The struggle with implementing groundbreaking change

by Laurence Hamilton , Chief Commercial Officer , Consilient

The struggle with implementing groundbreaking change

Compliance regulations are often some of the most time-consuming and resource-intensive tasks that credit unions face. Meeting fraud detection and risk management standards involves sifting through vast amounts of data. Embracing innovative technology could alleviate some of these burdensome daily tasks. However, the existing manual processes in place leave financial institutions at a disadvantage in combating financial crime. The United Nations estimates that globally, between $800 billion and $2 trillion, equivalent to 2-5% of the global GDP, is laundered each year. Consequently, organizations like The Financial Action Task Force (FATF) are urging the adoption of technology to enhance financial crime prevention processes and identify illicit funds flowing through the financial system. To accomplish these goals, firms must employ innovative technologies and shift away from manual methods. Particularly, machine learning (ML) solutions have shown great potential in reducing false positives in transaction monitoring and easing the investigative burden on firms.

The barriers financial firms and regulators face


The willingness to take on regulatory risk and the degree of compliance pose significant obstacles to widespread adoption. Companies must weigh the decision of surpassing their basic regulatory requirements, which could subject them to heightened regulatory scrutiny, against maintaining the current state of affairs. Striking a balance between risk and innovation becomes especially difficult when regulators are perceived to have limited technical comprehension of cutting-edge technologies. Consequently, presenting a compelling argument for investment becomes extremely arduous when firms are uncertain about how regulators will view alterations to their anti-money laundering (AML) procedures.

In all aspects of their decision-making, financial institutions must consider whether the potential upsides of technology adoption outweigh the risks of IT system overhaul. Technological transformation projects are extremely resource intensive, and with the associated benefits being difficult to quantify, many struggle to persuade budget holders to make such an investment.

When making fundamental technological changes, firms must consider a number of factors:

– Whether the technology meets the business objectives and regulatory obligations of the firm.

– The integration and training of staff required for a successful change initiative.

– The product cost and the potential to realize long-term benefits from implementation.


A significant challenge that financial regulators face is a lack of internal technical expertise. Assessing the effectiveness of new solutions is challenging with limited resource availability and knowledge, often resulting in hesitancy to support technology adoption. Regulators tend to operate a risk-based approach to market innovation. The potential for reputational damage and harm to the markets will often outweigh a desire to support innovative change. The Financial Conduct Authority (FCA) and the Monetary Authority of Singapore have shown a desire to support new market innovations with their sandbox and tech sprint initiatives, yet a culture of risk aversion is still maintained within the market. In general, regulators appear to be more supportive of technological change where they have a greater understanding of the product, so the drive towards better communication will prove pivotal in instilling a culture of innovation.

Financial regulators face a significant hurdle in the form of insufficient internal technical expertise. Due to limited resources and knowledge, evaluating the effectiveness of new solutions becomes a challenge, leading to reluctance in adopting technology. Regulators typically operate a risk-based approach when it comes to market innovation. The potential for reputational damage and market harm often outweighs the inclination to embrace innovative changes. While the Financial Conduct Authority (FCA) and the Monetary Authority of Singapore demonstrate a willingness to support new market innovations with their sandbox and tech sprint initiatives, a risk-averse culture persists in the market. In general, regulators tend to be more supportive of technological advancements when they possess a better understanding of the product. Thus, fostering improved communication becomes crucial in fostering a culture of innovation.

Overcoming the challenges


Financial institutions need to prioritize establishing a continuous and interactive communication channel with regulators to facilitate the exchange of knowledge between the private and public sectors. This approach enables firms to enlighten regulators about emerging technologies and demonstrate their effectiveness in combating financial crimes. By involving regulators throughout every phase of an IT transformation project, institutions can extract valuable insights and foster trust among supervisors. Firms should proactively seek input from regulators prior to implementing new technologies and outline how these advancements can uncover previously unknown or undisclosed issues. In fact, when planning a large-scale adoption of new technology, firms often need regulatory approval and a strategy to mitigate transition risks. Employing a federated machine learning solution can facilitate this dialogue with regulators by allowing financial institutions to collaborate and share real-time insights without compromising the security of sensitive data. Consequently, a federated learning solution facilitates effective communication and collaboration among entities, ultimately bolstering regulatory confidence in innovative solutions.


Regulators can enhance their capabilities to comprehend the technological landscape and assist firms in embracing technology by upskilling their staff and establishing their own knowledge repositories. This will also empower regulators to confidently communicate the advantages brought by technological innovation and formulate legislation effectively. Regulators should strive to create a supportive atmosphere for the implementation of innovative technology. A prime example of regulators engaging with and comprehending innovative technology in the realm of financial crime is evident in the FCA’s sandbox initiatives. Several other regulatory bodies, such as the Consumer Financial Protection Bureau (CFPB) in the US and the Monetary Authority of Singapore (MAS), have followed suit by implementing fintech regulatory sandboxes. These sandboxes allow technology providers to test their products on actual consumers before market entry. This progression signifies a positive step for regulators, as it facilitates their involvement with technology, enhances their understanding of potential technology risks, and fosters an environment that promotes the adoption of technology.

Technological advancements bolster the ability of firms to combat financial crimes and improve their interaction with regulatory authorities. Given the hurdles and difficulties encountered by both entities when it comes to embracing technology, progress and evolution may require gradual steps and a certain amount of time. Nevertheless, by fostering active involvement and promoting education, the obstacles impeding firms and regulators can be overcome, paving the way for significant advancements.

Media Contact: Tara Lefave Stred


June 29, 2023 | In the news

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