Risk & Compliance Tech Stack for Fintech: Main Components + How To Choose

July 25, 2022
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Risk and compliance operations are essential to any successful FinTech organization, but finding the right Regtech software to integrate into your tech stack can be challenging.

However, effective risk management and adept AML compliance tools will allow you to ensure data security, identify suspicious activity, and prevent fraud from occurring. We’ll show you how to integrate your risk and compliance operations into your tech stack, and even help you choose the best tools for the job by covering the following topics:

Before we dive into the main components of a FinTech tech stack, let’s look at what a FinTech tech stack is and why it’s so important to have.

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What is a FinTech Technology Stack?

A FinTech technology stack (or simply FinTech stack) is a collection of tools that run, support, manage, optimize, and otherwise allow for the operation of the FinTech platform or service. They are often quite varied in terms of type, scope, and applications.

The rapid growth of the FinTech space in recent years has led to a competitive environment for FinTech solutions, which is ideal for those looking to optimize their FinTech platforms. As such, today’s risk and compliance tools are more comprehensive than ever before, all with faster, more seamless integration.

They often include some form of regulatory technology, and potentially something to aid with Suptech as well. Learn how these are different, and how Regtech and Suptech fit within the Fintech industry. Many modern solutions incorporate AI and machine learning to modernize operations and optimize performance.

The Importance of Risk & Compliance Operations for FinTechs

Risk management and AML compliance are essential components of any FinTech operation, partly because they are required - but also because they significantly reduce fraud loss which increases overall revenue.

Below, we cover some of the main reasons risk and compliance operations are so important to your FinTech business.

  • Data Security: First and foremost, you need to ensure the safety and security of your customers and your platform as a whole. It’s extremely important that data - including any user data you may have - is kept secure at all times.
  • Adhering to Regulatory Requirements: It’s imperative that you follow all AML compliance requirements to stay vigilant against money laundering and adhere to applicable financial laws.
  • Case Management and Reporting: Managing suspicious activity cases and filing reports with the proper authorities is extremely important. Late filings can lead to hefty fines, and will mean you’re not operating compliant to regulations.
  • Cyberattacks and Breaches: Proper risk management means being prepared for the largest, most devastating attacks. It also means being ready to address these issues if there is a breach of security that could affect your platform - or your customers.
  • Maintain Consumer Trust: Keep your customers safety, security, and wellbeing in mind when establishing compliance rules and when developing proper anti-fraud systems. This will go a long way in building loyalty and trust with consumers.

Now that we know what’s of vital importance to the risk and compliance team, let’s take a look at what tools they’ll need in their FinTech tech stack to deliver the best AML compliance program possible.

The Essential FinTech Stack for Risk & Compliance Operations

Effectively managing your risk and compliance team is a fine line to balance when trying to develop an incredible product that users love. How do you perform all the compliance checks without bogging them down during onboarding? How do you layer in top-level security without compromising on the speed of the user experience?

Regardless of how you approach it, it’s essential to have an efficient AML compliance solution that helps you prevent fraud, stay compliant with AML regulations, and manage cases through to filing.

The best solutions offer seamless integration with the existing FinTech tech stack, offering quick empowerment. As a no-code application that integrates quickly, Unit21 is a great option when wanting to inject risk and compliance operations immediately into your tech stack.

Unit21’s ability to integrate quickly enabled Line to capitalize within the first 90 days of their partnership, achieving 60% false-positive resolution thanks to the quick switch.

As you can see, these solutions can focus on a variety of things, from fraud detection and prevention to case management and filing. To really consider which solutions are best, you first want to know what types of tools you may need - and the main features you should be looking for in each. Consider future fraud trends and how they affect your operations as well.

Below, we’ll outline the top risk and compliance tools that should be incorporated into your FinTech technology stack:

1. Data & Transaction Monitoring

Monitoring transactions is an essential part of staying ahead of potential risks to your business. These solutions allow users to access multiple data sources and leverage this data to detect and identify suspicious activity. Live reports and automatic stops ensure you detect and prevent attempts at fraud.

Why it’s essential:

With complete data monitoring, you ensure all transactions on your platform adhere to AML compliance standards, and adequately protect against risk. With customizable options that give you control over how your monitoring system functions, you can set up powerful transaction monitoring rules that flag suspicious activity for further review. Also, technology that allows for rule validation and testing in a sandbox environment helps to reduce false positive rates once deployed, meaning that you and your team will only be focused on the alerts that matter most.

2. Compliance Case Management

With so many alerts coming in (of various importance), it’s essential to have a way to manage all of your investigations and cases in one place. AML case management software allows you to easily manage all relevant data from a single, unified, easy-to-use dashboard. The best solutions will offer automated e-filing of SARs and goAML reports, and allow case investigators to quickly review information and make decisions with dynamic data visualizations and audit trails.

Why it’s essential:

A unified case management solution will ensure you always stay compliant and never miss a filing, ensuring you avoid any potential fines or penalties. These solutions often automate regulatory reporting processes for you, such as SAR e-filing and reporting to goAML, saving your team valuable time that can be devoted to catching bad actors instead of repetitive manual tasks.

3. Risk Management

Understanding, accounting for, and properly managing risk is a cornerstone of compliance solutions. It’s essential for setting up thresholds on transaction monitoring and suspicious activity monitoring solutions, as it determines how these solutions perform and what risk they are willing (or unwilling) to take on transactions. Similarly, onboarding solutions need to adequately balance risk when identifying new users, balancing controls so they don’t turn away legitimate accounts, while still stopping fraudulent accounts from being created.

Why it’s essential:

Managing compliance and adequately addressing potential threats are all about risk analysis. To run many of these operations, you need a risk management team - and solution - operating to synchronize the goals of other solutions, ensuring they properly assess and balance the potential risk and perform adequate due diligence checks.

4. Fraud Prevention & Detection

By nature, FinTech platforms are prime targets of various types of fraud, including credit card fraud, account takeover fraud, ACH fraud, and more. A core component of your FinTech technology stack is a robust fraud detection and prevention solution, that roots out - and stops - fraudulent activity in its tracks, and alerts you of any suspicious activity it hasn’t halted automatically. With the most advanced tools, you can also use predictive alert scoring to prioritize the alerts that matter most to your team!

Why it’s essential:

Malicious actors will always make attempts to commit fraud - regardless of the checks you have to inhibit it. Having a high-quality fraud detection solution is imperative to catch and stop fraud. With fraud schemes changing and evolving rapidly, it’s best to rely on a solution that automatically updates to stay on top of current fraud threats.

5. Onboarding Orchestration & KYC/KYB

For any platform to thrive, you need a fast-growing group of users. To facilitate the growth of your business, you’ll need an onboarding solution that meets AML requirements, and also creates a streamlined user experience for new customers.

Why it’s essential:

Leverage KYC & KYB data sources when onboarding users, ensuring that you perform adequate identity verification checks at the time of signup. This will ensure you adhere to all AML compliance requirements, and also help reduce the chances of fraud on your platform.

6. Suspicious Activity Reporting

Despite your best efforts to eliminate the possibility of fraud and money laundering occurring on your platform, you’ll always have attempts. Suspicious activity reports (SARs) are going to be a part of your workflow, and solutions will monitor for suspicious activity, alert your team of potential threats, and then help automate as much of the case management and filing process as possible.

Why it’s essential:

There’s no way around SAR filing and reporting, so your best bet is streamline the process as much as possible. High-quality monitoring solutions paired with effective case management tools make it easy to identify suspicious activity, speed up investigation times, and enhance analysis with top-notch data visualizations. They also automatically e-file so you don’t have to!

7. Knowledgeable Compliance Officer

While not a physical part of your tech stack, a chief compliance officer, or CCO, needs to be able to interact with your tech stack - helping to bring the needs of your risk and compliance team to life. They are an essential part of the entire system and are often the glue that keeps all your systems operating together, and the entire machine moving forward.

Why it’s essential:

Having a knowledgeable AML compliance officer will ensure that your anti-money laundering team stays aware of all compliance regulations that apply to your business. Even more importantly, they’ll put a workflow in place that ensures compliance is followed as products or services are developed.

8. Risk & Compliance Market Research

Risk and compliance aren’t one and done jobs - they require consistent market research and updates to your tech stack. AML regulations and fraud schemes are constantly changing, and you’ll need to keep up with both to effectively run your risk and compliance operations.

Why it’s essential:

With continually evolving targets, it’s hard to stay on top of it all. But it’s essential for ensuring you are always secure against potential threats or exploitation. Make sure you have a professional on top of market trends, such as a compliance officer. Alternatively, you can trust in a risk and compliance solution that automatically updates to stay on top of current AML regulations and fraud schemes.

How to Choose Your Risk & Compliance FinTech Stack

While choosing the best risk and compliance tools to add to your FinTech stack will depend on your unique needs, there are a number of things you’ll want to keep top of mind.

Let’s look at the main things to consider when assembling your FinTech tech stack.

Criteria to consider

Why it matters

Compliance

Does the solution include AML compliance, and does it automatically update according to current regulations, guidelines, and best practices to ensure you’re always compliant?

Protection

How secure is the solution, and does it prevent and protect against fraud using suspicious activity monitoring? Are you safe against all types of fraud, including payment, ACH network, and more?

Integration

Does the solution integrate with what I’m currently using for my core accounting / ERP system, and how simple will the integration process be for my team to manage?

Automation

Does the solution automate tasks for your risk and compliance teams, taking over simple reporting and filing tasks so your team can spend more time investigating cases?

Analytics

Does the solution offer intuitive, simple data visualizations that make analyzing data efficient and effective? Is this accessible from an easy-to-use, unified dashboard?

Support

How readily available is customer and technical support for this tool, and will there be adequate user onboarding from the start to minimize the need for support down the road?

If you’re still struggling to decide what’s important to you, ask yourself some of these questions:

  • How simple and fast will integration of the new tech with your existing tech stack?
  • What features are essential to what you are currently doing?
  • What features are you likely to need in the near future if you continue to grow your business?
  • Do you want an all-in-one solution, or multiple solutions for specific tasks?
  • What is your operational budget? Where can you cut costs vs what is essential?
  • How much engineering and tech support will the solution require from your team?

By asking some of these questions of yourself and your team earnestly, you can get a realistic idea of what actually matters to you - and what things you should weigh the most when making your decision.

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Now that you know what a FinTech technology stack is, why it matters, what components are essential, and how to choose the best solution, you can make a decision and get rolling. Keep in mind this is only one component, and you'll also need business intelligence, marketing, and customer service tools to fully respond to consumer demands.

As Fintechs expand their efforts, they'll share risk assessments with other FIs to identify potential fraud faster and easier, significantly reducing risk exposure. Schedule a demo today to see how you can benefit from transaction monitoring, suspicious activity reporting, and top-notch compliance management.

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