Big Data Can Make Compliance Even Messier, PayCommerce Warns

Trading with global partners is now easier than ever, which means running afoul of local regulations is easier than ever, too.

Corporate treasurers today have rules like Know Your Customer (KYC) and anti-money laundering (AML) at the top of mind, but cross-border trade and payments can turn compliance into a logistical nightmare for many businesses, large and small.

“Many treasurers find it challenging to balance budgets with the effort required to meet compliance requirements and make treasury more effective and resilient,” concluded PwC in its 2017 Global Treasury Benchmark Survey. Nearly three-quarters of CFOs surveyed by PwC cited compliance as a priority, the report said.

Analysts agree that compliance is growing more complex and likely to travel up the list of CFOs’ and treasurers’ priorities.

Karen Morgan, CMO of cross-border B2B payments company PayCommerce, echoed the sentiment in a recent chat with PYMNTS.

“The importance of compliance is growing and becoming more complex all the time,” she said. “Even when you look at smaller countries like APAC or regions in the Middle East, a global treasurer really has to have a high level of confidence in ensuring the highest standards of compliance.”

Compliance risks can take many forms. Research from FIS released last year found corporate treasurers are especially concerned about credit risk, market risk and liquidity risk, each of which become more complex to manage thanks to varying regulations. Risks can include cybersecurity threats, counterparty risks and event risks like political or economic changes, and compliance requirements can vary for each of these categories.

Just 26 percent of treasurers surveyed by FIS considered their risk management approach to be “very effective.”

One of the largest burdens is managing the various regulatory demands from country to country. According to Morgan, it’s a massive expense for companies to access all of the resources they need to monitor their cross-border compliance, especially for small businesses.

“Either they are working with different partners or have different systems, and they have to reconcile all of them,” she explained, noting the particular pain point of trying to gain a more streamlined view of multi-jurisdictional compliance efforts.

PayCommerce is integrating its own compliance solution for business customers through a new partnership with Dow Jones. The collaboration, first announced last week, deploys the data from Dow Jones Risk & Compliance’s screening and compliance capabilities, a move that Morgan said reflects a broader trend in corporate compliance.

“Big data — who can argue against that?” she said of the use of the technology in compliance. “But you have to use it intelligently.”

Adopting some type of data analytics technology won’t necessarily achieve the results corporate treasurers need and in some ways can actually introduce new points of friction in the compliance journey. For instance, data analytics solutions can give rise to the issue of false-positives, in which a system incorrectly identifies an entity — perhaps a potential customer or business partner — as a potential risk.

That means companies, their treasurers and their banks must manually examine those red flags to determine whether they are legitimate or not. Often, automated solutions may pull a certain name as a threat to a company and its supply chain — but cannot make a distinction between two individuals with the same name, for example, creating a pothole in an otherwise streamlined vetting process.

“The time involved in having to check that is really burdensome and often manual,” Morgan said. “In compliance, the next phase in the overall concept of Big Data is using it intelligently.”

PayCommerce is meshing Dow Jones’s data with its own algorithms for ensuring cross-border payments are compliant and secure. That combination, the executive noted, is critical to ensuring companies — even smaller businesses with fewer resources to allocate to compliance efforts — are on the right side of the law in their cross-border operations.

“One of our business philosophies is the democratization of payments,” she said, adding that that philosophy applies to SMEs’ access to compliance solutions. “For every piece of data that a compliance solution checks, there’s a cost. Small businesses definitely have cost constraints to deal with, and we could argue that compliance is even more expensive for a small business.”