–> This is a pre-event interview in the run-up to the Leaders in Finance AML NL Event on 5 October 2023.
Jeroen: First of all, Krik, thanks a lot for taking the time to talk to Leaders in Finance in the run-up to the Leaders in Finance anti-money laundering event here in the Netherlands on the 5th of October this year. We are excited you are here, and we are excited you are joining this event. Could you introduce yourself?
Krik: Thanks so much, Jeroen. My name is Krik and I am the co-founder and CEO of Fourthline, an Amsterdam headquartered Fintech company. We have made it our mission to fight financial crime, and we believe the only way to effectively do so is through technology. We launched our product close to six years ago and since then expanded to all countries in the European Union, working on the one end with fast scaling Fintechs, for example Trade Republic out of Germany, Qonto out of France, Scalapay out of Italy, but also with more traditional financial institutions like Western Union and Nationale Nederlanden. We are doing that both with a suite of products for the initial onboarding of new clients, as well as with a suite of products for continuous KYC after the initial onboarding.
Jeroen: Great. You said you are a fintech, so you see yourself as a pure mix of those two, or do you see yourself more as a tech company?
Krik: We are first and foremost a tech company. But Fourthline is also a financial institution regulated by the Dutch Central Bank, which means we are bound by various strict laws and regulations, as are our clients. It is important to know that even though we believe in the strength of technology, we also believe in the strength of humans. So for us, it is really a combination of leveraging technology where possible, but also not overlooking the added value that humans can have in this process.
Jeroen: Right, makes sense. You have been working on anti-money laundering or KYC for quite a while now, so what would you say are some of the biggest changes you have seen in this field?
Krik: I think the most fundamental change was that when I worked at a bank myself, KYC was like the little orphan within the bank – no one really wanted to take care of that orphan. That has changed fundamentally since. KYC and compliance are now almost like the poster child within banks, so it has truly become a Board priority to make sure that a financial institution is at par with everything that is expected both from regulators, from the law, but also from society at large. Because in the end, preventing money laundering is a societal challenge.
Jeroen: Going forward, are there particular developments you see on the horizon?
Krik: What we have seen in the past twelve months, especially since the last edition of the event, is that there is now a much broader conviction in the market that technology, and also within technology AI specifically, can play a fundamental role in this fight against financial crime. And we see that not just with fintechs or traditional financial institutions, but also very much so with regulators and lawmakers. I think this is a very fundamental change in the sector, that is going to benefit players like Fourthline that embrace technology as part of their strategy.
Jeroen: Right. Do you see this in terms of wording, in terms of how people speak, for example, at the regulator? Or do you see it in action already?
Krik: I think both, to be honest. Last year at the event, we discussed the report from DNB in which they provided the rules of engagement around applying AI in this domain. I think that is being monitored very closely internationally. It is great to see that a lot of financial regulators – we speak to different ones across Europe – are actually very open to technology, provided that you properly explain to them what it is you are doing and how you are using it. Regulators do not like a black box where they are not told what is happening and you just tell them it is pure magic. But if you actually take the time to run them through how we leverage technology at a very high-quality level, a very high level of integrity and especially in a way that you can explain afterwards, I think regulators are very open to that. That is really a recent trend.
Jeroen: Right. Are there particular things you would like to see happen that are currently not happening? This is a very broad question but you can zoom in, for example, on the regulator, as you just did, or on lawmakers or your firm or anything else.
Krik: One of the challenges for financial institutions is that Europe presents a Balkanisation when it comes to anti-money laundering in the different member states. So the current structure is a directive, the 5th AML directive, that needs to be transposed into national law, and member statescan choose to ‘gold plate’ it. And there is a lot of discussion right now around moving from a directive to a regulation that would apply uniform within the European Union. That is a trend that we as Fourthline very much support. But then the question is: how do you implement it in a way that actually embraces all the opportunities that technology brings? I think a lot of interesting things have happened on the AI side, but I also think one of the underestimated upsides is in the RFID-chip of a passport. You can read this out with NFC, which is for example what you see at automated gates at Schiphol airport, but you can also read it using your smartphone. I think this is a phenomenal way to combine both very high-quality checks and a very high degree of automation. I hope that once we move to a regulation, the lawmakers will be open to the upside that technology brings. It is something that we also try to provide input in, e.g. through consultancy rounds for new policy.
Jeroen: Do you have particular tips for banks related to KYC/AML?
Krik: The very fundamental advice I would give is: the fight against financial crime revolves around data. If you do not have access to the right data, it is very hard to run efficient and effective processes. So having an open mind to what your data strategy should be as a bank is fundamental to being successful. I think that allows you to take a view on what data you are going to share with what parties, in what way, without breaching General Data Protection Regulation (GDPR). There have been a lot of talks around a more active public-private partnership, of which we are a big fan. We have worked with the French National Police and with Europol. It is not about sharing client data, but it is about sharing trends in the industry. That benefits all actors. But within financial institutions, I would say the biggest challenge that a lot of the more traditional players face is what we call Siloed Data. They have implemented point solutions for specific parts of a KYC or compliance process, with individual data sets for each of these steps. That creates massive inefficiency, and it is a very high burden to improving the quality of the overall processes. So I think that is probably the biggest advice I can give to banks.
Jeroen: That is great, makes total sense to me. Last but not least, as I mentioned in the introduction, we are glad to have you participate actively at the event. You visit a lot of events, and are also participating at most of them. But still, if you go there, are there particular things you look for? In this case, what would you be looking for?
Krik: What I really enjoyed in previous editions is the fact that you have got different stakeholders in the fight against financial crime all in one room and actually speaking very openly. I think that is what we need more of in this industry. In the end, money-laundering is a problem of society, and that means that we need to think through the entire chain of events and realise that it takes criminals and crime to even start the process of money-laundering. Before we talked about the obligation that banks have, it is also important to have a discussion around the obligation of other stakeholders in society. Whether it is public prosecutors, financial regulators or just all of us who are citizens; we all need to make sure that we realise what our role is in this bigger chain of events.
Jeroen: You will likely be talking about AI. This is something everyone is talking about, but is it really that promising? Are you using it actively already at Fourthline?
Krik: I think it is interesting that in recent months everyone has been talking about AI. We have been investing in AI heavily for the past six years, which makes us ‘veterans in the space’. A lot of the current discussion is about the future impact of AI on society. There are the optimists who believe this will be a revolution in productivity, and there are the pessimists who tell us that we are all doomed as AI is going to kill humanity. We are taking a more practical approach, looking at the day-to-day impact that we can make today, using AI. There are three key domains where we leverage AI. One is on the biometric verification side, where we perform checks around liveness, for example, to make sure it is a real person and not a picture of a picture. We also have proprietary technology around facial matching, making sure you are the same person as depicted on your ID document. The second domain concerns document authentication, where we perform many checks to establish the authenticity of a document. And the third revolves more around data science, where we track patterns in the industry on a pan-European cross-border level. I think that is the way we can already have a very positive impact using AI, today. I would rather talk about that than potential future events involving AI.
Jeroen: I think that is a great positive end to this short pre-event interview. Thanks a lot, Krik, it is always a pleasure talking to you. I am very much looking forward to having you at the Leaders in Finance AML Netherlands event on the 5th of October this year. Thanks a lot!
Krik: I am looking forward to it!
–> This is a pre-event interview in the run-up to the Leaders in Finance AML NL Event on 5 October 2023.