From humble beginnings in 2015 as a small-scale London start up, to becoming a global, multi-award winning RegTech provider, our growth as a company over the past seven years has been closely tied to the development of our anti-financial crime technology.
Our Technical Product Owner, Jacob Gloser, interviewed Nick Portalski, our Chief Solutions Officer, about Napier’s RegTech journey from inception to present-day, including which challenges Napier was founded to address in the FinCrime space.
Nick has been integral to the Napier team since its inception. Before his appointment as Chief Solutions Officer, Nick served as Napier’s Chief Product Officer.
Jacob: Nick, let’s start with the basics. What exactly is FinCrime?
Nick: FinCrime is the use of financial networks and financial institutions to either help fund criminal activity or move money that’s gained from criminal activity. It can involve the use of bank accounts, pensions, and insurance to create an appearance of legitimacy. Money laundering, terrorist financing and fraud are all types of FinCrime.
The more sophisticated examples of FinCrime involve the movement of money across international boundaries and moving money without it being identified as suspicious. Money laundering methods can include moving small amounts of money over time and recruiting money mules, so criminals may seek to understand what a bank views as suspicious before opening a bank account and getting onboarded as a low risk customer with the intention of moving money while remaining under various thresholds.
J: Do organisations other than banks monitor for suspicious activity?
N: The detection of FinCrime has historically been the responsibility of banks but in recent years the money laundering directive has increased in scope. There is now a wide range of regulated sectors ranging from casinos to insurance to ePayment providers. These changes reflect the fact that criminals will use any mechanism to launder money that’s available to them.
J: How did Napier come to be a specialist RegTech provider?
N: Napier started in the big data space, using technology to address a more general scope of problems using big data in the financial markets. This led us to transaction monitoring, because we were able to so process and analyse large numbers of transactions.
Transaction monitoring proved to be a key growth area for Napier, as it had become a real challenge for financial institutions to keep pace with regulations and make sure they were staying compliant. The number of transactions globally has grown considerably over the last few decades and regulatory requirements have become increasingly demanding.
Compliance is becoming dependent on having a technology solution that can automate processes. From a technology perspective, over the last –six to seven years a lot of things have come together, including the provision of powerful hardware in the cloud. This has supported and provided direction for Napier’s new product development as we focused on enabling even small organisations to tackle problems at scale.
J: Would you say the first use case for Napier was finding the ‘needle in the haystack’?
N: Yes, transaction monitoring is all about trying to find suspicious high risk activity. The percentage of bad transactions is very small, but the volume is still quite high as an absolute number. The sheer quantity of transactions being processed means that finding bad transactions is actually very difficult, so the first use case for Napier was partly to address this issue.
The other part of this first use case was to allow other organisations the ability to build a transaction monitoring solution that could be used at scale but also be very flexible and used by non-technical users. That’s quite a difficult problem to solve; to be able to sift through data in a non-deterministic way on one day and to user-specify what data you want on another day.
J: How would you characterise the early days for Napier as a start-up?
N: The technology itself was straightforward but the challenge was testing it in the real world; we needed to connect the technology with how clients would use it. You can only go so far with great technology – user experience is critical and we felt that AML systems need to be useable for even non-technical users.
J: I suppose it’s all about having the right buttons in the right place?
N: Yes. Most compliance teams have a very large number of transactions to process and even if your system is perfectly tuned, there will still be a lot of transactions to sift through. Our priority at Napier is bringing all the relevant information together so that a compliance analyst has everything they need in front of them. This will increase their efficiency by reducing the time it takes to review alerts.
J: So what did Napier develop next?
N: We started to build out other modules that focused on understanding customer risk. When clients started to ask us if we could solve a particular problem, we were able to respond to these requests with innovative solutions purpose-built to address those problems
We began to realise that if we could develop a compliance platform that offered all of these solutions in one place, then we could build up a better profile of customer behaviour and risk. For example, it becomes possible to apply different techniques to risk rate a customer if you can incorporate KYC information, transaction behaviour, and an understanding of the customer’s network. This is what inspired Client Activity Review and the holistic, 360 degree insights it provides on customers.
J: Is this risk-focused, holistic view where things are heading for financial crime compliance?
N: Yes, and most definitely that’s where it’s also heading for Napier. Requirements like transaction monitoring and transaction screening are always going to be there, but they face challenges relating to the sheer volume of transactions to be dealt with.
It’s also difficult to make a holistic decision when you’re looking at either a specific or several weeks of transactions for a single account in isolation. Yet, if a system is able to understand other attributes of that customer, including what is typical behaviour for them, then it can understand similarities between a particular customer and others. What may appear to be unusual behaviour could prove to be normal if every customer of that type does it.
In this way, a transaction monitoring system can start to build a richer picture of customers by understanding their financial behaviour holistically. So yes, I do believe industry is moving towards a super risk-focused approach. The key will be the ability to use a variety of techniques to assist decision making, such as machine learning, statistical techniques, and network analytics and ideally processing data in a way that augments traditional compliance activities.
J: How does AI fit into a holistic, risk-based approach to AML?
N: Regulators can have different views on AI and there’s some concern relating to how you can know if AI is making a ‘good’ decision. However, most organisations have four-eyes policies (a decision requires two people) and consideration is now being given to “one” of those two decision makers being the AI, at least at the initial triage stage.
In this way, AI can be used to help highlight patterns in customer activity that may otherwise be missed. If you think about statistical analytics and network analysis, they are all ways of showing patterns that are difficult to notice on a spreadsheet. But you will still need specialists to make decisions. Over time, as trust and modules build up and regulators become more comfortable with understanding how they will approach AI, its use in compliance processes will become even more prevalent - likely in some compliance activities sooner than others.
J: We’ve talked a lot about compliance but is there any other way a holistic approach can be useful to the wider organisation?
N: Comparing customers’ behaviour does have other uses, for example it could provide intelligence for sales and marketing. That said, Napier is focusing firmly on AML compliance.
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