Connect with us

News

FOR FINANCIAL SERVICE PROVIDERS, MANAGING VENDOR AND THIRD-PARTY RISKS IS CRITICAL

Published

on

By Rich Cooper, Director of Global Accounts, Fusion Risk Management

 

Regulators Will Hold Firms Responsible; Good News is Technology Is Here to Help

 

Everyone knows there are inherent risks in markets. Investors know and accept the risk that their investments may lose value. For the financial services companies that facilitate and stand behind the trades of ordinary investors, there are risks largely unseen by the public that must be reckoned with on a constant basis.

 

Financial Service (FS) providers (banks, brokers, asset managers, etc.) must work with a variety of vendors and third parties to be competitive in attracting investors as well as keeping their clients’ business. They range from back-office and IT outsourcing vendors to third-party trade-clearing, settlement and money-transfer providers. The economic services provided by the finance industry encompass a broad range of businesses that manage money, including credit unionsbankscredit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokeragesinvestment funds, individual managers and some government-sponsored enterprises. Many of these relationships are intricate and multi-layered with risks imbedded in every layer. A vendor or third party providing direct services to you as an FS provider may also have several relationships with others that could put your direct relationship at risk.

 

Just this month (December 2019), the Bank of England (the Bank), Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published proposed new expectations to strengthen operational resilience in the financial services sector. This is major next step in evaluating “operational resilience” in the Financial Sector (in the UK defined as UK banks, building societies and investment firms (banks); and the Society of Lloyd’s and its managing agents (insurers) collectively called “Firms” and  also Financial Market Infrastructure collectively called “FMI’s”). It likely will become policy in the UK in 2021, The European Union and Singapore by 2022 and possibly the U.S. soon as well.

 

The Federal Financial Institutions Examination Council (FFIEC) in the US came out with new guidance as well this month. The guidance notes: “Business Continuity Management (BCM) is the process for management to oversee and implement resilience, continuity, and response capabilities to safeguard employees, customers, and products and services. Disruptions such as cyber events, natural disasters, or man-made events can interrupt an entity’s operations and can have a broader impact on the financial sector. Resilience incorporates proactive measures to mitigate disruptive events and evaluate an entity’s recovery capabilities. An entity’s BCM program should align with its strategic goals and objectives. Management should consider an entity’s role within and impact on the overall financial services sector when it develops a BCM program.”

 

Two areas that present the most significant risk management and compliance challenges to FS providers are:

  1. Financial Market Infrastructures (FMI). These are critically important institutions responsible for providing clearing, settlement and recording of monetary and other financial transactions. A payment system is a set of instruments, procedures and rules for the transfer of funds between or among participants. An example is the SWIFT network for global banking and payments. In the US, the Federal Reserve Board supervises most market infrastructures.

 

  1. Outsourced Technology Services. FS providers that rely on third parties to provide operational services need those vendors to have sufficient resources and recovery capabilities in the event of a disruption. The FFIEC, which has a handbookfor business continuity management (BCM) planning, warns that: “Financial institutions should recognize that using such providers does not relieve the financial institution of its responsibility to ensure that outsourced activities are conducted in a safe and sound manner.”

 

The primary concern of regulators is the “systemic risk” that individual vendors and third parties present to the overall health of the financial/economic eco-system. Recall the snowball effects that the failures of several large broker-dealers and investment banks had in precipitating the great financial crisis of 2008. Regulators are also concerned that the FMIs, if not properly managed, can result in significant violations of consumer laws and regulations and expose an institution to supervisory enforcement action, as well as financial, legal and reputational risks.

 

This is the most important point to remember – as an FS provider, you OWN THE RISKS.

 

So, what can you do to mitigate your risks?  As best practice, you should:

  • Mark all of your vendor and third-party relationships from end-to-end. As an example, in payments and settlements, you vitally need to understand who your third parties are, where they are and what risks they may present. You need to plan on how you can mitigate those risks to the greatest extent possible.
  • Make sure everyone in your organization who is responsible for these risks is informed – including C-suites and boards. The FFIEC handbook emphasizes that “the responsibility for properly overseeing outsourced relationships lies with the financial institution’s board of directors and senior management.”
  • FS providers should do a deep dive into their current systems, their limitations and their liabilities. Many firms still have legacy systems with risks assessments built into spreadsheets or printed documents. State-of-the-art BCM systems allow for information inputs from across the organization with advanced technologies employed in risk assessments.
  • Some firms keep their databases in silos (i.e.: equity trading department; mutual fund department) where one silo can be unaware of the risks of the other, putting the entire firm in jeopardy. A holistic system that covers the enterprise and allows prompt reporting to the board level is not a luxury. It is a must for today’s FS providers.
  • Your system must be stress-tested constantly and vigilantly. Game-playing scenarios are helpful in identifying “what if’s?” as well as planning work-arounds for potential disruptions.
  • Identifying “acceptable risks” is important as well. A one-hour outage may not be desirable, but it may be acceptable and not have any regulatory ramifications for your firm. But a 72-hour outage would be vastly different, as access to cash reserves and insurance may be limited or non-existent and your legal liabilities could be piling up.

 

If you think this is complex, you are right. Operational disruptions to the products and services that firms and FMIs provide have the potential to cause harm to consumers and market participants, threaten the viability of firms and FMIs and cause instability in the financial system.  There are new regulations on the way to mitigate this risk to the economy and managing 3rd (and fourth) parties is a key area of discussion.

 

The infrastructure of financial institutions and FS providers is much like a tapestry whose resilience depends on the strength of the weave. But don’t be deterred by the complexity. The good news: there are technology-empowered platforms that can help you manage your vendor and third-party risks.

 

An effective outsourced business continuity management program will provide the framework to successfully manage your vendor and third-party risks now. It will employ up-to-date technology; will break down silos, and will identify, measure, monitor and mitigate the risks that otherwise may keep you up at night.

 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

News

FINTECH COMPANY PAYEN CHOOSES AQILLA FOR ITS LIMITLESS SCALABILITY AND SUPERIOR MULTI-CURRENCY FEATURES

Published

on

By

Payen is a fast-growing FinTech company that provides gateway Payment and FX services to online merchants. Having launched in 2010, the business has grown steadily, winning three UK high-growth awards in 2019 and now has an annual revenue of over £14 million. As a global payments company, Payen deals with huge volumes of complex multi-currency transactions on a daily basis. Their accounting system needs to be able to scale effortlessly to these volumes as well as handle the unique nuances of multi-currency and foreign exchange.

 

Payen’s vision is to provide innovative solutions with a personal touch. As such they’ve continuously improved their 100% proprietary technology to enhance the process at every step in the payment value chain. Most recently, this includes extending their global options for alternative payment methods, as well as offering business bank accounts and forex services. As a cloud-based service, Aqilla effortlessly scales to handle Payen’s growing number of currencies and transactions.

 

Global payment transactions involve numerous touchpoints. As a payment gateway, Payen sits in the middle of this process, but Aqilla has the flexibility to handle this. Payen also offers foreign exchange services, so multi-currency is key to their finance function. Aqilla features simple but sophisticated handling of multi-currency transactions with extensive multi-currency capabilities throughout its ledgers.

 

Hugh Scantlebury, Aqilla’s CEO and Founder, explains further: “Aqilla’s reporting system features an easy to use report editor and query builder that lets you create custom reports that can easily be extended across multiple companies and currencies. Aqilla’s API also allows it to connect to other business apps, which Payen plans to use in the future to consolidate reports for its two UK-based entities.”

 

Payen’s Head of Finance Hannah James endorses Aqilla as an adaptable and easy to use accounting solution to support Payen as it grows: “As a fast-growing business, we need lean processes that can scale. Aqilla has continued to deliver this, even as we’ve added more services, currencies, and transactions. We’ve had no issues with the volume of transactions, and Aqilla’s support team has always been prompt and helpful. On the whole, we don’t notice any problems because Aqilla just works. And we know it has the features and flexibility in place to keep up with our evolving requirements,” she explained.

 

Hannah continues: “Aqilla meets all of our reporting needs. I particularly find the ability to drill into accounting categories very useful, avoiding the need to manipulate data outside of the system, downloading it every time. I can see the detail I need through simple navigation. We hope to continue to build on the reporting capabilities in Aqilla by creating a more automated method of consolidation using Sharperlight, however, we already have a good level of business intelligence and the information is easy to extract.”

Continue Reading

News

NEW RESEARCH REVEALS KEY ROLE OF KYC COMPLIANCE IN DRIVING CUSTOMER LOYALTY, ADVOCACY AND NEW BUSINESS

Published

on

By

The impact of financial crime for institutions goes beyond crippling fines

 

A piece of original research conducted by RegTech Associates on behalf of PassFort, the SaaS RegTech provider, whose platform automates financial crime and compliance processes, has revealed that customers who reported a better than expected compliance onboarding experience in the last 12 months were much more likely to remain loyal, advocate for their brands and acquire more products than those whose experience was worse than expected. These results underline the importance of delivering outstanding service along the whole customer lifecycle.

The survey was conducted in July and August 2021 and addressed a representative sample of 500 UK financial services consumers who had acquired a new financial product in the past twelve months. Products had been acquired from a mix of high street banks, challenger banks, mobile and digital banks and building societies. Those who had a worse than expected compliance onboarding experience[1] were much more likely than their peers to believe their providers did little to protect them from financial crime[2]. They were also much more likely to underestimate the penalties facing providers, with one-third (32 percent) assuming they would get no more than a “slap on the wrist”[3].

Announced today to coincide with Donald Gillies’, CEO, PassFort, panel discussion at Money 20/20, the research highlights consumer attitudes towards their providers and the outcomes they drive, as well as digging more broadly into their perceptions of risk, their experiences of fraud and views on the current UK debate around digital identity.

Regulatory technology that supports know your customer (KYC) compliance in financial institutions has historically been viewed as a cost burden. However, the findings revealed today clearly show a positive trend for those providers who execute well. The case for business benefit or value-add can clearly be seen in the correlation between consumer attitudes towards positive compliance onboarding experiences and a likelihood to go on to purchase additional products.

 

In fact, as a result of their interactions, those customers who received a better than expected experience of compliance onboarding described themselves as:

  • more likely to recommend their provider (77 percent, which was more than double the rate of 32 percent for those whose experience had been worse than expected)
  • more likely to buy more products (60 percent, which was almost 3.0x the rate of 21 percent for those whose experience had been worse than expected)
  • less likely to make a complaint (50 percent, versus only 14 percent for those whose experience had been worse than expected)
  • less likely to switch providers (49 percent, more than 2.5x the rate of 18 percent for those whose experience had been worse than expected)

“The complex compliance landscape has been under even more pressure with the impact of the pandemic. There were more than 1,330 pieces of covid related regulation introduced by August 2020 alone. Couple this with the enforced financial pressures on consumers and a global increase in fraud and financial crime and we have to understand that the perceptions and demands of consumers have shifted,” said Dr Christine Bailey, CMO, PassFort. “The compliance onboarding process shouldn’t be seen as a cost burden to financial institutions. Instead, what this research starkly demonstrates is the importance of onboarding at the beginning of the customer lifecycle in terms of how it influences customer loyalty, advocacy and future buying decisions.”

Far from being an unseen element of the customer journey, KYC at onboarding can be a differentiator for financial institutions. As financial crime increasingly dominates our headlines, the public are becoming aware of the value and vulnerability of their digital identity. One of the many legacies of Covid is that consumers are demanding more from the organisations they engage with across the board and trust ranks highly on that list of expectations.

“A stand-out result from the survey is the clear connection between the ability of leaders to exceed the customer’s expectations of what their compliance journey should look like, and the positive outcomes that follow. For example, in 90 percent of cases, customers who received a better than expected compliance journey would describe their provider as “trustworthy”, while 88 percent would say their provider was “efficient”. In contrast, for those whose experiences undershot expectations, the figures drop sharply, to 64 percent and 39 percent respectively,” commented Rob Stubbs, Head of Research at RegTech Associates. “Despite many customers telling us their experience was ‘as expected’ it’s clearly important that providers don’t rest on their laurels.”

“Against this backdrop, firms cannot afford to view satisfactory delivery as being good enough. There is a very real opportunity for engaging valuable revenue streams and enhancing reputation for those who step up,” continued Dr Bailey. “The regulatory landscape is ever changing and incredibly complex, yet we still see an ad hoc approach to regulatory technology across the industry with many firms still relying on heavily manual processes.  In the same way we have seen marketing automation revolutionise the marketing function, it’s time to digitise compliance and streamline the entire customer journey.”

 

Continue Reading

Magazine

Trending

News20 hours ago

FINTECH COMPANY PAYEN CHOOSES AQILLA FOR ITS LIMITLESS SCALABILITY AND SUPERIOR MULTI-CURRENCY FEATURES

Payen is a fast-growing FinTech company that provides gateway Payment and FX services to online merchants. Having launched in 2010,...

Business20 hours ago

THE ACCELERATION TOWARDS A MOBILE FIRST ECONOMY

By Brad Hyett, CEO at phos   Over the last year, we have seen a big shift towards contactless payments....

News20 hours ago

NEW RESEARCH REVEALS KEY ROLE OF KYC COMPLIANCE IN DRIVING CUSTOMER LOYALTY, ADVOCACY AND NEW BUSINESS

The impact of financial crime for institutions goes beyond crippling fines   A piece of original research conducted by RegTech...

Business20 hours ago

HOW MERCHANTS CAN IMPROVE THE ONLINE PAYMENTS EXPERIENCE

By Alan Irwin, Senior Director of Product at Global Payments UK   The dramatic increase in online shopping over the...

Business20 hours ago

JUMP-STARTING PROCUREMENT TRANSFORMATION WITH A CLEAR AND REALISTIC PLAN

by Alex Klein, COO at Efficio Consulting   Following a period of ongoing economic uncertainty, business spend has risen high...

Finance20 hours ago

NAVIGATING FINANCIAL SERVICES IN 2021: LOW-CODE TO THE RESCUE

Nick Ford, Chief Technology Evangelist, Mendix   Financial services are the poster child of great digital transformation: today, Britons can...

News21 hours ago

PAYSAFECARD AND NEO EXTEND THEIR SUCCESSFUL PARTNERSHIP

paysafecard, a market leader in eCash payment solutions, and NEO, one of the most successful FIFA teams in the world,...

Finance21 hours ago

WHY THE NORDICS WILL CONTINUE TO LEAD THE WAY IN DIGITAL PAYMENTS

Kriya Patel, CEO, Transact Payments   While the recent introduction of PSD2 — the second iteration of the EU’s Payment...

Banking1 day ago

COMBINED RISE OF M&A AND CYBER RISK CREATES STORMY SEAS FOR INVESTORS

UK organisations carrying out merger and acquisition (M&A) activities must improve pre-acquisition due diligence of software vulnerabilities By Philippe Thomas,...

News2 days ago

PPRO CLAMPS DOWN ON FINANCIAL CRIME RISKS, PARTNERING WITH AND INVESTING IN AI-DRIVEN TRANSACTION MONITORING STARTUP SENTINELS

PPRO, the leading local payments infrastructure provider, has today announced a strategic partnership and minority investment in Sentinels, Europe’s leading transaction...

Business2 days ago

EMV® IN TRANSIT: WHY AND HOW?

Taoufik Sakhi, Smart Mobility Technical Advisory Director at Fime   Today, contactless cards provide a fast and frictionless payment experience,...

News2 days ago

INSTANDA ENTERS THE MIDDLE EASTERN MARKETPLACE

INSTANDA expands global footprint by working with new client, NewTechMe  First product distributed in the Middle East  Announcement signals INSTANDA’s understanding of NewTechMe’s vision to drive digital transformation in UAE...

News2 days ago

RGU LEADS EUROPEAN INTER-REGIONAL NORTH SEA PARTNERSHIP TO HELP HOMEOWNERS IMPROVE ENERGY EFFICIENCY

NB: Image from left to right includes:   Mike Bauermeister, Kishorn Insulations, Jamal Alabid, RGU, Amar Bennadji, RGU, Richard Laing, RGU,...

News2 days ago

JUMIO APPOINTS JENNIFER N. HARRIS TO BOARD OF DIRECTORS

Addition of veteran CFO comes amid period of record growth and product expansion at Jumio   Jumio, the leading provider...

News2 days ago

WISE LAUNCHES ASSETS, YOUR WISE ACCOUNT INVESTED IN THE WORLD’S LARGEST COMPANIES

Assets offers current account flexibility, with the potential for investment returns Wise, the global technology company building the best way...

Finance2 days ago

A CHECKLIST FOR RETRENCHMENT READINESS

By Shelley van der Westhuizen, head of financial well-being strategy & applied research at Alexander Forbes   Your health may not...

News2 days ago

EQUIDUCT LAUNCHES TRADING IN EXCHANGE TRADED FUNDS FOR RETAIL INVESTORS IN EUROPE

Equiduct will offer 436 ETFs and ETPs for trading through Apex   Equiduct, the pan-European retail exchange, announced today that...

Finance4 days ago

THE IMPORTANCE OF MANAGING DATA RISK IN THE FINANCE FUNCTION 

Written by Steph Charbonneau, Senior Director of Product Strategy, Vera by HelpSystems     CFOs and financial controllers play a pivotal role in how organisations evaluate and manage...

Business4 days ago

THE DEMAND FOR BETTER B2B PAYMENTS

By Brandon Spear, CEO, TreviPay   Business-to-consumer (B2C) payments started adapting to digital processes when consumer shopping habits began shifting...

Finance4 days ago

HOW TO BUY USDT AND AVOID THE HIGH VOLATILITY OF CRYPTO

Understanding and breaking down all the different types of crypto can feel like a huge task—there are so many variations...

Trending