At the end of February, the chief financial officer of JP Morgan, Marianne Lake, appealed for the new government of Donald Trump to repeal the arduous regulation placed on the financial sector after the global economic crash.
Her pleas will likely have found favour in the Oval Office, where Donald Trump has pledged to dismantle the likes of Dodd-Frank and has filled his Treasury office with ex-investment bankers.
In trade finance too, calls are often made for exemption from Basel III’s capital holding requirements, or for a carve-out at the very least. In fact, across the finance sector, you would do well to find a senior official who praises the regulators’ zeal.
Niall Twomey stops short of doing that, in an interview with GTR in his Dublin boardroom. But the CTO of Irish fintech company Fenergo readily admits that his company has been one of the big beneficiaries of heavy regulation of the financial sector.
“Lower risk appetite is driven by regulation. The whole thing is the explosive growth of regulations. This has benefited us because we pre-interpret them. We work with clients to understand the regulations,” he says.
Fenergo provides regulatory technology – or regtech – solutions to financial institutions that are faced with know your customer (KYC) and anti-money laundering (AML) regulations. By providing a system which synthesises data from multiple on-the-ground sources, Fenergo can make these processes much less complex, as well as cheaper and faster. The end result is that it cuts the time and cost of on-boarding clients around the world.
According to its marketing literature, Fenergo can help banks cut the cost of compliance and KYC reviews by 60%, and reduce client on-boarding times by 82%, all by providing the right information.
Trade finance has taken a bigger hit than most financial verticals in the regulatory age. Correspondent banking relationships are dying out rapidly, because of the cost and time that it takes to vet the bank elsewhere in the world. This has a huge knock-on effect on the amount of trade finance available, and thus the amount of trade done.
In the ICC’s Trade Survey 2015, 70% of respondents reported declined transactions due to KYC and AML regulations, with 46% of respondents reporting experiencing termination of correspondent relationships due to related costs and complexities.
Streamlining KYC and AML
“The big thing for us is that the clients who want the information are setup with typically international structures,” Twomey explains. “Our solution is doing the AML checks on them, doing the correct KYC, and we work with third-party data providers. You’ll find FIs have the data but it’s hard to unlock it. It’s siloed. But we bring it to one place with a consolidated review within an organisational structure so you can do a proper risk assessment.”
The company counts HSBC, BBVA, BNY Mellon, Scotiabank and Standard Bank among its clients, and Twomey says that it is those banks who have the most business in emerging markets who are arguably their best target.
“A lot of banks say: ‘I have my own main jurisdictions covered, but I don’t have the peripheral local jurisdiction covered in the places I don’t do a massive amount of business, but I do a level of business.’ The cost of going there is high, but we can say that Fenergo has those areas already covered. We have a team of experts and work with clients already to figure it out. The cost of doing business in a local jurisdiction is reduced. Once you find a counterpart, you can use our solution to assess the risk correctly,” he says.
The Irish capital is a hub for technology companies, with a favourable tax rate attracting tech giants such as Google, Twitter and Facebook to open large offices in Dublin. However, for smaller companies like Fenergo it also means that there is an ample amount of talent available for hire: Dublin is a destination for the aspiring tech professional.
The same can be said for Singapore, where Fenergo recently opened an office. A lot of column inches have been devoted to the Monetary Authority of Singapore (MAS)’ regulatory sandbox for fintech companies. Fenergo certainly falls into this broad category, but for Twomey, the government’s approach has also made it a fertile market for hiring established people.
“The quality of candidates we’re getting working for us locally because of the ecosystem… we can get the candidates because it’s within the fintech space, regtech space, and they’re not the easiest places to hire. We also find that they’re willing to experiment with the latest technologies. The big thing is the type of people in Singapore and the fact they view tech as an enabler. FIs aren’t looking at us as a disruptor, but an enabler,” he explains.
But what does a company which has become successful during an era of regulation think about the anti-regulatory rhetoric in the US?
“We keep getting asked what does it mean for you? First, regulations aren’t going away. Okay, maybe some argument will say there’s too much regulation but they’re there for a very good reason: it was counterparty risk that wasn’t measured properly before the crash. Other jurisdictions aren’t saying what the US president is saying: there’s plenty of other regulation that we need.
“The feeling on the ground is that there may be a tapering back, turning down the dial on Dodd-Frank, but it’s not going away. Actually, a lot of FIs are saying we’ve spent so much money implementing Dodd-Frank, rolling back would cost a lot of money. Ultimately the risk is borne out by the general public. So you think you’re saving money, but you’re just adding risk back to the general public.”