As the FinTech industry continues to grow in the United States, so do the opportunities for criminals to exploit systems meant to foster innovation.
With that in mind, a trade group in the United Kingdom called the FinTech FinCrime Exchange has expanded here to promote collaboration between financial entrepreneurs and law enforcement officials. Their goal is to develop best practices in risk management that would minimize the use of financial technology to support illegal activities.
“When we heard what was going on in the U.K. and the Netherlands, we thought there was tremendous opportunity to really build on that in the U.S.” said Julie Myers Wood, the CEO of Guidepost Solutions and a co-founder of FINTRAIL Solutions.
FINTRAIL, a financial crime consultancy company, helped to create the trade group in 2017. The organization boasts 80-plus members in the U.K. and the Netherlands. The digital-only banks Monzo and Revolut and the payments software developer Stripe are some of the more recognizable companies participating in the group.
With U.S.-based FinTechs facing the same challenges as their counterparts overseas, the exchange said it was natural to expand to America. It held a kickoff event Thursday in New York, which will serve as its U.S. central hub. Robert Evans, FINTRAIL’s CEO and co-founder, said the organization will create a chapter in San Francisco early next year, and then add outposts in emerging FinTech hubs such as Chicago. The organization also wants to establish chapters throughout Asia and Europe.
“Over time, what we want to do is create a global network of FinTech compliance professionals to fight financial crime,” he said.
(From L-R) Daniel Burnstein, senior managing director, Guidepost; Angel M. Melendez, special agent in charge, Homeland Security Investigations at the U.S. Department of Homeland Security; Scott Rembrandt, acting deputy assistant secretary for strategic policy, Office of Terrorist Financing and Financial Crimes U.S. at the Department of the Treasury; and Julie Myers Wood, Guidepost Solutions CEO and Fintrail Solutions co-founder.
One pillar of the organization’s plan is to establish better lines of communication between FinTechs and state and federal authorities.
Representatives from the U.S. Department of the Treasury and the U.S. Department of Homeland Security attended the event Thursday as the trade group hosted panel discussions focused on criminal threats to the U.S. FinTech industry.
“It’s important to have that trust and collaboration between regulators and startups,” Angel Melendez, special agent in charge of Homeland Security Investigations at the U.S. Department of Homeland Security, said during a panel discussion.
“We’re really out there to find the worst of the worst. We’re not here to disrupt the financial sector. We’re here to protect it,” he said.
Some government officials still have misconceptions about how FinTechs operate, Wood said before the event. She mentioned Silk Road, the now defunct online black market where bitcoin was used to purchase illegal drugs and firearms. Its notoriety has led to heightened scrutiny of cryptocurrency related FinTechs, she said.
“I think for some law enforcement, that’s what stuck in their head,” Wood said about Silk Road. “Part of our job is to convince regulators to look beyond that.”
On the other side, Wood said FinTechs need to understand how law enforcement authorities think about their businesses. “What am I going to do so that I don’t run into a roadblock that causes my business to shut down?” she said.
When Wood asked Melendez which areas Homeland Security monitors, he said the department “looks at every crime under the sun.” However, Melendez identified three areas Homeland Security is especially interested in: child exploitation, human trafficking and the opioid epidemic.
Some of that activity is happening in New York. Criminals have used cryptocurrencies to exchange funds related to such crimes there, Melendez said.
“Those are the most nefarious of the crimes,” Melendez said. “Hopefully, this does stir something in your stomach. Innovation is important, but you have to be responsible with your innovation.”
Daniel Burstein, senior managing director for Guidepost, said the compliance offer at a FinTech company needs to act as an extension of law enforcement. “As a compliance officer, you’re in a law enforcement role,” he said. “You should consider yourself everyday as a partner of law enforcement.”
Burstein added that while no company will stop bad actors “100% of the time,” the appropriate compliance controls need to be in place to ensure any platform is safe and being used for the right reasons.
“If you want to know what keeps me up at night, it’s exactly these things,” he said.
Originally published here:
https://www.americanbanker.com/news/fintechs-to-law-enforcement-lets-be-partners-not-adversaries