Open banking, open risk?

Managing financial crime in a disrupted world

The financial services industry is changing faster than at any time in the last half century. New technologies, new entrants to the industry, new regulations and changing consumer preferences are combining to disrupt and fragment what was until recently an industry dominated by the major banks.

Traditional retail banks face sti competition from new market entrants including challenger banks and technology-based financial service providers (‘FinTechs’) that are often more agile and less constrained by costly legacy systems than their conventional competitors. At the same time regulatory changes are creating a new “Open Banking” environment, that has the potential to diminish ownership of the customer relationship by larger retail banks.

Our analysis and research combined with the views of our clients indicate that these changes will have a profound effect on financial crime risk management at both an institutional and market-wide level. New financial crime risks will need to be mitigated to combat money laundering, terrorist financing and fraud. Furthermore, we consider that existing approaches to financial crime risk management may become less effective at identifying and mitigating these risks, and that the roles and responsibilities of those involved in financial crime risk management will need to rebalance to reflect the shifts in the industry.

We see a range of possible ways in which this might work, from greater reliance on banks to manage risk on behalf of other financial services providers, through to market-owned utilities providing financial crime risk management services to all players.

Regardless of the model, it is clear that banks and FinTechs will need to interact and collaborate more, with the support and engagement of relevant regulatory bodies. This becomes even more vital as the industry shifts to an open banking environment, where shared customer data is the norm.

The challenges facing the industry are significant and the outcomes are far from certain – but it is our view that regulatory and market change has now reached an inflection point where financial service providers need to re-examine the fundamentals of their approach to financial crime risk management and reporting.

This is a continuing discussion, and we welcome contributions from all parts of the financial services industry. The days of stand-alone solutions to problems of risk and compliance are gone: a collaborative debate is what we need now.

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