According to IdentityMind’s director of product management, Neal Reiter, the company is specifically helping Binance identify a user’s “digital identity” at a global level.

From a KYC perspective, Binance has a partnership with Refinitiv, which is a know-your-customer services provider company affiliated with Thomson Reuters. Binance also collaborates with Chainalysis, which is a blockchain explorer tool. However, IdentityMind provides digital identity, which is a combination of looking at a user’s physical and digital attributes. For instance, we look at a user’s physical address as well as their Bitcoin address, knowing that both of these won’t change simultaneously.”

A Blockchain Ecosystem Built On Trust

Through Binance’s multiple KYC/AML partnerships, the crypto exchange aims to foster trust among financial institutions globally. Yet while Binance continues to implement greater compliance measures, some users remain skeptical, arguing that KYC and AML are too centralized for blockchain networks. Data privacy also becomes questionable with such measures in place.

According to Lim, however, it is possible for data privacy and KYC to coexist.

Binance is thoughtful in deciding what specific KYC information to collect. The goal is to ensure that recourse is available to victims of cryptocurrency thefts and to give all Binance users the peace of mind that their funds won’t be contaminated by those from illicit sources. These KYC/AML initiatives are part of Binance team’s ongoing efforts to provide an enjoyable trading experience without sacrificing user privacy. Binance respects user privacy and will not collect, disclose, or use KYC information unless for legitimate business purposes.”

Furthermore, Reiter from IdentityMind points out that Binance only sends encrypted data to their platform.

There is a difference between security privacy and AML. Binance has privacy by design, so it’s extremely important that their customer’s data is both secure and private. We actually don’t see any information from Binance since they are sending encrypted data to the IdentityMind platform. I think it’s refreshing to see that Binance is trying to incorporate every service they can to provide for an extremely robust platform.”

Lim also notes that Binance operates with the highest of standards when it comes to KYC and AML measures.

“Binance operates with the highest ethical, professional and compliant standards, while protecting user privacy and asset security. We recognize our responsibility to ensure the integrity of our platform and build greater trust in the industry,” said Lim.

You can follow Rachel Wolfson onTwitter andLinkedInto stay up to date on the latest cryptocurrency happenings.

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When it comes to financial crime, it seems, the bad guys are getting away with financial murder.

Consider the fact that, as noted in the most recent AML/KYC Tracker produced as a collaboration between PYMNTS and Trulioo, money laundering is estimated by the United Nations Office on Drugs and Crime to be an $800 million to $2 trillion-per-year problem, equivalent to 2 percent to 5 percent of the global GDP.

In other statistics cited by Karen Webster in a recent podcast with Trulioo General Manager Zac Cohen, the share of intercepted proceeds from financial crimes is paltry, at about 1 percent, and as many as 50 percent of firms are compromised by fraudsters.

The implication, then, is that financial institutions are not doing what they could or should do to detect and prevent financial crimes. And what these firms are doing doesn’t seem to be working.

Amid the ineffectiveness, headlines are rife with sanctions and financial penalties. In recent weeks and months, seven banks were penalized by the Reserve Bank of India for regulatory noncompliance. Separately, 23 countries were blacklisted by the European Commission for their AML and CTF (counter terrorist financing) framework deficiencies.

Cohen described the numbers tied to ill-gotten gains as “eye-opening and [likely to] raise flags for the regulators. Clearly, the rules themselves are either not being implemented effectively or are somewhat flawed in and of themselves … but this means a big wake-up call.”

The Crypto Factor

One microcosm of fraud and regulatory scrutiny is cryptocurrencies. As Webster noted, about two thirds of money laundering in this space has been conducted through deposit and trading activity across the exchanges themselves. Said Cohen: “Uncertainty is probably the word of the hour for the crypto environment, because cryptocurrency and crypto exchanges are still relatively nascent. The regulatory environment is equally so. If we look internationally, there’s the variance and different levels of maturity and level of acceptance.”

But the practices of KYC and AML should be no different with cryptocurrencies than might be seen elsewhere in the financial arena, he said. The goals remain the same: to identify, examine and monitor account openings, holders and their activities. The evolution of regulatory oversight in cryptos, Cohen noted, will come amid increasing consumer adoption – and for now, it’s a “wait-and-see approach.”

The Larger Landscape: Horses and Buggies

As they stand now, Cohen said, the software and tech solutions leveraged by FIs – and the mindset behind their deployment in general – are equivalent to the horse and buggy.

And for those financial and risk professionals who stick to the horse-and-buggy approach, he told Webster, “One option is to just add on more horses … and everything winds up getting overly complex and ineffective. What we really need is to move to the car – a sports car or luxury car, in a sense that we have to rethink how these [technologies] are being deployed and redesign the architecture.”

How to Change

The move toward a redesign, Cohen added, whether focused on a process or a system, can be best leveraged through what he called “a trial-and-error approach” that can come through a “sandbox-type environment.” Companies can experiment with test cases as they consider a complete or piecemeal overhaul of what is currently in place.

“This allows for proving out a solution before fully committing to it,” he said, “as [FIs] take advantage of that private program mentality. This hopefully allows you to improve and catch and capture a lot higher than [that aforementioned] 1 percent.”

Simply stated, it all comes down to using new tools to catch the bad guys, Cohen said. Against the larger backdrop of the European Commission blacklist, he said such moves reflect the proper actions, given the “tools the EC has at its disposal,” but may stymie broader efforts to promote financial inclusion in the digital age, which of course enhances economic development.

As Cohen and Webster discussed during the podcast, a cohesive framework spanning nations is most desirable and efficient. “At the end of the day, with the right technology, it is possible to correct any and all of the AML or CTF deficiencies in a cost-effective and user-friendly way that would solve a lot of these problems and help [governments] move forward together in alignment,” Cohen noted.

But beyond such frameworks, he continued, just because standards may exist and evolve, firms should strive to do more with their AML and CTF efforts – a lot more, in fact. “We [at Trulioo] are big proponents of doing what is best for your business to the highest degree possible, because that increases the safety of the system,” Cohen said, adding that “it’s almost like a mind shift. You need to be the best in this area and not just satisfied [by] the minimum.”

The more comprehensive such efforts are at the enterprise level, the executive said, the odds increase rapidly that they will be well-aligned with different regions, organizations or even regulators.

A Tech and Mindset Shift

Perhaps easier said than done. In the last decade alone, noted Webster, as much as $26 billion in fines has been paid out by banks for non-compliance with AML standards.

As Webster asked, what will it take to catch the bad guys and, perhaps just as importantly, get in front of them?

Answered Cohen: Banks need partners, particularly when it comes to deployments of anti-fraud systems, with an eye on cultural shifts that should be embraced with new software and hardware.

Compliance efforts are thus brought from the back office to the front office (with an important and visible commitment from the top down) – and, as Cohen termed it, can be thought of as a revenue driver.

“Technology providers aren’t really doing [banks] any favors by hard-selling solutions where a bank needs to upend everything they’re doing and make it work,” he said. “The technology has to fit the process and not the other way around.”

He pointed to firms such as Trulioo and others, which use best practices and flexible approaches to help banks do more than “check boxes,” adding that “compliance should never be thought of as a point in time … it’s actually about continuous improvement.”

Perhaps, then, the only constant in a world of change, is change. Because, as Cohen told Webster: “If we’re not improving over time – all the time – you better believe the folks trying to take advantage of this system for bad reasons definitely are.”

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Major Spanish stock market operator Bolsas y Mercados Españoles (BME) has completed its first blockchain pilot for electronic certificates of collateral pledges, according to an official press release published on March 15.

Implemented along with Renta 4 Banco, which is the only investment services firm listed on the BME, the new pilot intends to eliminate the use of physical certifications by digitizing all processes and providing network participants with real-time access to data.

The pilot’s proof-of-concept (PoC) consisted of the release of collateral pledged by Renta 4 Banco to cover customer’s positions at BME Clearing, BME’s central counterparty.

According to the announcement, the implementation of the blockchain-powered pilot enabled the parties to reduce total processing time by more than 80 percent.

The PoC was developed by BME’s division DLT-Lab, which researches the use of blockchain for improving existing financial procedures in collaboration with regulators and various financial institutions. To develop the pilot, BME’s DLT-Lab worked with infrastructures involved in the process and the BME subsidiaries BME Clearing, the Spanish central securities depository Iberclear and Renta 4 Banco.

According to the press release, BME and Renta 4 Banco will keep working on the initiative in order to launch the new system officially by the end of 2019.

Berta Ares, Head of Digital Transformation at BME, emphasized that distributed ledger tech (DLT) allows the parties involved in the process to both reduce operating times and provide legal certainty for electronic certificates, while maintaining privacy and compliance.

Previously, BME participated in a joint blockchain tech project to record the issuance of financial warrants. The initiative involved eight major European financial institutions, including Spanish securities regulator the National Securities Market Commission, BBVA, BNP Paribas, CaixaBank and others.

In early February, Cointelegraph reported on Switzerland’s principal stock exchange SIX Swiss Exchange plans to test blockchain integration for its upcoming parallel digital trading platform SDX in the second half of 2019. The blockchain-powered platform intends to minimize trading risks, as well as to expand the scope of tradable titles.

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Koi Compliance offers the first plug-and-play AML compliance solution that supports digital currency. Koi Compliance will pair their legal expertise and compliance analysts with IdentityMind’s platform that already supports over 35 digital currency exchanges worldwide. This enables companies to focus on running their business, while Koi Compliance leverages industry best practices to perform the legally required Know Your Customer (KYC), transaction monitoring, sanctions screening, recordkeeping, and regulatory reporting through IdentityMind.

“We’re excited to work with an innovative company like Koi Trading,” said Kieran Sherlock CTO, IdentityMind. “They have created a new way for more entrants into the digital currency space to be compliant from day one, and effectively serve their customers across different markets and geographies while minimizing their regulatory risk.”

“When we first set out to help companies with compliance, we immediately chose IdentityMind as our primary platform,” said Harry Zhou, General Counsel and Chief Compliance Officer for Koi Trading. “IdentityMind’s immense experience in digital currency and their risk-based AML solutions enable Koi Compliance to  provide the best technology-driven digital currency AML compliance services for exchanges, OTC desks and stablecoin projects that face rapidly evolving regulatory landscapes around the world.”

About Koi Trading

With desks in San Francisco, Hong Kong, and Beijing, Koi Trading offers a private, efficient, and compliant OTC pathway for institutional investors and wealth managers to start engaging with blockchain assets. Using a combination of trade algorithms and direct communication channels, Koi Trading connect OTC counterparties with deep liquidities and earn price arbitrage as a near-riskless principal. For more information, please visit: www.koi.trade/compliance.

About IdentityMind

IdentityMind, creator of Trusted Digital Identities (TDIs), offers a SaaS platform for online risk management and compliance automation. We help companies reduce client onboarding fraud and transaction fraud, and improve AML, sanctions screening, and KYC. IdentityMind continuously builds, validates and risk scores digital identities through eDNA technology to ensure global business safety and compliance from customer onboarding and throughout the customer lifecycle. We securely track the entities involved in each transaction (e.g. consumers, merchants, cardholders, payment wallets, alternative payment methods) to build payment reputations, and allow companies to identify and reduce potential fraud, evaluate merchant account applications, onboard accounts, enable identity verification services, and identify potential money laundering.

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A watchlist of risky individuals and corporate entities owned by Dow Jones has been exposed, after a company with access to the database left it on a server without a password.

Bob Diachenko, an independent security researcher, found the Amazon Web Services-hosted Elasticsearch database exposing more than 2.4 million records of individuals or business entities.

The data, since secured, is the financial giant’s Watchlist database, which companies use as part of their risk and compliance efforts. Other financial companies, like Thomson Reuters, have their own databases of high-risk clients, politically exposed persons and terrorists — but have also been exposed over the years through separate security lapses.

A 2010-dated brochure billed the Dow Jones Watchlist as allowing customers to “easily and accurately identify high-risk clients with detailed, up-to-date profiles” on any individual or company in the database. At the time, the database had 650,000 entries, the brochure said.

That includes current and former politicians, individuals or companies under sanctions or convicted of high-profile financial crimes such as fraud, or anyone with links to terrorism. Many of those on the list include “special interest persons,” according to the records in the exposed database seen by TechCrunch.

Diachenko, who wrote up his findings, said the database was “indexed, tagged and searchable.”

The data is all collected from public sources, such as news articles and government filings. Many of the individual records were sourced from Dow Jones’ Factiva news archive, which ingests data from many news sources — including the Dow Jones-owned The Wall Street Journal. But the very inclusion of a person or company’s name, or the reason why a name exists in the database, is proprietary and closely guarded.

Many financial institutions and government agencies use the database to approve or deny financing, or even in the shuttering of bank accounts, the BBC previously reported. Others have reported that it can take little or weak evidence to land someone on the watchlists.

The records we saw vary wildly, but can include names, addresses, cities and their location, whether they are deceased or not and, in some cases, photographs. Diachenko also found dates of birth and genders. Each profile had extensive notes collected from Factiva and other sources.

One name found at random was Badruddin Haqqani, a commander in the Haqqani guerilla insurgent network in Afghanistan affiliated with the Taliban. In 2012, the U.S. Treasury imposed sanctions on Haqqani and others for their involvement in financing terrorism. He was killed in a U.S. drone strike in Pakistan months later.

The database record on Haqqani, who was categorized under “sanctions list” and terror,” included (and condensed for clarity):

DOW JONES NOTES:
Killed in Pakistan's North Waziristan tribal area on 21-Aug-2012.

OFFICE OF FOREIGN ASSETS CONTROL (OFAC) NOTES:

Eye Color Brown; Hair Color Brown; Individual's Primary Language Pashto; Operational Commander of the Haqqani Network

EU NOTES:

Additional information from the narrative summary of reasons for listing provided by the Sanctions Committee:

Badruddin Haqqani is the operational commander for the Haqqani Network, a Taliban-affiliated group of militants that operates from North Waziristan Agency in the Federally Administered Tribal Areas of Pakistan. The Haqqani Network has been at the forefront of insurgent activity in Afghanistan, responsible for many high-profile attacks. The Haqqani Network's leadership consists of the three eldest sons of its founder Jalaluddin Haqqani, who joined Mullah Mohammed Omar's Taliban regime in the mid-1990s. Badruddin is the son of Jalaluddin and brother to Nasiruddin Haqqani and Sirajuddin Haqqani, as well as nephew of Khalil Ahmed Haqqani.

Badruddin helps lead Taliban associated insurgents and foreign fighters in attacks against targets in south- eastern Afghanistan. Badruddin sits on the Miram Shah shura of the Taliban, which has authority over Haqqani Network activities.

Badruddin is also believed to be in charge of kidnappings for the Haqqani Network. He has been responsible for the kidnapping of numerous Afghans and foreign nationals in the Afghanistan-Pakistan border region.

UN NOTES:

Other information: Operational commander of the Haqqani Network and member of the Taliban shura in Miram Shah. Has helped lead attacks against targets in southeastern Afghanistan. Son of Jalaluddin Haqqani (TI.H.40.01.). Brother of Sirajuddin Jallaloudine Haqqani (TI.H.144.07.) and Nasiruddin Haqqani (TI.H.146.10.). Nephew of Khalil Ahmed Haqqani (TI.H.150.11.). Reportedly deceased in late August 2012.

FEDERAL FINANCIAL MONITORING SERVICES NOTES:

Entities and individuals against whom there is evidence of involvement in terrorism.


Dow Jones spokesperson Sophie Bent said: “This dataset is part of our risk and compliance feed product, which is entirely derived from publicly available sources.” The spokepserson said an “authorized third party” was to blame for the exposure, but did not name the alleged company or provide evidence for the claim.

We asked Dow Jones specific questions, such as who the source of the data leak was and if the exposure would be reported to U.S. regulators and European data protection authorities, but the company would not comment on the record.

Two years ago, Dow Jones admitted a similar cloud storage misconfiguration exposed the names and contact information of 2.2 million customers, including subscribers of The Wall Street Journal. The company described the event as an “error.”

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