To catch financial criminals, banks need a good library.
That's the business pitch of Arachnys, a London-based regtech company that sifts through 23,000 data sources from more than 90 countries, adding about a million pages of content daily to its know-your-customer and enterprise due diligence research platform. Research scientists and linguists are involved in curating the data.
The goal, the company's founders said, is to build the largest open-source, financial crime information library powered by artificial intelligence yet make it as easy to use as Google. The premise earned it $10 million in Series A funding this month, led by QED Investors, which is also an investor in SoFi, Credit Karma and Prosper.
“The job of machine learning and artificial intelligence is to help the analysts be better at what they do,” said Ed Sander, president of Arachnys. “We have that philosophy at heart, and it helps that the compliance industry now is going through an introspection about the role of the machine in preventing financial crime."
Back in 2010 — with numerous legal databases already available from Reuters, LexisNexis and Bloomberg — Arachnys began as a robotic process automation, trawling open-source web data to build a compliance and regulation library.
Now Arachnys is building regtech software for compliance needs and financial crime investigators and plans to begin offering risk assessments of markets.
One element of Arachnys’ machine learning apparatus analyzes news articles for information about individuals or entities. The machine scans articles and looks at word patterns and relationships between names mentioned to feed information to analysts about customers in the know-your-customer, anti-money-laundering and enterprise due diligence process.
Arachnys’ technology also offers what Sander calls “automagical guidance.” The tech allows the bank to create a template for how it wants its analysts to perform investigations and also creates an audit trail of what actions the analyst took. Because of this, analysts using the Arachnys platform can choose from templates that have already been created by other analysts.
Arachnys began raising funding to meet its market demand. The company has doubled revenue growth and employee headcount between 2016 and 2017, Sander said. "We are on track to achieve that again in 2018,” he said.
He added that a chunk of the proceeds is being put toward building functionality for risk assessments of new markets. For instance, if a bank in Singapore wants to enter the Malaysian market, Arachnys plans to be able to help assess the region’s economy, the state of its regulations around anti-money-laundering, and other compliance issues. Arachnys also can review if the bank has any targets for acquisition in that market, the certifications that the bank needs to operate there, and regulatory sanctions levied against banks in that region.
“Most companies look at transactional activity within banks — they are reporting on things that already happened or are in flight,” Sander said. “We focus on individuals and entities, and we look at the information attributes around them to determine if they have the risk of being a bad actor before we admit them to a bank, or before the bank even moves into a new market.”
Babar Shameem, currently a managing partner at the compliance consultancy TruPoint and formerly the global head of anti-money laundering, know your customer, sanctions screening and anti-bribery and corruption technology at Citigroup, joined Arachnys’ advisory board in March. Wendy Conway Schmidt, who retired last year as the global leader of Deloitte Advisory’s business intelligence services practice, also joined Arachnys’ advisory board.
“Arachnys provides a significant capability as a curator of data presented in a meaningful fashion,” Shameem said. “Institutions can pick and make a determination based on risk appetite and environment and marketplace what it is they really want to be leveraging and be prescriptive about it.”
Arachnys’ broad customer base also gives the company an advantage in the regtech space, Shameem added.
“There’s all these nonbanking players in the money services businesses,” he said. “There’s actions and activities in those spaces that have effects on the traditional banking side. Arachnys is well positioned to deal with both banking and nonbanking enterprises.”
Amias Gerety, partner at QED Investors, said he discovered Arachnys when the venture capital firm was looking to invest in startups related to regtech and back-office processes last June.
“We’re at a point where the post-financial-crisis regulation has mostly been put in place and at the same time the frontier of what is possible in technology has moved significantly,” Gerety said. “Large financial institutions are now in a position to put those two trends together and startups are really well placed to create nimble, modern cloud-based solutions to these compliance problems.”
Since there are few people in the business world that are not doing some sort of international business, tech that helps with know-your-customer and anti-money-laundering tasks will continue to be in demand, said Ryan Gilbert, partner at Propel Venture Partners.
“Even as a venture investor, we rely on these institutions to know who co-investors are in our companies in the U.S. and internationally,” Gilbert said. “It’s critical for them to do well. Today, you need many arms and legs to get out there and get all the information you can around your customer and future business partners.”
