Trust is the backbone of digital commerce. Knowing who’s on each side of the transaction, and verifying their identities, is the backbone of trust.
That sentiment was underscored earlier this month when South Korea said it would delist a number of altcoins from an exchange over privacy concerns – namely, the anonymous nature of the transactions are at odds with the goals of the Financial Action Task Force (FATF), which include combating money laundering and fraud.
The bumpy road cryptos face under scrutiny from regulators (we’re looking at you, Libra) was a springboard into a larger discussion between Zac Cohen, general manager at Trulioo, and Karen Webster on the challenges FIs and others face when deploying new technologies.
“With a lot of technology and technical innovation,” said Cohen, “people are always looking at it from a particular point of view, and that lens and those glasses – rose-colored or otherwise – are coming from a very specific individual with priorities and use cases in mind.”
The challenges arise when firms want to bring those technologies to new use cases, new industries and, of course, new countries.
As Cohen told Webster, conflicts arise in meeting the basic requirements of governance and compliance when it comes to payments, bank accounts and, especially, money transferred across borders.
Complications arise when financial activity is so far-flung, he added. New payment methods and use cases may be quick to evolve and innovate, and they also have more challenges when it comes to fraud and money laundering.
With a nod toward the trend he’s observed in money laundering, Cohen said what starts small becomes big. He noted that the bad guys tend to test new frameworks and methodologies, and success ultimately leads to, well, boldness. Holes still exist at larger FIs, and that’s where the large-scale breaches and thieveries come in.
“Every day, we see new and different ways of people taking advantage of a system through various reasons,” Cohen said. “There is a common thread when you are experimenting with new technology and on the cutting edge of innovation. It’s difficult to guard against experts in fraud.”
But it is important to remember, he added, that when speaking about technology in general, issues and challenges are not unsolvable – and in the case of cryptos, banning them outright may not be an optimal long-term solution, as it stifles innovation.
There are still opportunities to have sensitivities and mechanisms in place that can be robust enough to allow for cross-border commerce, yet still ensure privacy and satisfy anti-money laundering (AML) mandates.
“All of these things should not be mutually exclusive,” said Cohen – and the recipe for success is based on commonality.
Interoperability of systems across governments, infrastructure and currencies can help take a bite out of money laundering, he noted. Identity is a vehicle for cementing that commonality. Identities, in turn, must be secured, verified and reusable.
The interoperability may be a ways off, likened by Cohen to a missing link – and it’s an understandable one, given the silos and siloed mentalities that exist between countries, companies and even departments within companies.
One prime mover toward interoperability, Cohen said, could come in the form of a consortium of Big Tech players, demonstrating an approach to technology and design that (as Trulioo strives to offer) has “choice and flexibility built-in from the get-go.”
Without that choice, he said, it becomes difficult to pivot into new areas or use cases, and rebuilding technology to serve new needs is simply too expensive for most firms.