Countering Financial Crimes Using AI !

Credit: IT Chronicles
  • Clouds are gathering over swaths of fintech companies with falling economic growth.
  • Rising interest rates and a cost of living crisis have put business models under strain.
  • Job cuts and valuation-crushing funding rounds have become common.

ComplyAdvantage founder Charlie Delingpole knows his company is not immune to those forces, as fintechs are among the biggest buyers of his financial crime prevention products. But the business — which uses natural language processing and artificial intelligence (AI) to run compliance checks on transactions — is proving more resilient than most.

Using AI

Delingpole, who transitioned from chief executive to executive chair in October, founded ComplyAdvantage eight years ago. Back then, demand for compliance checks was already ramping up in the aftermath of the 2008 financial crisis, as financial institutions were hit with hefty fines for mistakes and misconduct. “They were employing thousands of researchers to manually compile information,” he says. “What we’ve done is use machine learning to collate thousands of data sources and then merge them together.”

ComplyAdvantage automates the scanning of hundreds of thousands of documents to draw connections between people, companies and illicit activities.  ComplyAdvantage’s growth to become a $50mn revenue company with 500 staff and a roster of more than 1,000 clients has been fuelled by several international trends.

Global fines for anti-money laundering breaches have been rising sharply, surging fivefold to $2.2bn between 2019 and 2020 — an escalation that put financial services companies across the world on high alert for future non-compliance. 

War Against Terror

The war against terrorism and drug cartels has triggered a broader clampdown on global money laundering, led by institutions such as the intergovernmental Financial Action Task Force and Moneyval, the Council of Europe’s money laundering body. More recently, the west’s sanctions on Russia in the aftermath of its invasion of Ukraine have catapulted regulatory compliance to the top of corporate concerns.

“You can divide companies into two clusters: companies that grow in a cyclical way in correlation to gross domestic product,” says Jan Hammer, a partner at Index Ventures, which holds a 15 per cent stake in ComplyAdvantage. All those involved agree technology has a vital role to play in keeping bad actors out of financial institutions and trading or payment systems. “Technology is useful in identifying complex money laundering schemes, for mining big data sets for terrorism financing activity,” says Igor Nebyvaev, executive secretary of Moneyval.

None of that, however, means the finance industry has to turn to ComplyAdvantage for the technology. Financial institutions can, and do, build their own solutions. But Hammer insists that ComplyAdvantage will corner the market because its technology is more advanced than anything else available, or likely to come to the market in the near future.

One example is a new product using AI to target “hidden risks” in transactions. The tool, which is being trialed by 50 clients, allows companies to detect “risks that are not obvious”, such as money muling, where a single group might be behind many seemingly unrelated accounts exploiting financial institutions. 

So far, the scope of this new tool is limited to politically exposed persons (PEPs), companies, sanctioned individuals and those named in adverse media reports, but Delingpole says it can ultimately be much broader. 

The Road Ahead

The road ahead for ComplyAdvantage is not bump-free, however. “The critical risk is execution risk, the risk that we are unable to deliver the product we have articulated to the market and investors,” says Delingpole. 

Growth could also be curbed by a decline in the number of fintech start-ups, as the economic slowdown hits funding, and failures of existing fintechs. ComplyAdvantage’s client base currently skews towards small and midsized companies.

A further risk is that ComplyAdvantage will not be able to become big enough, and well enough known, to penetrate the biggest financial institutions. That is a big ask, considering the multibillion tech budgets that the biggest companies on Wall Street have. Still, Delingpole is quietly confident.

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Source: FT


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