Contrary to the erroneous opinions that may be quite mainstream, non-bank financial institutions (NFBIs) certainly do need compliance, and they still have complaint regulations to adhere to. Despite their non-bank status, these financial entities are subject to a complete web of regulatory requirements. These regulations are in place to make sure that there is stability and integrity in the financial system, protect consumers, combat financial crimes, and maintain fair market practices. NFBIs face complex, unique or distinct compliance challenges that require tailored solutions and tools. This article explores the various key compliance challenges faced by NBFIs and the efficient solutions for them offered by Youverify. 

What Are NBFIs?


Non-Bank Financial Institutions (NBFIs) can also be known as non-bank financial intermediaries or shadow banks; NBFIs also include neo-banks. They refer to financial institutions that provide a wide range of financial services that are similar to that of traditional banks. However, they do not have a banking licence. They operate in the financial sector but are distinct from banks in the sense that they do not accept deposits from the public in the way that banks do; rather, they rely on alternative sources of funding.


NBFIs constitute a diverse set of financial entities, which include;


1. Fintech Companies


Fintech companies are technology-driven firms that offer financial services like mobile payments, peer-to-peer lending, and robo-advisors. Examples include PayPal, Flutterwave, Stripe, and Chime.


2. Insurance Companies

Although many insurance companies are considered NBFIs, some large insurers can provide both insurance and banking services. Examples include Liberty Mutual, Nationwide and Berkshire Hathway.


3. Asset Management Firms


Asset Management firms manage investment portfolios on behalf of clients. They can include mutual fund companies, hedge funds, and private equity firms. Examples include Fidelity Investments and The Vanguard Group.


4. Finance Companies


These types of entities provide consumer loans, equipment financing, and other credit-related services.


5. Mortgage Companies


Non-depository mortgage lenders originate and service mortgage loans; however, they do not hold customer deposits.


6. Payment Processors


These are companies that facilitate electronic payments, such as Visa and Mastercard.


7. Securities Brokers and Dealers. 


They sell and buy securities on behalf of clients but do not operate as traditional banks.


8. Venture Capital and Private Equity Firms


These types of firms invest in start-ups and established companies, often taking an active role in management or strategy.


9. Money Market Funds


These funds invest in short-term, highly liquid assets and are considered a type of mutual fund.


10. Credit Unions


Some credit unions that do not accept deposits may be classified as NBFIs.


NBFIs play an important role in the financial system by providing alternative sources of credit, investment opportunities, and payment services. However, they can also introduce unique risks, as they may rely heavily on short-term funding sources and often operate with less regulatory oversight than traditional banks. This can make them susceptible to financial crises and systemic risks.


Key Compliance Challenges For NBFIs


Non-bank financial institutions are not excluded from compliance regulations, as earlier iterated; they are still subject to complex bodies of rules and standards. Compliance might be a problem for NFBIs, especially with the absence of professional or skilled teams or the failure to adopt effective tools. 


There are a variety of challenges that executive and compliance teams, as well as employees of NBFIs, have to rise up to. These challenges are discussed below.


i. Cybersecurity Risks


NBIFs are often prone to cyberattacks as cyber criminals may find NBFIs more attractive to prey on because of the financial data that they hold. It is important for NBFIs to be on par with cybersecurity measures that help protect data and become proof of breaches. Breach reports have been made in Nigerian unicorns like Patricia and Flutterwave as well as African start-up Glade. 


ii. A Complex Regulatory Scene


NBFIs have to navigate through a complex web of regulation due to a number of factors. Some NBFIs are powered by technology and the internet. Therefore, they are able to offer financial services to people virtually across a lot of jurisdictions, which means that they have to adhere to the rules of a lot of jurisdictions simultaneously. Besides, regulatory challenges can be quite dynamic, constantly evolving and adjusting to new threats. 


There are also specific rules tailored to NBFIs by regulatory bodies that can be quite challenging. In order to meet up with this challenge, companies must be ready to establish dedicated compliance teams. As well as consult external experts such as lawyers, auditors, industry associations and related figures or professionals. It is also significantly helpful to adopt and implement Regtech solutions, which are essentially the future and present of compliance. 


iii. Reliance On Third-Party Poses Risks


Many NBFIs rely on third-party vendors for services, and this poses some form of risk for NBFIs. Managing and ensuring the compliance of these vendors can be complex, but it is important to maintain overall compliance.


iv. Regulatory Reporting 


Regulatory Reporting: Compliance typically involves reporting requirements. NBFIs are required to collect, analyse, and report data to regulatory authorities accurately and in a timely manner. Meeting these reporting obligations can be resource-intensive; this means that it takes up a lot of resources, in staff and capital. 


v. Operational Efficiency 


Innovation is the basis of most fintech and neobanks. However, not all innovations may be suitable or compatible with compliance regulations. NBFIs also strive to reach peak operational efficiency that prioritises the convenience of the customer. NBFIs may find it challenging to strike a balance between maintaining complaint and operational efficiency.


vi. Data Security and Privacy


Ensuring data privacy while providing efficient financial services is an ongoing challenge for NBFIs. NBFIs need to handle sensitive customer data require strict data security measures and compliance with data protection laws. 


vii. Anti-Money Laundering (AML) and Know Your Customer (KYC) Requirements


NBFIs are also required to implement robust AML and KYC procedures in order to prevent money laundering and terrorist financing. Verifying customer identities and monitoring transactions for any kind of suspicious activities is highly important; however, it is a resource-intensive task and may require a range of tools to achieve standard and optimum AML and KYC procedures. 


How Youverify Solutions Addresses Compliance Challenges for NFBIs


Youverify offers a range of user-friendly services that can help NBFIs upgrade and enhance KYC/AML procedures, as well as other compliance efforts such as Know Your Business, Know Your Employees, Know Your Transactions and risk intelligence. 


a. Customer Verification


Youverify offers a customer verification solution; customer verification is an essential part of the onboarding process. With this compliance solution tool, customer verification and onboarding can be automated and can be done. And it is possible to onboard customers with just one click. Personnel can also build no-code workflows to better situate the solution for specific business needs. Get started or get a free demo.


b.Customer Risk Assessment


With this tool, persistent monitoring of customer risks can be achieved. This solution is powered by powerful artificial intelligence with a pending patent. Fraud can be cut by 70%, and adaptive and dynamic risk assessments can be leveraged. This allows for NBFIs to stay on par with the ever-evolving financial fraud patterns for effective risk management. Request a demo by clicking this link.


c. Risk Management 


With the help of this solution, NBFIs can fast-track onboarding without having to compromise compliance. With this solution, compliance can be undergone throughout a customer’s lifecycle. Personnel can monitor and flag fraudulent patterns at frequent intervals all through the lifecycle of the customer. It also provides a seamless platform for onboarding and risk management. This is a useful compliance solution that all NFBIs will find handy. Get started or get a free demo


d. End-to-end business verification


When dealing with third parties, vendors or any typical B2B transactions, it is essential to ascertain the identity of a business to mitigate risks and scandals. This solution offers the perfect solution for that. Entities can customise the KYB verification process to suit specific business compliance needs. It can handle important screening processes, which include AML, Company Address verification and Ultimate Beneficial Owner (which can be really tricky to decipher manually). Get started or book a free demo


e. Adverse Media Screening 


NFBI entities need to be sure about the reputation of the companies that they deal with to void intense compliance risks, losses and scandals. This solution can help with that. Youverify’s adverse media solutions can be used to screen individuals during KUC onboarding processes or KYB verification before a relationship is established. This allows for the positive maintenance of a company’s reputation. The Youverify Adverse Media solution assigns a customer risk rating that allows for better-informed decisions. Unlike other platforms, there are 70% lower false positives. 


High-risk customers can be managed on a case-by-case basis through an intuitive case management platform that presents adverse media screening results as actionable data for informed decision-making. Get started or book a free demo.


f. Liveness Detection 


Youverify’s liveness detection tool mitigates spoofing. NBFIs can better be protected from biometric attacks and deep fakes. The tool is powered by intelligent AI algorithms to prevent or spot spoofing attacks. It takes an average of a second to verify identity and requires a seamless process. Want to know how to work? Book a free demo

g. Transaction Monitoring 


With transaction monitoring, businesses are able to monitor and detect fraudulent transaction patterns and other suspicious activities in real-time to stop fraud before it happens. Leveraging intelligent AI and machine learning, Youverify transaction monitoring solution empowers businesses to stay ahead of risk and criminal activities.

Bottom Line 


Investing in Regtech solutions is paramount for NFBIs, and despite some erroneous conclusions, NBFIs are subject to compliance means, no matter what kind of NBFI they are. Regtechs like Youverify offer a range of compliance solutions that can be handy for varied types of NFBIs; from fintech to neo banks, to insurance companies and more. 

See how 750+ global companies use Youverify for AML screening of customers for compliance and real-time risk detection. Request a demo today.