Abstract
This study aims to illustrate the impact of adopting Regulatory technology (RegTech) innovations in banks on money laundering prevention effectiveness using Bahrain as a case study. Bahrain has strived to position itself as the banking center of the Arabian Gulf, hence the results of this novel research are informative of the practices in the region. The primary data for this study was collected through a survey instrument distributed to 100 bankers working in Bahrain with expertise in compliance. The results of multivariate analysis indicate that transactions monitoring through RegTech and cost- and time-saving aspects of RegTech, drive money laundering prevention effectiveness to a highly statistically significant extent. However, electronic know your customer (KYC) technologies are insignificant as drivers. This research not only sheds light on the efficacy of RegTech but also raises general awareness concerning the adoption and integration of RegTech platforms for fighting money laundering. In particular, the findings provide specific insights about the deployment of RegTech capabilities in banks in regional banking centers of modest scale.
Highlights
While the coining of the term Regulatory technology (RegTech) in 2015 is commonly credited to the Financial Services Authority (FSA) [EQS (2019)], the UK regulator, the notion underlying this concept began to develop much earlier in the aftermath of regulatory tightening in financial sectors world-wide following the Global Financial Crisis (2008)
Legal and regulatory frameworks undergirding anti-money laundering compliance have been strengthened over the years by applying stricter rules and regulations that comport with best practices and guidelines of the Financial Action Task Force, the global money laundering and terrorist financing watchdog, effectiveness in suppressing money laundering generally lags behind technical compliance – and increasingly so [MONEYVAL (2017): 6]
Criminal prosecution of Anti Money Laundering (AML) law violators have resulted in numerous, high profile cases ending with convictions [BTC-e (BitCoin Exchange) of major banks, among others, HSBC that was fined $1.93 billion by U.S authorities (Viswanatha and Wolf, 2012)
Summary
While the coining of the term RegTech in 2015 is commonly credited to the Financial Services Authority (FSA) [EQS (2019)], the UK regulator, the notion underlying this concept began to develop much earlier in the aftermath of regulatory tightening in financial sectors world-wide following the Global Financial Crisis (2008). The 2008 financial crisis exposed significant failures in regulation and supervision It has made the Financial Market Law and Compliance a key topic on the current agenda (Anagnostopoulos, 2018). The ability to counter money laundering effectively remains challenged by a variety of factors These include introduction of new and emerging threats (e.g. cyber-related financial crimes); gaps in regulatory regimes, including uneven availability of technical assistance for anti-money laundering purposes; and the costs associated with banks’ compliance with global anti-money laundering guidance (Miller and Rosen, 2017). Legal and regulatory frameworks undergirding anti-money laundering compliance have been strengthened over the years by applying stricter rules and regulations that comport with best practices and guidelines of the Financial Action Task Force, the global money laundering and terrorist financing watchdog, effectiveness in suppressing money laundering generally lags behind technical compliance – and increasingly so [MONEYVAL (2017): 6]. Criminal prosecution of Anti Money Laundering (AML) law violators have resulted in numerous, high profile cases ending with convictions [BTC-e (BitCoin Exchange) of major banks, among others, HSBC that was fined $1.93 billion by U.S authorities (Viswanatha and Wolf, 2012)
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