CBA's money-laundering scandal set the wheels in motion, now $6 million funding for ASIC and start-up IPO plans show the engines are revving regtech as a hot new sector in Australia. Shutterstock.com
The local regtech scene is ready for take-off.
There were two indications last week that regulatory technology's engines are revving up.
One was the corporate regulator securing an extra $6 million in funding from the federal government to market Australia as a global centre of regtech excellence. The Australian Securities and Investments Commission chairman James Shipton is on board with the potential for new technology to help regulated entities meet their complex legal obligations.
The second was the filing of a prospectus by a promising Sydney-based regtech start-up known as Identitii. Based in a terrace house in Potts Point, Identitii plans to list on the ASX in September, with the backing of several high-profile local investors.
Identii plans to list on the ASX in September, with the backing of several high-profile local investors. Peter Braig
It's software – a blockchain that enhances the auditability of the Swift system used by global banks to send money to each other – is already being used by HSBC to improve compliance after its devastating money-laundering scandal.
It's been clear for a while now that when it comes to meeting stricter anti-money laundering (AML), counter-terrorism financing (CTF) and "know your client" (KYC) regulations, using spreadsheets or other simplistic systems just won't cut it. But it's only very recently the Australian regtech scene has felt critical momentum building.
The game changer? The massive $700 million fine paid by Commonwealth Bank in June to settle the AUSTRAC legal case that alleged the bank failed to properly identify criminal syndicates using its automatic teller machines (ATMs) to launder dirty cash out of the country.
This dwarfed previous penalties of $122,000 paid by MoneyGram in 2015 and $45 million by Tabcorp in 2017. But it wasn't only the size of CBA's monetary penalty that raised the antenna of boards of directors of many companies handling cash and large numbers of customers.
Plug the gaps
Regtech start-ups say more directors are wanting to understand risk management and compliance systems – and plug any gaps – because they witnesses the huge damage done to CBA's reputation and corporate governance standing for not getting things right.
And it's not only banks and gaming companies wanting to improve but real estate groups, law firms and accountants, who'll become subject to more stringent AML and CTF requirements when Australia extends laws to them as recommended by the global Financial Action Task Force.
The regtech scene globally is already airborne. More than $US2.5 billion has been raised in the first six months of calendar 2018, according to FinTech Global, with new European laws such as GDPR and MiFID II key drivers. Blockchain, machine learning and facial recognition software are among the new technologies being deployed.
Identitii is a case in point. It is using blockchain to create a permanent, immutable record of enhanced data accompanying Swift interbank payments.
It is raising $11 million in a fully underwritten float and is set to join two other listed regtechs on the ASX: Kyckr, which does KYC checks, and iSignthis, an identity verification and payment authentication service for merchants.
Another regtech turning heads is Artic Intelligence. Founded by former Macquarie banker Anthony Quinn in 2013, the cloud-based AML and CTF risk assessment tool is already being used by life insurer TAL, bank CUA and gaming companies William Hill and Crown Bet. The company is expanding into Singapore, Hong Kong, Canada, Britain and the US.
Another example is Max ID, which has developed a system for identifying mortgage customers using technology incorporating geolocation analytics, electronic database matching and biometric facial recognition analysis.
Other Aussie regtech start-ups include Simple KYC, Red Marker, Verifier, GRC Solutions, Complii and Checkbox. Interest in their offering is growing. More than 200 people attended the Regtech Association's first conference #AccelerateRegtech in June. In recent weeks, AUSTRAC has been conducting meetings with players in the space. Now the Identitii float shows investors are starting to pay attention.
But in order for the regtech plane to roar into the sky, Australia's banks will need to lift engagement. Start-up founders say most remain reluctant to embrace their new solutions. Perhaps that will change, given some of the world's most promising regtech start-ups are developing systems right under their noses.
Source: Financial Review