In today’s financial world, compliance has become an essential pillar for banks and payment systems. Financial institutions invest heavily in compliance programs to protect not only their clients but also the integrity of the global financial system. However, a question arises: how far can this approach go without risking overreach? Are banks and payment systems, in seeking to protect themselves, establishing excessive requirements that could ultimately hinder consumers and stifle innovation?
Originally, the goal of compliance is straightforward: prevent risks of fraud, money laundering, and terrorist financing. These financial crimes, often complex and difficult to detect, require sophisticated monitoring systems and stringent procedures. Regulators mandate that financial institutions identify suspicious transactions and implement strict controls. This heightened surveillance is not only about protecting the company but also about ensuring that financial services are not used for criminal purposes. Increased oversight also aims to reassure clients and the public about the safety of their transactions.
However, compliance measures are becoming stricter, resulting in significant costs for banks. Between internal audits, customer verification (KYC – Know Your Customer), and transaction monitoring (AML – Anti-Money Laundering), compliance expenses are reaching high levels. These costs are not only financial: they also impact human resources, transaction processing times, and even customer experience. The question arises of whether this regulatory burden eventually affects the entire value chain, and whether the initial goals are actually being achieved.
For clients, the reality of compliance often translates into long and complex administrative processes. Opening an account, for instance, can become a true obstacle course, with a pile of required documents and repeated checks. In some cases, clients may be discouraged or even denied service due to excessive scrutiny, particularly if they come from high-risk segments or specific geographic areas. In seeking to protect against potential fraud, financial institutions may inadvertently exclude legitimate clients, thereby losing business opportunities.
Increasing compliance requirements also impact innovation in the financial sector. Fintechs, which introduce new solutions and services to meet evolving customer needs, are often hampered by these regulations. The cost and complexity of compliance requirements may discourage smaller firms from entering the sector, limiting the diversity of financial solutions available on the market. Ultimately, regulations intended to protect consumers risk hindering innovation, competition, and progress in the financial sector.
Regulators and banks must therefore find a delicate balance between protection and innovation. Some institutions are beginning to adopt smarter approaches to compliance. For example, they use artificial intelligence and sophisticated algorithms to assess the risk associated with each transaction more accurately and precisely. Rather than applying the same controls to everyone, they adjust measures according to the level of risk, allowing vigilance to be maintained without overburdening all clients.
Another aspect to consider is flexibility in implementing compliance rules. Banks and payment systems could benefit from a less rigid approach while remaining aligned with international standards. For instance, compliance checks could be simplified for recurring clients or low-value transactions, so as not to discourage legitimate consumers. Fast-tracked verification options could also be considered for certain categories of clients, based on well-defined risk criteria.
Some experts also suggest that excessive regulation could undermine the very objectives of compliance policies. Indeed, when a bank imposes strict controls and multiplies requirements, certain clients—particularly in emerging markets—turn to unregulated options, such as cryptocurrencies or informal systems, to conduct their transactions. This phenomenon, known as “de-banking,” actually increases risks to global financial security by pushing people away from the formal system.
The challenge for regulators and financial institutions, therefore, is to implement compliance that is both effective and balanced. Rather than adopting a uniform approach, flexible regulation could allow banks to meet legal requirements without sacrificing accessibility and efficiency. Initiatives for “tailored regulation” could encourage institutions to adapt their compliance practices to the specifics of each client or transaction, making the system more agile and less burdensome for legitimate clients.
Finally, communication about compliance also deserves improvement. Too often, clients do not understand why additional information is requested or why delays occur in processing their transactions. By better explaining the purpose of compliance and making these processes more transparent, banks could reduce client frustration and strengthen trust in the system. Improved education and increased transparency could help reposition compliance as a tool for protection rather than as an inconvenience.
Conclusion ? banking compliance is essential to mitigate risks and ensure transaction security. However, excessive caution could end up harming the customer experience, stifling innovation, and even hindering financial inclusion. Banks and payment systems must therefore redefine their strategies to find a balance between protection and accessibility and adopt a more flexible and targeted approach based on real risks. In doing so, they can preserve client trust while meeting security imperatives, without falling into overzealousness.
