The £37.8 million fine recently imposed on Commerzbank by the UK’s Financial Conduct Authority is just the latest in a long string of actions by regulators enforcing increasingly stringent anti-money laundering (AML) regulations around the world.
In response, there has been a boom in the regulatory technology (RegTech) sector – accelerating the building of tech solutions to help financial institutions sustainably meet their anti-financial crime obligations, and to prevent illicit funds from entering the financial system.
Many of the RegTech tools in the anti-financial crime space use artificial intelligence and machine learning to automate what were, until recently, highly manual time-consuming processes – such as the aggregation of information needed in the initial stages of Know Your Customer (KYC) due diligence.
But RegTech tools, whilst powerful, often rely on their ability to access high quality data – and despite appearances, not all data providers are made equal.
In this blog post, we’ll look at the key role company data plays in driving the automated due diligence or KYC tools built by RegTechs, along with why OpenCorporates’ White Box company data has already been used to inform millions of due diligence reports produced by such tools.
Automated due diligence – a step change
The conventional solution regulated firms have employed until recently to try and meet their due diligence obligations has typically involved hiring large teams of KYC or onboarding analysts to manually conduct the repetitive research or review tasks required as part of due diligence.
At its simplest, this can involve conducting Google searches on prospective customers, or manually consulting individual company registries and company records to help corroborate that they really are who they say they are.
But throwing bodies at the problem as an approach has come up short. This is, amongst many other reasons, partly down to the exponential growth in available data that can be relevant during the due diligence process, making it inevitable that analysts cannot consume it all – or process it in an identical way each time.
To help firms break this paradigm and sustainably meet their regulatory requirements, a whole ecosystem of RegTech firms has sprung up. The tech solutions such firms have built aim to help regulatory compliance in diverse areas from due diligence to regulatory reporting and financial stress testing.
Identification & verification (ID&V): is it me you’re looking for?
One area where RegTechs have made an acute impact is in the identification and verification stage of customer due diligence (CDD) – known to financial crime compliance professionals as ‘ID&V’.
A whole branch of the RegTech ecosystem has sprung up to help make the ID&V process more efficient, effective and fast, by automating the collection of official company information (such as from OpenCorporates) and other types of data to help corroborate the identity of a prospective customer.
Some RegTechs just focus on automating this verification stage, be that for either the retail or business customers of regulated firms.
Others have gone much further however, by then using that base understanding of the person or legal entity collected during the ID&V stage to inform the aggregation and analysis of risk-related information from a whole range of sources, including:
- Structured data sources: such as sanctions lists, watchlists or court records
- Unstructured data sources: including adverse media on the open web
This means compliance professionals can spend more time analysing financial crime risk instead of dedicating the majority of their time to collecting information.
White Box data = more reliable automation
Automation, or the AI that powers it, is certainly not a silver bullet though.
Ask anybody involved in training AI-based systems with data to automate key processes, and they’re likely to tell you that an AI-based system is only as good as the data it is trained on.
OpenCorporates’ White Box company data plays a key role in enabling the automated verification or due diligence processes that many RegTechs are built on.
Unlike legacy Black Box company data, White Box data is well-defined, fully provenanced and has open identifiers – meaning it can be more confidently relied upon to power automated processes such as those seen in ID&V checks.
Millions of automated due diligence reports created by RegTechs in the automated due diligence or verification space are already being driven in part by OpenCorporates’ White Box data, such as those created by Exiger’s DDIQ and Quantifind, to name just a few.
3 things to consider when selecting a company data provider for automating due diligence
Not all company data providers are created equally, but this can be difficult to distinguish from the outside.
So if you’re a product manager at a RegTech in the due diligence space, or a frontline KYC professional evaluating which company data to integrate into your client lifecycle management solution, be sure to consider the following:
- Provenance: do you get direct line of sight on where the data was collected from?
Unlike Black Box Data providers, OpenCorporates provides the provenance of all its company data. This means you, or your clients, can be sure about where it came from, and explain risk-based decisions you took using it with greater confidence. - Data quality: how and from where is the data collected? And what kind of quality assurance processes are placed on it?
Black Box data providers are known to manually curate data from a variety of unreliable sources, and then key it into their databases manually.
By contrast, OpenCorporates’ White Box company data is exclusively taken from official public sources, collected mainly through automated methods and benefits from the review of millions of users every month – whose ‘many eyes’ create a powerful data-quality feedback loop. - Coverage: are the jurisdictions and data attributes you need included?
One advantage of licensing data from OpenCorporates is being able to get multi-jurisdictional coverage in just one subscription, instead of needing to access many dozens of individual company registers from around the world by yourself.
Similarly, your data provider should be transparent about the types of data they provide for each jurisdiction (as each company registry provides different types of data), and how fresh it is.
But this is just with one branch of the RegTech ecosystem in mind…
We will analyse in a future post how White Box data powers the latest generation of AML investigations tools, built using link or network analytics.
Want to know more?
OpenCorporates’ high-quality company data is relied upon every day by over 400 organisations the world over.
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