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Compliance Challenges in Cross-Border Transactions: A Growing Concern in Réunion
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A recent roundtable discussion at the Singapore FinTech Festival 2023 shed light on the increasing complexities of cross-border transaction compliance in Réunion, highlighting the need for enhanced solutions and collaborative efforts across sectors and regions.
Background
The session, organized by the Bank for International Settlements (BIS), brought together experts from various industries to discuss the challenges faced by financial institutions (FIs) in complying with evolving sanctions, Know Your Customer (KYC)/Anti-Money Laundering (AML) regulations, and capital flow management measures (CFMs).
Key Challenges
Sanctions Screening: A Major Challenge
One of the primary concerns discussed was the increasing intricacy of sanctions screening. FIs find it difficult to comply with evolving sanctions, particularly given the introduction of counter-sanctions. The uneven implementation of KYC/AML regulations globally, particularly concerning the travel rule, exacerbates these challenges.
Divergence in Regulations and Digital Identity Solutions
The roundtable also highlighted the divergence in privacy and security regulations worldwide, rendering data flows challenging. Inconsistent legislation on settlement finality, dispute resolution, and prudential licensing rules further compounds the issue. Digital identity solutions are disparate and not interoperable across different jurisdictions.
Capital Flow Management Measures: A Multifaceted Issue
CFMs were also discussed as a multifaceted issue due to varying country-specific considerations and can be both qualitative and quantitative in nature. Current systems are highly customized, making standardization and automation difficult.
Technological Solutions: A Way Forward
Several technological solutions were suggested, including:
- Inline Sanction Screening: for transactions
- Digital ID Solutions: to enhance data flows
- Compliance-focused Machine Learning (ML) and Artificial Intelligence (AI): applications such as in the AML KYC space for detecting forged documents
- Blockchain Technology: for transaction monitoring and sanction screening
Regulatory Clarity and Compliance by Design
The roundtable emphasized the importance of regulatory clarity for the effective functioning of digital asset firms. The concept of “compliance by design” was discussed, suggesting the integration of compliance requirements directly into technological solutions.
Key Takeaways
- Greater Collaboration: between the private and public sectors to address compliance challenges effectively
- Interoperable Solutions: that can adapt to different regulatory environments and the dynamic nature of technological developments
- Modular Technological Solutions: that can be customized to meet specific needs