Hummingbird, a San Francisco based RegTech startup, helps companies meet their compliance needs by reducing paperwork to improve operational efficiency. We spoke with Joe Robinson, the co-founder, and CEO of Hummingbird about the company’s mission, FinCEN files leaks, AML environment, the new AML act of 2020, FinTech and RegTech trends, and what we should expect from the Biden administration in the regulatory field.
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The Demand For Startups Like Hummingbird In Today’s Regulatory Environment
Founded in 2017, Hummingbird “was really born from opportunities and problems that we had operating in the payment’s world,” Robinson says. Compliance is a required practice area for every financial institution around the world. However, it is time-consuming, costly, and complex, making it hard for companies to navigate a quickly expanding maze of regulations. A recent study conducted among CISOs showed that four out of five are confused by the quickly changed compliance regulations. Since the 2008 financial crisis, the regulatory change has increased by more than 500%, thus, significantly increasing the cost of compliance for companies.
Designed To Fight The Financial Crime
Hummingbird is designed to assist in financial crime investigations and reporting. The compliance professionals can use the platform to collect case information, conduct the investigation, report suspicious behavior, (Suspicious Activity Reports). Their mission is fighting financial crime and as Robinson says, they do it through “anti-money laundering, anti-fraud, and helping organizations understand their customer relationships”.
FinTech Funding During The Pandemic
Hummingbird’s founders, including Robinson, started from a team of experienced professionals in the financial market. Robinson’s past includes senior positions in both Circle and Square. Although at the beginning of the pandemic, there was a pullback in overall VC related funding due to the uncertain economic situation, investments quickly rose in the latter half of the year, and fintech startups saw record-setting funding. In June of 2020, Humminbird successfully closed their Series A funding of $8.2 million, increasing their total funding to $11,8 million.
“We feel very fortunate to have had a strong series A round that was raised during that period,” Robinson says. “We have great investors and people who really showed strong support.”
Hummingbird’s Successful Series A Funding
Hummingbird’s Series A funding was led by Flourish Ventures, with participation from Lachy Groom and Jon Zieger. Hummingbird plans to use the funding mainly for growing their team and continuously improving their products for financial compliance.
The funding has also been a tremendous assistance for the company’s expansion to Europe, where Hummingbird recently opened up the possibility to file for suspicious activity reports and help financial institutions with compliance in Ireland.
Expanding The RegTech Startup Across The Pond
“We are very good at helping to create these reports, process the information, conduct the investigation,” Robinson says. Hummingbird’s plan for the upcoming months is to expand to other countries in Europe as well. Expanding one’s service across the pond is always challenging. In the regulatory field, a barrier is that each country has its own reporting requirements and limitations. Robinson says that while AML practices are similar, monitoring the activity can be quite different depending on the country. The KYC practices also vary. Robinson stressed that Hummingbird’s focus is on listening to their customers and their unique needs when working on further expansion.
FinCEN Files Leak Uncovers 200, 000 Suspicious Financial Transactions
For Hummingbird, and the financial and regulatory field in the US, a major event last year was the 2020 FinCEN files leak. The reports, leaked in September 2020, described more than 200,000 suspicious financial transactions occurring between 1999 and 2017. Of more than 2500 documents that were leaked, the majority were Suspicious Activity Reports, or SARs. The leak showed a myriad of potentially suspicious activity that involved companies and individuals and raised the specter that banks do not have full control over much activity. Clearly, there needs to be reform for better control.
FinCEN Leaks Show The Need For More Effective Controls In AML
“It [FinCEN files leak] shines the spotlight on the need for more effective controls in anti-money laundering,” Robinson says. “It is an important practice area. It is intended to keep the financial institutions safe.” He also believes that the need for more efficient control and support is about protecting the financial institutions from criminals but also protecting the customers from financial institutions that may be engaging in illegal practices.
Is AML Act of 2020 The Best Outcome Of FinCEN Leaks?
One of the most important contributions in dealing with the issues highlighted in the FinCEN Files leak was introducing the AML Act of 2020. It is part of a broader set of bills that were passed to help US regulators combat financial crime, money laundering, and terrorist financing. AMLA requires corporations and certain LLCs to disclose their beneficial owners to the FinCEN of the US Department of the Treasury and as the bipartisan sponsors explain, it improves the transparency and helps the officials, legal authorities, and regulators in cracking down on the financial crime.
UK’s Version Of AML Act
The closest to the AMLA in the UK is The People with Significant Control (PSC) regime that has been in place since 2016. Having said that, despite the legislation being in force for almost four years, completing the PSC register and then, the fillings at Companies House remain confusing and chaotic for companies. Thus, it appears that PSC still lacks the transparency and clearly defined rules needed for better transparency.
Will Biden Administration Influence The AML Regulations Further?
We asked Robinson about the new Biden administration and whether he thinks it will influence the AML regulations further, and what that means for getting ahead of suspicious activities from banks and individuals.
“In the US, policymakers from both of the political parties in the US want to work on these initiatives, human trafficking, drug cartels, all the things that benefit from money laundering are issues that are not particularly political,” Robinson says. “We are hopeful that the inbound administration and the new heads of these regulators will continue the work on improving these areas but they tend to be issues that are very bipartisan and get some attention,” he adds.
FinCEN Leaks Introducing Potentially Game-Changing Initiatives In AML
Robinson looks at the aftermath of the FinCEN leaks in a positive light and emphasizes that it has introduced innovative programs and a more open environment. Financial institutions established office hours to meet with technology startups and discuss how the AML effectiveness can be improved. While he says that there is still a lot of work that has to be done around the implementation of the issues that the AML Act addresses, he thinks that the act is a great step forward and hopes “to see continued engagement with the tech community to push that initiative forward”.
Are We In The Golden Era Of FinTech And RegTech?
In general, we live in a crucial era for FinTech and RegTech as people start interacting with money in different ways. It does not only show in new money laundering threats, but also in how the increase of digital alternatives to traditional financial services, new cryptocurrencies, and apps that make investment easier for an average citizen.
Resources For High Net Worth Wealth Managers Are Now Available To Everyone
“People are experiencing money in different ways, they are experiencing investment in different ways, it is now possible to obtain bitcoin through Square Cash, people can invest in stocks and trade options on platforms like Robinhood,” Robinson says.
Thus, resources that were limited to high net worth wealth managers are now available to everybody. Startups and a large number of digital platforms make the interaction with money easily accessible to everybody. Having said that, Robinson emphasizes that while the methods are changing and the barriers decrease, the disruption in the financial sector has to be done in a safe way for investors.
Are FinTech And RegTech Ready For Machine Learning?
One of the widely discussed topics and trends for the RegTech and FinTech field is leveraging machine learning possibilities. Hummingbird is also a part of the developing automation in financial services. However, Robinson stresses that while the more precise algorithms and a more detailed targeting that machine learning offers presents great opportunities, we need to be careful before applying them to the FinTech industry.
“It [machine learning] is still coming to the financial compliance industry and the financial industry as a whole,” Robinson says. “For reasons of needing better decision explainability and needing to protect consumer rights, machine learning algorithms need to be a bit more mature before they can be applied in finance.”
Robinson Sets The Bar High For Hummingbird in 2021
Hummingbird is off to a great start in 2021, and Robinson’s company has an exciting year in front of them. They are growing their team, expanding to several locations across Europe, and developing new products such as the launch of a new option of handling transaction disputes. A clear competitive advantage of Hummingbird is that they are one of the few financial compliance regtech companies that invest heavily in product design, making their platform accessible and easy to navigate for customers to improve their experience. They plan to continue their development in 2021 and beyond.
“We are trying to be the best platform for managing financial compliance We think really deeply about the user experience of people in those roles and the work they need to do,” Robinson says. “We try to celebrate that work and we believe financial compliance personnel are heroes: they protect people’s rights, they try to keep crime out of our financial systems. We think that they deserve well-designed tools.”
