Better transparency seems to be the answer to more ethical finance. But a misaligned regulatory environment makes achieving that transparency challenging.
Transparency sometimes feels like the silver bullet to achieving a more ethical financial ecosystem. Consumers like knowing what they will be charged before their cards are run, and businesses are satisfied when cybercriminals are caught because banks shared information on suspicious transactions.
But attaining complete transparency across the various fintech subsectors is a murky subject. Specifically, remaining compliant with European privacy laws and differing regulatory frameworks makes transparency a challenge.
Transparency from a consumer perspective
From a consumer perspective, the argument for more transparency is simple.
And the need for increased transparency drives innovation and spurs new startups such as Advisoa, a Danish company dedicated to providing more transparency for merchants in the Nordics when they are seeking a payment processor.
Frustrated at the opaque nature of the payments sector, Emil Sunesen and Gabriel Sativa, former colleagues at one of Denmark’s largest payment processors, decided to build a system that helps merchants see all the fees associated with each payment processor at a glance, as well as simplifies the application process. The system also informs merchants of the processor’s terms because some processors are more suited to merchants in specific sectors, even if they are slightly pricier.
According to Advisoa’s research, nine out of 10 merchants are paying more for card transaction fees than they should. “What we envisioned when creating Advisoa was to bring about full transparency within the payments industry,” Sativa tells NFM.
The response from many of the payment processors that Advisoa has partnered with — Elavon, Flatpay, Swedpay, reepay, and other familiar names — has been overwhelmingly positive. “Our experience is that providers are eager to use our platform because they support more transparency,” Sativa says. “And we help them deliver it.”
“Misaligned” regulations make fighting financial crime difficult
But transparency gets more complicated when we wade into the dark underworld of financial crime. Part of fighting that crime is allowing financial institutions to share data with each other. But a misaligned regulatory framework between AML, GDPR and Bank Secrecy legislation makes this incredibly challenging, says Taavi Tamkivi, CEO and co-founder of Salv, a regtech (regulatory technology) company providing solutions to help fight financial crime and improve AML procedures.
This problem is particularly evident in Scandinavia and Europe. “Globally, banks spend $250 billion a year to remain in compliance with regulations,” Tamkivi says, “and $150 billion of that is spent by European banks. So Europe is heavily above the global average in terms of how carefully they follow global agreements and stick to financial regulations.”
One of Salv’s primary products is called AML Bridge, a system designed around the labyrinth of country-specific regulations, business and security needs, to provide financial institutions the ability to easily share information about possible criminal activity between each other while still remaining compliant.
“On the one hand, you have to please the regulators and ensure you are following the laws,” says Tamkivi. “On the other, you want to please consumers and ensure their funds are not being embezzled. Finally, you don’t want to please the criminals, who are laundering illicit proceeds and financing terrorism, by keeping all their information completely secret form investigators. These goals can be quite contradictory, so building Bridge was an enormous challenge. But we managed it.”
Just a year after its launch, Bridge is used daily by at least 16 members in the UK , Estonia and Sweden to share information and help track down suspicious movements of funds.
“When you successfully stop money laundering,” Tamkivi says, “you’re effectively limiting crime — such as human trafficking, drug traffiicking, and illicit war-related funds.”
Regulations should be more collaborative
“The aims of regulation are super-positive,” says Tamkivi, “and regulation is necessary to ensure the global financial system keeps functioning.”
But he also believes that there could be better collaboration among all the different interest groups so that financial regulations between jurisdictions are not so misaligned and far-removed from the realities of financial sector challenges.