Mon, Feb 20, 2017 - Page 6 News List

How to evolve financial technology

By Wang Chia-wei 王嘉緯,Lin Yu-fang 林玉芳

Following the Lunar New Year holidays, the online trading systems of a number of brokerages have been targeted by cyberattacks and blackmail. It is evident that as financial technology continues to thrive, updated criminal methods are hiding behind new financial services.

Apart from the information security problem that has been exposed by these cyberattacks on Taiwanese financial institutions, the New York State Department of Financial Services’ imposition of a huge fine on Mega International Commercial Bank last year highlighted the anti-money laundering and counter-terrorist financing problems.

They are testing whether local financial institutions — with the help of new technology — can enhance their adaptability to rapid and drastic changes in the market environment.

In particular, Taiwanese financial institutions have been expanding overseas in recent years.

However, if in the course of their overseas expansion they become involved in any controversies for failing to strictly follow anti-money laundering and related regulations, their operations in local markets can be badly hurt and it might also have a negative impact on the international reputation of Taiwan’s financial sector as a whole.

In practice, the application of financial technology to anti-money laundering mainly lies in assisting financial companies to “know your client” and implement “client due diligence.”

A traditional approach is to do so through interpersonal interactions with clients in accordance with applicable regulations, but today, thanks to financial technology trends, the authentication of clients, credit records and debt-paying ability can all be completed through digital interactions.

Take for example the verification of politically exposed persons in the global prevention of money laundering; manual verification is no longer possible, given the large number of such people.

The Financial Supervisory Commission has therefore required that financial institutions integrate client data through information systems to strengthen account and transaction monitoring in order to detect suspicious deals.

They can even carry out effective monitoring and filtering mechanisms through information systems to leave clear “audit trails,” which not only can help them avoid execution flaws, but also serves as strong evidence in future auditing.

The concrete combination of measures against money laundering and financial technology includes two parts: The first is reliable information sources.

For instance, in its latest Banking Division Transaction Monitoring and Filtering Program Requirements and Certifications (Part 504), the New York State Department of Financial Services states that “each transaction monitoring and filtering program shall require validation of the integrity, accuracy and quality of data to ensure that accurate and complete data flows through the program.”

The second part is adequate system tools, among which the blacklist database serving as a screening basis is especially crucial.

However, the establishment and maintenance of a database is so expensive that it is difficult for most small and medium-sized financial companies to afford it.

Perhaps the concerned government agencies can assess the feasibility of integrating market resources to build a database for market participants.

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