Enabling the Future of Digital Banking

As ever changing technological opportunities arise, Senior Compliance expert, Greg Sawyers, discusses how compliance professionals must combine risk mitigation with the benefits of open banking, blockchain, and digital currency.

Greg Sawyers
Greg Sawyers – Product Compliance Officer

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As Compliance Professionals, our fiduciary responsibility is to protect our organizations and reduce our overall compliance risk. Due to the enormous burden on our shoulders, we have often been labeled as “naysayers” or “obstructionist” because we may believe the reward doesn’t out shadow the risk. What 2020 and almost the first half of 2021 have shown me is that we can “roll with the punches” as long as we manage the risk appropriately. Our message to our counterparts should always be, let me see what we can do to manage the risk to ensure we don’t tread in a space that may cause us damage to the business from a compliance, operational, and reputational risk perspective.

What comes to mind in this rapidly changing environment we find ourselves in is that we aren’t close to slowing down. Here are some current trends that we need to be prepared for if they haven’t already been discussed:

  • Open banking
  • Blockchain
  • Digital currency

Within all these areas, a common theme stands out…..fewer and fewer instances of face-to-face interactions with customers and transactions outside the typical currency. So, now that I have made your hearts skip a beat, let’s dig a little further into what they are and what’s in the headlines.

  • Open banking….The driving force behind Open banking is to improve the customer experience, but what is it? Open banking is sharing financial information by allowing access and control through the use of APIs to third-party providers. The Federal Reserve Bank of Boston published a great brief on March 17, 2020, providing insight from a regulator standpoint.
  • Blockchain….what? Blockchain is necessary for crypto-currency but can be used in other applications. Let’s start with what it is. Blockchain is a type of database that is popular because it advocates state, it’s secure, and decentralized. It could be used for fund transfers, resolving trades, and many other issues. The question you should ask yourself shouldn’t be if, but when will I have to address this. It is recommended to start your preparations now.
  • No cash, digital-only… We’ve all heard about the popularity of bitcoin and other cryptocurrencies. These are all versions of digital currency. In short, digital currency is a form of currency that is available only in digital or electronic form. What began as a way to not use traditional currency has now expanded. Several countries are now rolling out their own digital currency and within the US, the Federal Reserve Bank of Boston has published an article stating they are exploring the possibility and are working with MIT for a digital currency initiative. If you consider the possibility, it is a simpler way to move currency.

So what does this all mean for Compliance Officers? In short, it’s going to be some work on our part. Here are a few suggestions:

  • Manage your vendor relationships closely. Even though you contractually include compliance measures in the contract, it is ultimately your responsibility to monitor the systems and manage the relationship. What technology are they using? How secure are they? Have you reviewed their SOC1 or SOC2, if applicable? What happens if there are any breaches? If it is a new technology, do you and the CIO of your institution have a good story to tell your auditor or examiner describing the due diligence you have performed and to give them confidence with the review?
  • Constantly update your compliance risk assessment and your BSA/AML Risk Assessment. Just because you updated the risk assessment 3 months ago doesn’t mean situations haven’t changed. For example, I am starting to read more and more articles on how consumers want to use bitcoin or cryptocurrency as down payments on homes, etc.… Have you considered these trends in your risk assessment? Do you have procedures to address these new payment methods? Will you deny a loan application simply because the consumer has chosen to convert Bitcoin for the downpayment? If your institution decided to deny if a funding source is Bitcoin, will you receive criticism from an auditor or examiner for this practice? If so, how are you going to handle the criticism?

In the end, these items aren’t going away and we have to ask ourselves how we can feel comfortable with moving forward with open banking, blockchain, and digital currency. Unfortunately, as Compliance Officers, we can’t only think about the benefits it brings to your financial institution. We have to consider BSA/AML compliance, consumer protections, defending our institution from a potentially skeptical examiner across the table, governance, training…and the list goes on-and-on.

Temenos Vendor Management is a central data repository for all vendor information and the business processes associated with them. Check third-party vendor management off the list of obligations resulting from evolving regulations and requirements from the federal agencies. To learn more about our Compliance Advisory Services and other Compliance solutions for financial institutions, visit

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Greg Sawyers
Greg Sawyers – Product Compliance Officer