Dec 9, 2021

Here are the four types of compliance requirements that most financial institutions need to deal with: Know your customer (KYC): KYC ensures that financial service providers know detailed information about their clients’ identity, risk tolerance, investment knowledge, and financial position. KYC checks protect both clients and service providers. Service providers know exactly who their clients are, thus generating and recommending the right products to the right person. Anti-money laundering (AML): AML prevents criminals from disguising illegally obtained funds as legitimate income. The purpose is to reduce crime in society. Combating the financing of terrorism (CFT): It might go without saying, but a financial institution caught financing terrorism would have disastrous repercussions. Data privacy: The most common example would be data protection regulation. This set of laws regulate how service providers should handle personal data that could be used to identify individuals. Compliance in the past vs. compliance-as-a-service In the past, financial service providers needed to build their own back office team to check that every transaction happening in a company was compliant. In many countries, regulators didn’t allow for such work to be outsourced. More importantly, compliance-related actions used to be legally required to be performed physically in person. However, in recent years, a wave of loosening regulations has allowed the outsourcing of KYC checks and other services to third-party providers. As a result, more and more startups are aiming to assist financial service providers in handling their compliance-related tasks remotely. One example is  Onfido . Founded by three Oxford University students in 2012, Onfido has raised more than USD 180 million from investors like SBI, TPG, Augmentum, and Salesforce Ventures. The company provides software development kits and application programming interfaces for clients like Uber, Revolut, and BBVA, enabling them to perform KYC reviews within their apps. Onfido competes with other players such as Jumio, which has raised more than USD 200 million, Trulioo , a company that has raised more than USD 400 million in funding, and  Veriff, a firm backed by Accel and IVP. In Japan, Trustdock and  Elements are two companies that enable their clients to perform KYC checks digitally. Custody in the finance industry Returning to our original question—why do we entrust our money with financial institutions? The answer is that it’s less likely that a financial institution will lose our assets. Custody service is provided by custodians that hold customers’ securities and other assets for safekeeping, preventing them from being stolen or lost. It’s a boring job, but it is an important one. A custodian is usually a bank or an institution whose only service is to hold assets. In the crypto world, digital wallet providers also provide similar services. Custody-as-a-service and wallet-as-a-service When it comes to custody-as-a-service, two particular players are worth mentioning: Prime Trust : Launched in 2016, Prime Trust has raised one of the largest Series A rounds in this field. Prime Trust provides B2B custody, escrow, compliance, fiat processing, transaction software, and other services. The firm’s customers include crowdfunding portals, broker-dealers, investment advisers, crypto exchanges, securities alternative trading systems, real estate syndicators, financial institutions, and financial application innovators. The firm competes with BitGo , another giant in this field. Fireblocks : Founded in 2018, crypto and digital asset platform Fireblocks has raised more than USD 480 million in funding. The firm has reached unicorn status in less than three years. Fireblocks assists more than 500 clients with infrastructure to store, transfer, and issue digital assets. It faces competition from smaller players such as Torus ,  Tangany , and  Wallet Engine by Mambu . This article was authored by  Jonathan M. Hayashi , senior associate at Headline Asia. It is reposted here with permission from  Headline Asia . Share