Breaking
December 4, 2024

Fraud | The Fintech Coffee Break – Andrew Davies, ComplyAdvantage | usagoldmines.com

Hi guys, welcome to the Fintech Coffee Break. I’m your host Isabelle Castro. This week I sat down with Andrew Davies Global Head of Regulatory Affairs at ComplyAdvantage.

Fraud levels continue to affect the financial industry, with statistics showing that the estimated money laundering as a percentage of global GDP has remained the same for years. However, Andrew said now is better time than any for that to change.

ComplyAdvantage recently released a new tool tackling KYB which could make a huge difference in how businesses handle risk of fraud. Andrew told me about the solution and the impact it can make on the wider economy.

Isabelle Castro 0:45

Hi, Andrew, how are you today?

Andrew Davies 0:48
Hi, Isabelle. I’m pretty good. Thanks. How are you?

Isabelle Castro 0:49
I’m good. Thank you. It’s great to have you on the show.

Andrew Davies 0:53
Super excited to be here. Love to talk about these, these topics.

Isabelle Castro 0:56
Good. I’m glad Well, let’s get started. Then. What gets you up in the morning, Andrew.

Andrew Davies 1:04
So I’ve been in this financial crime space for a long time. And what continues to get me up in the morning is that the idea that you’re doing something of value to bring in value to our, to our customers, or comply advantage, but almost more broadly than that, making a difference. So when I started in this business, which is a long time ago, the amount of money that’s laundered through the financial system is the same as what it is today as a percentage of global GDP. So I continue to be inspired by the idea that you can make a difference. And of course, one of the things that I’m always talking about is the predicate crimes for money laundering are particularly nefarious, are often in the news, human trafficking, people are subject to fraud. So it’s really trying to sort of make a difference, really. And I’m at that stage in my career, where that’s really the most important thing to me to make a difference to people’s lives. And financial crime affects everyone. You know, today, especially with the digital access to financial services, and people being vulnerable to exploitation. So that’s what sort of inspires me.

Isabelle Castro 2:10
Nice, that is a good inspiration. I like it. Tell me about your career. Before you well, the career journey to comply advantage?

Andrew Davies 2:20
Well, as you can see, I’m, as you can probably hear, I’m pretty old. So I’ve been in this space for a long time, I started in this space, in New York, working for some central banks and working for large financial institutions, really in the payment space. So facilite, working for companies that facilitated payments. And of course, when you’re moving money, you want to move money safely and securely. So I started working in the sanctions space for many years for screening transactions for sanctions. And then that sort of developed and I wasn’t really a software developer, then I became a sort of product manager and worked in the area of managing risk around financial transactions, particularly in the context of financial crime. So started with sanctions then morphed into looking at unusual patterns of activity that could be indicative of money laundering, and then really sort of morphed into that world where around fraud and then around some of these other predicate crimes, bribery and corruption, human trafficking. So I went through this sort of journey working at a financial institution and then working with vendors on as a technology provider, but it’s really that’s the sort of journey that’s got me here and I’ve been doing that for a long time.

Isabelle Castro 3:34
It sounds like a really interesting journey and good for your approach to comply advantage, why did you come to ComplyAdvantage, what was the attraction

Andrew Davies 3:44
so, I specifically joined ComplyAdvantage for to reinforce the idea of making a difference so the the assets of ComplyAdvantage were a little bit different to some of the other vendors that are out there. You know, there are vendors that are data providers, there are vendors that are technology providers and ComplyAdvantage sort of married the two and then what really inspired me to join comply advantage was the team. I previously worked at organisations were, you know, that were very established, their primary focus wasn’t really financial crime, it’s comply advantage was singularly focused on on managing financial crime risk, and really had a team of just exceptional people in support of the assets. So that’s sort of why I joined the company.

Isabelle Castro 4:29
Nice. Okay. So to begin with, I kind of want a bit of context. I mean, you mentioned that money laundering hasn’t really reduced in terms of a percentage of the GDP since you started. Why, why why isn’t it reducing? What’s the issue?

Andrew Davies 4:49
So the and the figures that I sort of quote from the United Nations, really and you think about that as a percentage of global GDP hasn’t really declined. And and then you think about it in the context of the amount of money that the UN estimates that is actually detected that’s laundered through the system is around, you know, one to 2%, maybe less. Right now, I don’t know about you. But you know, if you if you get like 2% on an exam, you’re not doing very well. So historic, historically, I think some of the simplistic, simplistic to approach approaches to detecting money laundering haven’t been as successful as they should have been. So we haven’t really had the data, the technology to really make a material impact on those percentages. So I think that’s, that’s what sort of led us to this point, you know, we just haven’t had all of the data using rudimentary rules are, there is certainly a layer of defence. But the criminals are smarter than that. Right, they will check the edge cases, they will check thresholds. And they’re able to sort of get around the rules that have been used in a lot of traditional systems. I think that’s, and of course, you know, when you think about financial services, you know, if you think about your financial institution in the UK, you know, you’re worried about fair lending, you’re worried about consumer protection, you’re worried about your compliance obligations, the criminals are just singularly focused on laundering money through the financial system and committing those predicate crimes for money laundering. So they’ve had a singular focus, you know, vendors and financial institutions haven’t had necessarily the same weapons to fight financial crime as those that are actually committing financial crime. Okay,

Isabelle Castro 6:30
that makes a lot of sense. So, to combat this ComplyAdvantage, recently launched a KYB solution. I mean, I was under the impression that companies and banks and everyone already do quite extensive due diligence, KYB, AML, on businesses they work with, tell me about the traditional approach to KY B.

Andrew Davies 6:56
So certainly, people have been doing KYB and understanding who they do business with. And if you think about this, as you know, know, your business is really understanding the relationships that you have with corporate entities or institutional entities. And one of the we’re at sort of an inflection point in the industry where there are more, and one of the reasons, you know, to come back to your earlier point about why there’s been so much financial crime is basically because financial services has continued to transform over the last few years. So with the advent of open banking, more players in the ecosystem of financial services, that disruption, which leads to good services for customers, faster movement and money, better interaction with financial institutions, but that disruption will be taken advantage of by the criminals. What’s happened traditionally, in understanding your business relationships is financial institutions will lose use a lot of disparate systems. So they won’t necessarily have, you know, be doing sanctions on the same system where they will be doing in understanding beneficial ownership, for example, so there had this sort of disparate view. So it tends to take a long time to do KYB. You know, some of their their figures that talked about, you know, the average time it takes for a US financial institution to onboard a corporate customer completely, is like, you know, weeks and weeks, whereas the customers want an experience that is much more streamlined and much, there’s much less friction in that relationship. So often, organisations have used disparate systems, and not necessarily be able to sort of draw together all the data from those disparate systems. The other thing that’s happened historically is, and particularly in some countries where there’s there’s no central repository for corporate information. So how do you truly understand beneficial ownership or source of wealth or solfa source of funds, when you’ve got no real sort of like fundamental source of truth, and we’re at a sort of this sort of inflection point in the industry, where there’s more data available. There’s more systems that are having a holistic view of this onboarding process. So that is the sort of this sort of next step that we’re going through as an industry drawing all of these risks together, quantifying them, and then making a sort of sensible decision about whether you should onboard a relationship, but certainly people have been doing this for a while, they just never haven’t necessarily had that comprehensive set of tools to do it in a streamlined fashion.

Isabelle Castro 9:29
Okay, so tell me a bit more about the ComplyAdvantage solution. How does it work? Tell me everything. Tell me everything about the solution.

Andrew Davies 9:41
So the solution is super exciting. And I mentioned earlier that, you know, one of the reasons why join comply was the super smart people that we have, and the people who have been working on this have just been absolutely well class. So what we’ve tried to do is sort of bring together a combination of capabilities to To give our customers the ability to manage risk appropriately as they onboard new relationships and new business customers, and then manage that, that sort of risk in a streamlined fashion. So what we do is we take information about the prospective customer. Now, this could be via some sort of automated API, right. So this could be called from some onboarding system, or it could be literally just keyed into the solution. And what we’ve done is we take that data, and then check it against different the the first stage we go through is, we’ll check that data against different types of repositories of information about corporations will then screen that, that data against all of those sort of like really critical data points that you want to know if you’re onboarding a business, or in fact, a retail customer. So we’ll check against things like sanctions list, make sure this entity is not sanctioned, absolutely paramount. We don’t want to be dealing with sanctioned parties, then we’ll check against things like you know, the people that have ownership and control of the businesses, you know, are they linked? Are they politically exposed? So is are they vulnerable to things like bribery and corruption because of their links to politically exposed persons. And then we’ll also check, and this is super cool for me, is will check against adverse media or negative news. So this is a bit like, you know, being a sort of journalist going away sort of getting lots of information, bringing in that data and then saying, okay, is this entity linked to, you know, fraud in a particular jurisdiction? Or is there an article where this business is linked to bribery and corruption. So we’ll bring all of that information in together and render that to the user. So they can make a decision based on that those data points. And then the other thing that we do, and in this industry, there’s something called a risk based approach. So I want to in this context, I want to risk score, this potential relationship to get a sort of a numerical or a classification of the risk of onboarding this customer. And within our tool, we allow the customer to define essentially a calculation that quantifies risk. Or it could be that the risk is related to this, this business is in a high risk industry. So maybe they’re related to sort of online gaming or marijuana related business. And that then that score then adds up and gives us a classification, then we can make a decision about you know, do we want to onboard a high risk customer do we want? How do we manage a relationship with a high risk customer given this score, and then given all these these data points, and then of course, you can sort of customise the workflows associated with, if there’s a hit against this adverse media, we manage, maybe want to manage that onboarding process for this business differently than we would if there’s no hit against adverse media. So it’s bringing together the data sources, using our screening technology to make sure that we accurately compare the incoming data with these data sources. And then quantifying risk using this algorithm. And then you have basically all the information that you need to make a value judgement about whether you should onboard the onboard this customer. And just in that context of the adverse media, what we do is we’ll classify the adverse media based on things like the 22 predicate crimes that are defined by the European Union’s directive on money laundering. And also there’s an organisation called The Financial Action Task Force, which is a sort of inter governmental organisation, that’s sort of really part of the G 20. That classifies different types of financial crime, whether that be human trafficking, drug trafficking, the financing of arms proliferation, fraud, or, you know, just one of those stages of money laundering through, brought together all that data, and then using that data to inform our customers so that they can make a good decision.

Isabelle Castro 14:08
Okay, this sounds like a lot of information to go through. How long does this normally take for you guys, compared to if if the businesses were doing it themselves?

Andrew Davies 14:20
So, as I mentioned earlier, you know, onboarding businesses, certainly in the United States, you know, takes a long time, the aggregation of the data into a single portal, and then supplementing that with this risk scoring means that we’re able to do this virtually, very, very quickly, you know, just a few seconds to do the screening. And then the critical path becomes the sort of analysts view of that data. So it’s actually very quick to give you a sense of the risk associated with a particular relationship. So it’s, it’s really streamlines that that process, and if you think about if you’re A traditional financial institution, you want to make sure that that customer experience is good, because, you know, you’re dealing with competition that is, you know, fintech companies that are providing, you know, maybe a better user interface than traditional financial institutions are. So I want to make sure that it’s come back to that point of managing risk, but doing it in an appropriate and balanced way. So I’m not introducing too much friction.

Isabelle Castro 15:25
It really sounds amazing. Just going back to the risk attribute, on your website, it says that the solution has flexible risk weighting and dynamic risk scoring. Is that what you described? What’s the difference between those two attributes? And, yeah,

Andrew Davies 15:45
yeah, so the the flexible risk scoring is, you know, if you’re, let’s say, You’re a retail brokerage firm in the US, you know, your products and services, your distribution of products, geographical reach is going to be different than let’s say, you’re an insurance company based in Singapore, or you’re a retail bank based in the UK. So the sort of mantra in this industry is, you know, you have to adopt a risk based approach. So you have to understand your product risk, your geographical risk, you know, your customer risk, you know, the channels that you’ve got. So, inherently, the tool has to be flexible to support different risk ratings, you know, it’d be nice if we just said that there’s a ones, you know, one size fits all, but that just doesn’t work in this space. So inevitably, the tool has to be flexible. And what we’ve done is we’ll provide sort of best practices, you know, these are the type of attributes you should be looking at. But then the customers themselves can define other attributes, if, if we haven’t already defined them, and it could be unique to their business. It’s one of the perennial problems in this in this business, really, because every customer is different. And they’re inevitably different, because they have a risk, different risk tolerance, different risk profile. So that’s the, the flexible piece of the of the algorithm, the, the tool, and then the dynamic piece is in as information about the customer changes or about your business customer changing, then that needs to be reflected in the risk score. So obviously, we do initial due diligence, so we initially onboard, you know, XYZ company. And there’s inherent score, based on their ownership at the time based on all of those risk attributes that we’ve talked about. And then, on an ongoing basis, you know, information about the ownership and control the nature of the business, the types of transactions that they do that can change over time. So that’s part of that ongoing due diligence, so I need to be react, I need to react if the risk of a customer goes up. This is a little bit of a dated statistic, it’s probably a couple of years old now. But I’ve previously worked with one of the large organisations here in the US, and they will tell me that there’s 184 changes of ownership and control of companies in the US every second of every day of every day of the year. So you imagine that that sort of nature of change in the industry needs to be reflected in a dynamic algorithm that can then recalculate scores, because my risk today could be different than what it is tomorrow, and I want to be notified if there is a sort of an increase in risk. That’s the sort of dynamic piece.

Isabelle Castro 18:30
Okay, so it really grows with the business. It’s not just that initial thing. It’s throughout the relationship. That’s really amazing. It also, this your online page, it mentions a holistic approach, tell me you’ve kind of taught, I kind of understand what holistic means in this context. But tell me a bit more about this approach, and how does it impact their risk assessment.

Andrew Davies 19:01
So the there’s sort of two ways of looking at this. So the first thing is, we’re bringing all the data and the risk score in into a single place. So you get that holistic view of risk across the you know, as you’re onboarding a relationship, and as you’re doing ongoing due diligence. But then the other thing, and this this may seem sort of remarkable to you, you know, there are lots of financial institutions that, you know, that may have multiple records for a single customer. And what we try and do and there’s actually part of our other capabilities is almost reconciling that customer identity to say, Okay, this business that has this type of account with the corporate bank also has some investments with this another part of a financial institution. So, we obviously bring together all the assets into a single view. And then we can actually reconcile the identity of a customer whether that be a retail customer or a business customer across multiple relationships that they may have with a financial institution that gives you that 360 view of the customer. And then of course, that means you can make a more informed decision about the risk associated with that customer.

Isabelle Castro 20:12
Okay, this sounds really impactful. I mean, you only recently launched this, but do you already have kind of a view into the effects that it has had on your customers.

Andrew Davies 20:25
So there’s a couple of effects that we’ve seen when we’ve deployed this. And it’s quite fascinating, you know, often on the vendor side, you know, you think about sort of target markets and where the solution will be used. And then, invariably, in this space, what I’ve found is the customers use it sort of more creatively than than you thought. So we have a number of customers that really want to have traditional financial institutions that want to more effectively offer services and competitive services to fintech, for example, as sort of gatekeepers the financial system, so we’ve found a lot of our customers leveraging this capability to onboard these are new emerging fintech companies. And what we’ve found is that they’re able to streamline the process of onboarding, I don’t have any figures right now. But you know, we’ve certainly seen orders of magnitude improvement in the time that it takes to onboard the, the these businesses. And then the second and more impactful effect is this, this is this is super cool. Those organisations that are using the tool, are able to more effectively manage their risk, which means that they’re able to manage their business more effectively, and onboard customers that maybe previously they wouldn’t have even touched. So it’s able to offer a service and a capability that previously they would have sort of, you know, across the board said, we’re not doing this, we’re not offering services to this type of to any of these types of customers, because we can’t effectively manage risk. I’ve seen this happen quite a lot. You know, I recently remember when the in, you know, as organisations are offering things like real time, transaction, origination, both internationally and domestically, you think about Faster Payments in the UK, fed now in the US, the real time rails in Canada, your organization’s won’t offer that service unless they’re appropriately managing risk. And that’s what we’ve found in this context. You know, it gives people an opportunity to actually grow their business whilst managing risk effectively.

Isabelle Castro 22:26
Oh, wow. So this could really I mean, with the introduction of FedNow, this could really play into people’s ability to actually adopt that kind of payment rail. Exactly. Yeah. Okay, amazing. And in general, I mean, FedNow is within the macro economic context, but there’s approach to risk where you can ease businesses approach. How does that play into the macro economic context, specifically right now, because it seems like risk appetites are kind of low. And it’s, it’s still eating things. But

Andrew Davies 23:05
yeah, so if you think about it, in a sort of global sense, we live in a world of, I was actually at the annual SWIFT conference, just a couple few days ago, in, in Toronto. And not only do we have things like fed, now we have Faster Payments, we have a real time rails, we have real time payments in in the European Union, but then a sort of macro level, we have de facto global real time payments, you know, with something like, you know, for example, the SWIFT global payment Innovation Initiative, I think, you know, 40% of the transactions that are sent internationally over SWIFT are settled within five minutes. So it’s de facto real time payments. Now, if you think about, you know, if I, if I’m working with, and we also live in a world that sort of completely international at this point, now, I know that, you know, there’s always some sort of geopolitical hotspots that, you know, maybe, you know, maybe the US is not trading with China’s, you know, so fluidly. But essentially, the underlying infrastructure is already there. People are, you know, if you want to buy something on a, on a website, or if you want to order parts for a business that you have in North America, you know, you can order them from South Korea, for example, almost at the drop of a hat. So as you’re sort of onboarding, these types of relationships, you can get more, more confidence that you’re not dealing with a bad actor. And I think that that sort of supports of global growth and the global sort of interconnectedness of the world that we live in that sort of using these types of risk tools allow you to have more confidence in who you’re dealing with. And then of course, you know, having information like sanctions pair, adverse media data, the bad actors are going to try and obfuscate their identity, whether that’s an organisation whether that’s a sort of an individual. So having access to this sort of richer set of data allows me to more effectively manage that risk in the context of, you know, if you’re thinking about businesses, sort of global trade, and as I said, we, you know, we live in a more and more international world. So, you know, you know, buying things, getting supplies from different organisations, you know, means that, you know, in order to get access to those markets, we need to sort of manage risk effectively.

Isabelle Castro 25:22
Okay, it sounds like such a powerful solution, I am very excited that you guys have brought it to market. That’s the end of my interview about that. But I just want to get a couple of answers to get to know you a bit more. So what’s a piece of advice that you would give to others, it can be about anything that you like, it can be personal, professional, whatever.

Andrew Davies 25:49
I think, you know, one of the things that I’ve learned over a pretty long career at this point is the, you know, I don’t know if this is a cliche, but you know, the importance of doing something that you’re passionate about, you know, like talking to you, you know, you could say, you know, your average man in the street, sort of talking about KYB, you know, is that interesting, but it’s interesting in the context that it affects everybody’s lives. You know, recently, I was in Australia, I was in Singapore, it was in Canada, you know, we get to see all of these different markets. And when I was recently in Australia, I was staggered to find after I did a little bit of research for a presentation that there are 49,000 people in human slavery in Australia. 17 17,000 people in Canada are subject to human slavery, and that these are fantastic countries, we live in 2023. So that’s sort of what inspires me to try and help people to try and help other people and, and stop these terrible crimes. So I’ve sort of learned that, you know, it’s sort of so important to do something that you’re passionate about, and everybody has a contribution to make. And you can just find your niche when it’s something that you’re sort of super passionate about. So when you talk about what could be considered a dry subject, like we are talking about today, think about that sort of human impact that you’re doing. And I think I find it sort of simply inspiring, and it makes it easy to sort of get up and do work every day.

Isabelle Castro 27:12
Ya know, honestly, you talking about compliance and fraud has made me even more interested in it. Like, I’m pretty interested in most things about fintech, but your passion really comes through how you talk about it. So thank you for that. You have your curveball question. If you had a year without any financial kind of restraints, any, any, any obligations at all? What would you do with that?

Andrew Davies 27:46
So if I, I guess in a, if I’d continued the sort of theme of what I’m doing professionally, and then then I’ll give you another answer. I would love to work. There are lots of organisations, not the International Labour Organisation, there’s an organisation called The noble, I just like to dedicate my time to sort of work for some of these sort of nonprofits that are groups of professionals in this space, that are you know, focused on, you know, making a difference without any sort of like, you know, obligation to profit. They’re basically just bringing together collapsing or collaborating with experts in the industry to try and make a difference. I think that that’s what I would do. If I was going to continue this theme around. You know, my sort of professional focus beyond that, I’d I’d probably dedicate myself to going around the world looking to see in different bands, I

Isabelle Castro 28:42
guess. Okay, but bands Did you say music band?

Andrew Davies 28:46
music bands? Yeah. Music. I think, you know, I can play a few tunes on my ukulele.

Isabelle Castro 28:51
Nice. Okay, I like I like both of those answers, honestly, like, you can see that your passion comes through even into like, into everything about your life, but also I like the touring the world and kind of going into the bands as well. Nice answers. Thank you very much. Before you go, how can people get a hold of you follow? You get in contact?

Andrew Davies 29:16
Yeah, I’m on LinkedIn, we have great content coming out of ComplyAdvantage with the team. My email address is Andrew Davies at complyadvantage.com And obviously, you can find me on the ComplyAdvantage website and I would say, you know, follow ComplyAdvantage on LinkedIn. There’s just so much data that we’re producing. And I have a team who work for me who are just absolutely outstanding, and they’re sort of industry experts coming up with new content and new indicators of risk. So one of my team earlier is working on a list of different red flags around human trafficking for example.

Isabelle Castro 29:53
Okay, wow, that’s super interesting. I’m gonna go and follow up. I think I already follow you actually. But Hey, get out and follow them. Definitely listeners. Okay, well, thank you. Thank you for your time. I’ll let you go have a good rest of your day.

Andrew Davies 30:09
Excellent. Thanks you too. Thanks, Isabelle.

Isabelle Castro 30:11
Thank you. As always, you can reach out and chat with me on my personal LinkedIn or Twitter @IZYcastrowrites. But for access to great daily content, check out Fintech Nexus on LinkedIn, Twitter, Facebook or Instagram. You can also sign up for our daily newsletter bringing new straight to your inbox. For more fintech podcast fun, check out the website, where you can find more fascinating conversations hosted by Peter Renton and Lex Sokolin.

That’s it from me. Until next time, enjoy your downtime.

RELATED: The Fintech Coffee Break – Chirag Shah, Nucleus Commercial Finance

 This week Isabelle sat down with ComplyAdvantage’s Andrew Davies, to talk about money laundering levels and why KYB could hold the key to reduction. Fintech Coffee Break Podcast, Fraud/Identity, Podcasts, ComplyAdvantage, fraud, KYB 

Recent:

Fraud | Fraud Fight Club lives up to the hype | usagoldmines.com
Fraud | FedNow brings innovation, fraud concerns, and conspiracy theories | usagoldmines.com
Fraud | Sardine makes major announcements to stop fraud | usagoldmines.com
Fraud | Plaid launches Beacon- fighting fraud in real-time | usagoldmines.com
Fraud | FedNow: Instant Payments or Instant Fraud | usagoldmines.com
Fraud | Organized crime makes identity fraud more common than you think | usagoldmines.com
Fraud | Need for speed, accuracy in fight against document fraud leads fintechs to AI-powered detect...
Fraud | Every lender has a fraud problem, but AI-powered detection is here to help | usagoldmines.co...
Fraud | Whitepaper Discusses the Threat Posed by Serial Fraud | usagoldmines.com
Fraud | AU10TIX report goes inside the mind of the professional fraudster | usagoldmines.com
Fraud | America’s Quiet Epidemic: First-Party Fraud | usagoldmines.com
Fraud | Bringing Generative AI to Risk Decisioning | usagoldmines.com
Fraud | Incognia’s location-based solutions offer fraud antidote | usagoldmines.com
Fraud | iProov Threat Intelligence Report chronicles digital threat surge | usagoldmines.com
Fraud | Sift’s Fraud Industry Benchmarking Resource (FIBR) shows fintechs how they stack up | usagol...
Fraud | Innovating Customer Experience in the Face of Digital Fraud | usagoldmines.com
Fraud | Protect the house from fraud, not just the front door | usagoldmines.com
Fraud | Liveness detection is cat and mouse | usagoldmines.com
Fraud | Los canales digitales son el mayor foco de fraude en Latinoamérica, un estudio de LexisNexis...

Leave a Reply