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Balancing Act | The Interplay Between Consumer Duty and FinCrime Controls

Navigating the fintech landscape requires a delicate balance between adhering to Consumer Duty regulations and combating financial crime.
A Guest Contributor: Frances Coyle founder of Turtle Law

Summary

This complex interplay presents unique challenges that demand both proactive management and thoughtful analysis. This article, written by our guest author Frances Coyle, aims to explore these complexities, provide insight, and offer practical step by step guidance for maintaining this intricate equilibrium.

The Challenge: Striking the Balance Between Consumer Duty and Financial Crime Controls

Building fintech products that successfully navigate Consumer Duty rules while tackling financial crime requires a robust set of controls. These controls should both prevent money laundering and ensure positive customer outcomes. Over-zealous financial crime controls could inadvertently exclude legitimate customers from using services, pointing to a need for balanced risk management.

Objective Review: Identifying Imbalances and Collecting Management Information

A detailed, objective review of existing controls is necessary to identify potential imbalances and areas where recalibration may be required. Key metrics, such as false positives and customer terminations, can provide invaluable insights into control effectiveness. In the financial crime realm, data collection poses unique challenges due to the uncertain nature of distinguishing between false positives and actual hits.

Risk and Vulnerability: The Need for Checks and Balances

Addressing customer vulnerability in the context of financial crime can introduce complexities. For instance, allowing customers to self-identify as vulnerable may inadvertently impact risk scoring models and trigger unintended consequences. Without the right checks and balances, there could be adverse outcomes for vulnerable individuals, such as increased transaction friction or premature termination of accounts.

Determining Boundaries: Key Considerations

Understanding the boundaries between Consumer Duty and financial crime controls is essential. Firms must navigate legal requirements, industry codes, and ensure a sustainable business model. Compliance with anti-money laundering laws, the Proceeds of Crime Act (POCA), and adherence to industry codes like the Contingent Reimbursement Model (CRM) Code are significant considerations.

Practical Steps: Achieving Equilibrium

As we transition from theory to practice, we delve into the exciting phase of actual implementation! Guided by the principles of Objectives and Key Results (OKRs), let’s explore the following strategic initiatives to successfully navigate the nuanced landscape of Consumer Duty and financial crime controls.

Objective

To develop and implement a comprehensive process for identifying and supporting vulnerable customers during our Fin Crime controls.

Key Results:

  1. Document our financial crime rules and how we identify false positives and vulnerable customers by [date].
  2. Review these rules by [date], aiming to highlight and address any potential imbalances. Present findings at the [name of committee] governance meetings.
  3. Create and launch a dashboard by [date] to continually monitor critical metrics (false positives, vulnerable customers in the false positive group, account terminations resulting from false positives). Regularly share MI with the Consumer Duty Champion and [name of committee].

Implement a ‘vulnerable customer check’ before any financial crime-related account termination by [date]. Accompany this with comprehensive training sessions for all relevant personnel.

Conclusion

Managing the interplay between Consumer Duty and financial crime controls requires a thoughtful and proactive approach. By implementing clear objectives, regularly reviewing control measures, and continuously learning, businesses can successfully navigate this complex landscape. Through such efforts, they can foster trust, ensure compliance, and maintain the delicate balance between consumer protection and effective financial crime control.

Author:  Frances Coyle

About Frances

Frances is an accomplished fintech lawyer and the founder of Turtle Law. With an innovative background, having trained in-house at Klarna and Monzo, she brings extensive experience in the field and a forward-thinking approach to her work. To explore more of her next-gen content, check out her website Turtlelaw.com. For questions or to connect, reach out to her at frances@turtlelaw.com

Published on August 16, 2023

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