Tackling compliance key to FinTech growth in HK and beyond

Nagesh Devata August 20, 2021 10:25

For FinTech and money transmitting service providers in Hong Kong, and across Asia, navigating local and regional compliance schemes has become increasingly difficult in recent years amidst changing regulatory structures and complex regimes across the region.

To adapt and stay compliant in the countries in which your business operates – especially in a region that is highly nuanced and fragmented - there are a number of steps you’ll need to take, including locating a reliable banking partner, establishing risk assessment protocols for both customers and politically exposed persons (PEPs) you might be working with, and dealing with different global statutes.

Overcoming these challenges requires special attention and focus, so FinTechs who are looking to grow their businesses in APAC and beyond should take note of key compliance objectives they need to meet in order to avoid unnecessary mistakes.

Finding the Right Banking Partner

Locating a banking partner that understands both your business model and your company culture should be the first step towards tackling your compliance objectives.

Surprisingly, partnering with a bank that supports you while you innovate and dive into new verticals is only part of what you need. To form a healthy partnership, you need a firm who is also aligned with your core values so that you can successfully expand with the knowledge that your banking partner will be with you every step of the way.

It’s also about ensuring that your banking partnership is a good match for both you and your shareholders, so it’s helpful to sit down and conduct a proper analysis of your business goals. Once established, you’ll need to maintain a consistent open line of communication with your banking partner so that you both are always on the same page while navigating your expansion plans.

Start-ups – in Hong Kong and beyond - tend to move a lot faster than traditional financial institutions (FI), and sometimes your growth and expansion may seem alarming to the FI you partner with. So, as you grow and expand be sure to have regular check-ins with your partner to explain product launches and to keep them informed of any changes to your core services of customer offerings and use cases.

Developing a Risk Assessment Policy

Using an established risk assessment and Customer Due Diligence policy to properly vet new customers, according to local regulatory requirements, is critical to both maintaining your compliance status with different regulatory bodies and ensuring your business reputation stays intact. Additionally, you’ll need to consistently monitor customers after onboarding to make sure their actions are consistent with expected activity and don’t present unacceptable risk.

Creating an effective vetting process that can track customer behaviour in real time is no easy feat. The sheer volume of information available in the public sphere makes it difficult to filter out the relevant information that can then be translated into actionable insights. Your first step towards overcoming this is the creation of your Risk Assessment process. By completing this you will be able to understand what risks you are exposed to and how to mitigate these through due diligence, thus ensuring the people you want to do business with are approved and the ones you do not want are rejected.

The key is investing in programs that leverage AI and machine learning to provide you with the information you need as quickly as possible. These offer continuous learning and improvement, enabling you to segment your customer portfolio and focus on customers you should be taking another look at, and letting your ‘good customers’ transact in peace.

It’s important to be aware though that an effective risk assessment policy needs to be continuously fine-tuned as your business grows. Consistently be on the lookout for technological developments that can speed up the vetting process, thereby ensuring your business remains compliant.

Properly Vetting Politically Exposed Persons (PEPs)

In addition to assessing new and existing customers, you’ll likely need to take additional measures to ensure PEPs, who are often susceptible to illegal acts like bribery and fraud, are properly vetted. PEPs often draw extra scrutiny from regulators, making it imperative to check their status to ensure you remain compliant.

In practice, vetting PEPs might mean looking into third party relationships, making sure risk assessment policies take different countries’ regulatory schemes into account and taking the time to conduct necessary due diligences on transaction/account usage. After all, a PEP in Singapore might need to be assessed differently than one in Australia, for example.

Similar to your other customers, it’s important to consistently monitor PEPs using smart tools that include AI and machine learning to ensure you get the most relevant, real time information. By remaining up to date as to their status, you’ll be able to effectively justify your relationship to regulators and compliance officers.

Navigating Global Compliance Schemes & Regulation

As you grow your business and expand into other countries across Asia, or globally, you’ll need to make sure you remain current with the compliance schemes in the countries where your customers are based. To complicate matters, oftentimes compliance measures in one country might conflict with those in another.

To avoid any complications that could impact your compliance status, it’s recommended to onboard a trusted partner that is knowledgeable about international regulatory statutes. This will help you stay agile and take appropriate measures when you start operating in a new country or in the event that a compliance scheme is changed.

All of this, underpinned with a regulatory change management process will ensure new regulatory changes are quickly assessed and implemented, so FinTechs can keep focusing on their growth.

Although setting out and meeting compliance objectives might appear to be a daunting task, businesses that plan ahead and work with reliable partners are likely to succeed. By executing processes that enable the proper vetting of customers and the monitoring of various compliance schemes, you’re helping to ensure your business’s expansion is successful – across and Asia and beyond.

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Nagesh Devata

Regional VP and Head of Enterprise, Payoneer