Best Practice in Customer Due Diligence (CDD) Among FinTech - FFE White Paper

The team at FINTRAIL is really excited to have worked with UK FinTech Financial Crime Exchange (FFE) members to produce this White Paper. An extract and the full paper are below.

Financial technology companies (fintechs) leverage online and mobile applications to offer new financial services with efficient and cost-effective customer experience. However, the non-face-to-face (non-f2f) nature of fintech businesses poses risks that fraudsters or other criminals may seek to exploit these remote platforms and related products.

Robust customer due diligence (CDD) is one element of an overall risk management architecture that can mitigate these threats. Fintechs are uniquely suited to harness and develop innovative CDD approaches, owing to their dynamic business models and comfort in using technological solutions. This white paper describes examples of best practice in CDD among members of the FinTech Financial Crime Exchange (FFE), offering practical insight for fintech companies and other stakeholders – such as banks and regulators – seeking to better understand the industry. It provides examples of how fintechs are utilising innovative CDD approaches to manage risks while also enabling a high-quality customer experience. For example:

• Fintechs are leveraging numerous data points and employing innovative analytical approaches to enable a dynamic and holistic view of customer risk.

• This includes the use of facial recognition techniques, interactive user interfaces, innovative document scanning and analysis, Internet Protocol (IP) geolocation, predictive analytics and machine learning.

• These solutions can enable fintechs to employ a genuinely risk-based approach to CDD as their customer base and service offerings evolve. 

This paper also assesses areas where fintechs can benefit from further development and exploration. For example:

• Fintechs should carefully consider the appropriate balance of in-house and third party solutions for their business model.

• Fintechs must be prepared to conduct thorough and formal assurance testing of both in-house and third-party solutions and outsourced services.

• As they scale, it is important that fintechs have in place adequate governance arrangements to manage risks that come with changes to their CDD systems and controls.