Dr. Chris Brummer talked “Know Your Customer” or KYC compliance and the future of money-laundering enforcement with  Kyckr CEO Ian Henderson on the Fintech Beat podcast. Kyckr, a company specializing in providing legally authoritative global company data, did a recent review on KYC compliance enforcement which revealed that over $3.2 billion in penalties were issued across the world in 2020. KYC enforcement has gone up over recent years and the fines have increasingly become a strategic measure not just against those fined, but all those around them. It’s not enough for financial regulators to warn banks of the dangers of not meeting KYC compliance – punitive measures have to be taken that make examples out of the bad apples.  

The heightened emphasis on KYC compliance has in turn raised the importance of technology as more data is being required by authorities seeking to prevent illicit financial activity like terrorism financing and child trafficking.  But fintech is about more than data accessibility; machine learning and automated systems are becoming more and more essential to keep up with a global increase in financial regulation. While certain markets ground to a halt during the COVID-19 epidemic, financial terrorism and money-laundering have not slowed down. Increasingly, AI and machine learning are essential tools for local and international financial institutions to keep up with KYC compliance laws as well as AML or “Anti Money Laundering” laws. That’s where Kyckr and Ian Henderson come in. 

Ian Henderson became CEO of Kyckr in 2018 after his tenures at Shawbrook Bank and RBS International. He came into the role just as the demand Dr. Brummer and he discussed in the podcast episode began to take effect, making it an opportune time for growth for the customer data provider. The company was founded in Ireland in 2007, but now sits on the Australian Security Exchange as well. Henderson believes that drop off in perpetual engagement with and upkeep of “know your customer” policies is part of the reason for the increased enforcement, as well as bad agents attempting to stay one step ahead of regulation, which then necessitates more regulations. This sort of legal arms race led to at least six separate regulations being released in 2020. “Regulation is ever increasing and therefore the net you can be caught in is ever increasing,” Henderson said, “Sometimes there’s more fines but a lower aggregate value, other years it’s a smaller number of fines but of a much bigger value.” 

Mr. Henderson was interviewed by Dr. Chris Brummer, a professor and faculty director of Georgetown’s Institute of International Economic Law.   Dr. Brummer has made waves over the years in his commentary on issues ranging from Facebook’s Libra cryptocurrency project to the general state of diversity in not only the fintech industry, but also among financial regulators.   On his podcast,  Fintech Beat, Dr. Brummer interviews experts and insiders in financial technology to explore the “intersection of policy, finance, and tech” for the benefit of potential investors and enthusiasts alike. He is also the founder and host of the DC Fintech Week Conference, a weekend of panels and discussions in the nation’s capital with the goal of democratizing information about the future of financial technology. In every aspect of his work, Fintech Beat included, Dr. Chris Brummer carries a passion for the future of finance, a future in which more diverse voices can become prominent and essential.

In his conversation with Mr. Henderson, Dr. Brummer brought up a growing concern that with the sharp rise of AML laws, that enforcement of them is not necessarily fairly distributed but targeted predominantly at international banks. “If you want to facilitate laundering, the more complex structure makes it easier,” Henderson answered, “The reality is smart bad guys will go international. So it’s usually international banks who get caught in the net more frequently.” Money laundering is a worldwide problem and every year Kyckr sees new countries written up that they did not see or expect the year prior. “This is happening globally,” Henderson said, offering insight into the big picture, “There’s no part of the world where it’s not a problem.”

Not surprisingly given his work in digital assets, Dr. Brummer asked Henderson about how cryptocurrency factors into AML enforcement.  “We live in a world of decentralized finance,” Dr. Chris Brummer said, speaking to the increasingly growing interest in crypto and the different cryptocurrencies available all operating off of separate repositories of data. But, he noted, different countries are taking steps that do not always align with one another when it comes to implementing even global standards.  Henderson did not disagree: “The cryptocurrency world is ever evolving,” Henderson observed, “The challenge that regulators are going to face is how do you [regulate] something as fast moving and potentially amorphous as crypto.” Kyckr’s main clientbase has been corporate or individuals, which are decentralized on a national level but still centered around global registers. Compared to relative pressure for standardization, cryptocurrency is still the wild west when it comes to compliance and regulation. 

Luckily for Kyckr, the global demand for financial regulators to properly regulate money laundering KYC compliance has grown and as a result their service may grow more valuable with it. As the penalties for not following compliance laws increase, Henderson’s work becomes all the more relevant. But Dr. Brummer opines that not all fintech companies will necessarily be positioned to comply, perhaps even because of their technology, which could create suprising winners and losers.. At the speed with which financial regulators are creating new laws to crack down on money laundering and financial terrorism increases, more innovation may be needed—just as compliance emerges as less and less of an option. Dr. Brummer’s conversation with Mr. Henderson suggests  that while the full effect of these regulations is uncertain, the growing role and profile of cryptocurrency could generate a demand to reduce, and ideally prevent, its most troubling social tradeoffs. Indeed, as crypto grows in popularity, regulators will have to figure out ways to combat the relative anarchy and decentralized information of the crypto world.  Money laundering and financial terrorism are global issues, and as the global economy returns to normalcy, those issues will only grow. “What my conversation with Ian underscored is just how fast and far AML enforcement has grown,” Dr. Chris Brummer concludes, “which can’t help but make you wonder what the AML headlines will look like in 2022.” 

To learn more about Dr. Chris Brummer’s research, click here. Listen to the episode on Apple Podcasts or Spotify.