Navigating Covid-19: A Compliance Risk Controller

FundingReach grew from a startup company with only four members, to a financial compliance technology team of over 30 members within a matter of four years. William Lam, CEO of the company, said: “Back then, we found that the ‘frontline’ of fighting financial crimes was gradually moving towards the banks and other financial institutions. However, financial institutions might not necessarily have sufficient ability or manpower to cope with these changes and handle the large number of regulatory compliance requirements. In light of this, we collaborated with the University of Hong Kong’s Faculty of Engineering and, with the support of Cyberport and the Innovation and Technology Fund, invested in research on AI applications in financial compliance. Eventually, we launched our first technology solution for credit and compliance risks assessment successfully in 2018.”

FundingReach’s compliance technology solutions are very popular with the financial sector in Hong Kong. Up to now, the company has served over 1,000 licensed financial institutions, including banks, insurance companies, accounting firms, law firms and securities companies. Among these, the growth of its market share in the insurance sector is the fastest, accounting for almost 30%. More encouragingly, the company’s business growth has not been impacted by the coronavirus crisis. Lam said: “Fortunately, we managed to win 500 new clients during the pandemic. This shows that Covid-19 has not lowered the financial sector’s standards of and service demand for compliance.”

Lam reckoned that amidst the pandemic, the financial regulatory and enforcement bodies in Hong Kong and around the world find it absolutely necessary to maintain a high level of standards compliance requirements.

Hong Kong is a key player in co-ordinating global anti-money laundering efforts. Its performance in this regard is exemplary on the international stage. Moreover, Hong Kong is a member of the Financial Action Task Force (FATF) [1] on fighting money laundering and has been actively participating in, and making valuable contributions to, supervising and preventing money laundering, as well as conducting anti-money laundering investigation and law enforcement on an international level.

FundingReach keeps in close contact with its clients in order to gain a good understanding of their business partner network, including information about management, stakeholders and major trading partners. The company’s iFinGate artificial intelligence (AI) technology serves to screen relevant reports and analyse their impact on compliance risks. Lam remarked that FundingReach’s AI natural language processing (NLP) system is currently capable of processing English and Chinese texts, and is expected to move towards processing other languages in the near future.

He said: “Our data is updated automatically every day in the small hours. Once the people or organisations being tracked are put on the sanction lists or appear in negative reports, our clients will receive the necessary information first thing in the morning.

“Generally speaking, traditional compliance consultant companies charge over HK$100 per background check on a single trading partner, which explains why financial institutions including banks usually only conduct routine risk assessment once a year. By comparison, our company provides compliance ‘search’ service for our clients anytime, anywhere, at a cost as low as HK$0.01 per search, which helps clients find out about the latest credit rating and compliance status of their trading partners. We also offer different annual plans for clients to choose from. Our fee for monitoring the compliance status of 10,000 individuals or organisations for 365 days a year is only HK$30,000.”

Expanding to GBA

Lately, FundingReach has received an increasing number of enquiries from industry players other than financial institutions subject to compliance. Since many Hong Kong companies engaged in international trade (especially with factories in Vietnam, Cambodia and Thailand etc) provide credit to buyers, they need to assess buyers’ ability to pay and are therefore eager to get information about these markets.

Lam cited an example, saying: “A petrol company headquartered in Hong Kong once faced a grave financial problem because its subsidiary in Singapore had an emergency. On the day the incident occurred, it was covered by the media in Singapore, the UK and Malaysia, yet the case was only reported in the Hong Kong press three weeks later. In this regard, our iFinPulse AI system, which digests media reports in Chinese and English around the world 24 hours non-stop, can help clients keep abreast of any news unfavourable to their business.”

Separately, FundingReach’s iFinHealth AI system allows businesses quick access to their trading partners’ financial health and credit risks. FundingReach’s research team responsible for carrying out credit risk assessment is made up of various international financial institutions’ risk management department heads who have rich experience in corporate financial analysis. These experts add their experiences to the AI system. By supplying their target trading partners’ stock code or financial statement, clients can obtain the required financial health assessment report within a few hours.

Lam said: “Different countries or territories have different financial issues. For instance, we pay close attention to the return on assets of companies in emerging markets, especially companies whose sales value and profit margin keep growing, while at the same time they keep borrowing to buy equipment and land.

“We once came across a company whose profit kept rising, yet the collection time for accounts receivable was getting longer and longer. After in-depth investigation, we found that the company in question made use of its affiliated companies to engage in some fraudulent financial activities. All these analytical skills built on our experience, including return on assets ratio, corporate performance track record, and sector comparison, have been incorporated into our iFinHealth AI system.

“We are devoting great efforts to promoting our AI credit risk assessment solutions to places outside Hong Kong. The first stop will be the GBA and Yangtze River Delta.”

Lam believed that Hong Kong, with its sound banking system and excellent credit risk assessment – both ranking above international standards – can offer guidance and assistance to mainland enterprises and regulatory bodies. He said: “In the mainland, the concept of financial health relies more heavily on comparing the total asset value with the total liability value of a company, assuming that when the former is higher than the latter then the company’s financial position is healthy. But in Hong Kong, more emphasis is placed on conducting detailed analysis of a company’s liquidity, operating cash flow, and ability to obtain different capital sources, as the means to prevent such crises as bad debts or even bankruptcy caused by liquidity problems. If that happens, the company in question has to resort to selling its assets to obtain cash.

“In light of this, we keep close tabs on the assets portfolios of companies and assess the speed and value of asset realisation in their different portfolios, as well as the degree of market factors’ impact.

“There is a shortage of experienced financial analysts in the mainland. Our AI system solutions can not only provide points of reference for a large number of credit analysts of different seniorities, but also integrate with international developments in financial analysis, as well as contribute to risk management in financial and other market systems.”