What was the 1MDB scandal and why does it matter for these stocks?

The 1MDB scandal was one of the largest financial fraud cases in history, where billions were misappropriated from Malaysia's sovereign wealth fund. Standard Chartered Bank is now facing a $2.7 billion lawsuit for allegedly enabling this fraud through weak compliance controls. This case matters for these stocks because it's driving financial institutions worldwide to significantly upgrade their regulatory technology (RegTech) systems to avoid similar legal and financial consequences. Companies in this group provide the essential compliance tools that banks now view as necessary investments rather than optional costs.

What is RegTech and why is it important?

RegTech (Regulatory Technology) refers to technology that helps financial institutions comply with regulations efficiently and effectively. It includes solutions for identity verification, fraud detection, anti-money laundering monitoring, and risk management. RegTech has become increasingly important as financial regulations have grown more complex and enforcement more stringent. After high-profile compliance failures like the 1MDB case, banks face enormous pressure to implement sophisticated technological solutions that can detect suspicious activities and prevent fraud, making RegTech providers essential partners in the financial ecosystem.

What are KYC and AML systems?

KYC (Know Your Customer) refers to the process of verifying a customer's identity and assessing their risk profile before doing business with them. AML (Anti-Money Laundering) systems monitor transactions to detect suspicious patterns that might indicate illegal activity. Both were critical failures in the 1MDB scandal. Many companies in this group specialize in providing advanced KYC and AML solutions that use artificial intelligence and machine learning to verify identities, monitor transactions in real-time, and flag potential compliance issues before they become major problems for financial institutions.

Why might these stocks have long-term growth potential?

These stocks may have long-term growth potential because regulatory compliance isn't optional for financial institutions—it's mandatory and increasingly complex. The massive penalties for compliance failures (like the $2.7 billion lawsuit against Standard Chartered) create a powerful incentive for banks to invest in the best available technology. Additionally, as financial crimes become more sophisticated, compliance technology must continuously evolve, creating an ongoing demand for new solutions. This combination of regulatory pressure, high stakes, and the need for constant innovation could drive sustained spending on the products and services these companies provide.

16 handpicked stocks

Financial Crime & Compliance

As banks face massive lawsuits over compliance failures, companies providing RegTech solutions are seeing growing demand. These stocks represent the essential technologies financial institutions need to prevent the next multi-billion dollar scandal.

Han Tan | Market Analyst

Updated 2 days ago | Published at July 2