Challenges and best practices in regulatory compliance and fraud prevention for Fintech
Season 5 Episode 11
Transcript
Juan José Ríos (Host): Today, regulatory compliance and fraud prevention in the fintech sector are not just desirable goals; they are essential to the sustainability and success of every company in this constantly evolving industry.
With the rapid growth of instant payments and real-time transaction monitoring, fintech companies face critical challenges where every second counts and every interaction represents both a risk and an opportunity.
My name is Juan José Ríos, and I warmly welcome you to a new episode of Mundo Financiero Seguro, the podcast from Plus Technologies & Innovations.
In this episode, we will explore how a fintech company can develop an effective compliance plan that goes beyond simply complying with regulations and truly protects its daily operations. We will analyze the key role of advanced technologies, transactional knowledge, and device knowledge in fraud prevention. In addition, we will review some relevant cases that highlight the importance of having robust monitoring systems in place.
Joining us are:
- Erick Rincón, associate professor at the Universidad del Rosario, from Colombia.
- Raúl Castellanos, AML Product Manager at Plus Technologies & Innovations.
Welcome, Eric and Raúl.
Juan José Ríos: Erick, how can a fintech company develop an effective regulatory compliance plan linked to real-time transaction monitoring and instant payments?
Erick Rincón: When we talk about fintech, we are talking about a very broad business universe. It includes not only digital payment companies, but also digital credit, electronic wallets, crowdfunding, electronic invoice negotiation, crypto assets, and neobanks. We are dealing with multiple segments with different levels of regulatory requirements.
For example, digital wallets and electronic deposit models often face stricter requirements to avoid friction with mass deposits. In digital credit, compliance is closely linked to knowledge of the customer, the business, and anti-money laundering measures.
That is why it is essential to implement progressive controls, adapted to the type of fintech vertical. A payment company is not the same as a cryptoasset company, where regulatory friction and customer knowledge requirements are greater.
Artificial intelligence plays an essential role in automating transactional monitoring, especially in models with high transaction volumes. Furthermore, today we are not only talking about KYC (Know Your Customer) or KYB (Know Your Business), but also KYT (Know Your Transaction), i.e., real-time transactional knowledge.
Fintechs must have robust compliance structures. While these structures were traditionally the preserve of traditional banks, today financial inclusion requires the fintech ecosystem to adopt appropriate and robust compliance standards.
Juan José Ríos: Erick, what role do transactional knowledge and device knowledge play in fraud prevention?
Erick Rincón: Today we should also talk about KYD (Know Your Device), or device awareness. Understanding transactional behavior and device behavior—whether it's a cell phone, tablet, or computer—allows us to detect anomalies.
For example, if a customer usually logs in from a specific computer and suddenly logs in from a different device, that change can trigger a preventive alert.
The added value of transactional and device knowledge goes beyond digital identity. It allows behavior patterns to be analyzed and detects anomalies compared to normal behavior. This strengthens preventive monitoring and facilitates the early identification of identity theft or fraud.
Juan José Ríos:
What are the main types of fraud that have affected fintech companies due to a lack of adequate systems, and what best practices can be adopted?
Erick Rincón:
Among the most common types of fraud are:
- Identity theft.
- Alteration of electronic information in transactional processes.
- Attacks that cause service unavailability.
- Risks associated with crypto assets, where it is essential to track the origin of transactions to prevent money laundering and terrorist financing.
These incidents can seriously affect the reputation and operations of a fintech company, especially when customer financial data is exposed.
Best practices include:
- Effective risk management systems.
- Continuous transaction monitoring.
- Use of artificial intelligence for proactive detection.
- Process automation.
- Self-regulation protocols as an industry standard.
It is important to note that, although many small startups do not yet have robust structures in place, risk-based regulation will move forward—as is already the case with the Financial Conduct Authority in the United Kingdom and the U.S. Securities and Exchange Commission in the United States—so adopting best practices now is key.
Juan José Ríos: Raúl, how can we implement progressive controls in monitoring without affecting the user experience?
Raúl Castellanos:
Today's customer experience is influenced by industries such as e-commerce and hospitality, which offer simple processes and frictionless payments. That expectation also carries over to financial services.
Therefore, the software must have:
- Adaptability, to constantly update rules.
- Interconnectivity, to validate identity and external sources.
- Risk-based approach, applying proportionate controls.
It's about balancing security, usability, and customer experience.
Raúl Castellanos: Fintech companies must adapt to regulations designed for financial institutions, tailoring them to their digital reality.
Regulators will place greater emphasis on:
- Continuous real-time diligence.
- Digital identity validation.
- Biometrics (face, fingerprint, strong authentication).
- Device behavior analysis.
The future demands software capable of integrating expert rules with supervised and unsupervised machine learning, as well as generative artificial intelligence, while always ensuring explainability in the models.
The goal is twofold: to prevent risk while driving business with a positive customer experience.
Erick Rincón: Fintech is not without risks. It is essential to incorporate artificial intelligence, big data, and constant transaction monitoring as part of a business survival strategy. Investors, customers, and regulators are watching how the industry manages its risks.
Raúl Castellanos: The future of payments is marked by:
- Real-time and instant payments.
- Integrated finance and Banking as a Service.
- Cryptocurrencies and central bank digital currencies.
- AI-driven personalization.
According to Gartner (2024), financial crime prevention software should:
- Optimize costs and operational efficiency.
- Be precise in your analysis.
- Process large volumes of data (Big Data).
- Strictly comply with regulations.
This protects the institution, strengthens the economy, and builds a more secure financial world.
Juan José Ríos: Today we explore the challenges and best practices for regulatory compliance and fraud prevention in the fintech world. From real-time monitoring to transactional and device knowledge, it is clear that innovation must be accompanied by proactive protection and compliance.
Thank you for joining us on this episode of Mundo Financiero Seguro, the podcast from Plus Technologies & Innovations.
I'm Juan José Ríos.
Until next time.
