Verify Once, Invest Anywhere
April 4, 2021 | Ashley Brindamour
Parallel Markets is a portable identity solution for accredited investors that simplifies investor onboarding by verifying accreditation and KYC/AML information in a single click. Alumni Ventures investment in Parallel Markets was sponsored by AVG’s Basecamp Fund (for seed and pre-seed investments).
Verify Once, Invest Anywhere
Tony Peccatiello – Parallel Markets, CEO
Investor Onboarding is Painful.
No one commits to an investment decision and then gets excited about completing their KYC/AML (Know Your Customer/Anti-Money Laundering) check. You know you are who you say you are, and (hopefully) your investor rep knows you are who you say you are, so why do you have to keep proving it whenever you make an investment or open an account? And then after you prove it once, why are you asked to re-verify again and again, multiple times per year?
The short answer is that technological development is a double-edged sword. Not only has it opened up the world of investing in more ways than ever before, but it simultaneously exposed investment firms to the increased risk of working with sanctioned persons or unknowingly aiding in a money-laundering scheme.
In the past, private market deals were traditionally done in person — investors and firms knew each other face-to-face. Maybe there was even a closing room where all parties gathered to review paper documents and collect wet ink signatures. Fast forward to today, and everything has changed. Transactions are completed online, and the face-to-face meeting may never take place. This comes with some great benefits, the least of which is that you now have access to a massive list of alternative assets from around the world. Firms like Alumni Ventures lead the way in this regard — bringing venture capital investing to individuals at scale for the first time in history.
The primary drawback in this new world is the enhanced level of KYC/AML required when firms are interacting with individuals online. Unfortunately, KYC/AML processes have simply not advanced with the times. If anything, these processes have become more painful as demand for alternatives increases without corresponding advances on how firms onboard investors into their networks. Regulators are cracking down on firms for everything from customer onboarding procedures to data privacy regulations, and both firms and individuals feel the increased costs of compliance.
Parallel Markets recognized these pain points for investors and institutions and developed a solution — the Parallel Passport. The Parallel Passport is an Identity Utility that streamlines investor access by bridging the gap between investors, institutions, and regulatory requirements. The Parallel Passport simultaneously collects and validates investor identity information while empowering investors to leverage this validated data set across institutions in a single click — this results in instant onboarding, enhanced crime detection, and lower costs for all parties involved.
Regulation Is Clamping Down: KYC/AML and User Data.
Did you know that an estimated $3 trillion is generated in criminal enterprises annually? Current policies and controls at financial institutions capture ~$3 billion of those funds annually (a 0.1% success rate). Financial institutions spend ~$300 billion in the aggregate annually in an effort to comply with their regulatory obligations geared toward preventing the movement of criminal funds through the financial ecosystem. It is worth emphasizing — firms currently spend 100x the amount of criminal funds actually intercepted in an effort to prevent those funds from moving.
As these regulations to identify and freeze criminal funding get tighter (and they will continue to do so), firms will be forced to expand their own compliance departments and engineering resources to keep up. A leading fund estimated their costs of KYC/AML at 5% of payroll, and that number is growing.
In addition to the growing KYC/AML compliance burden, there are also increasing regulations regarding data privacy and user data access. These regulations stem from an effort to control and bring transparency to companies like Google and Facebook, but they have significant impacts on financial institutions as well, given the level of personal information involved in account opening. Not only are firms directed to collect an increased amount of information about their customers to comply with KYC/AML rules, but they must also develop the capability and processes necessary to handle and safeguard that data in a compliant manner.
These regulatory trends seem nearly insurmountable for any single firm, but Parallel Markets has specifically developed the Parallel Passport to simultaneously streamline the investor onboarding processes for individuals while helping firms comply with their ongoing regulatory obligations.
The Identity Utility Is the Way Forward.
The Parallel Passport works by establishing direct relationships with both the investors and the financial institutions. Once an investor goes through an onboarding process with Parallel, they can expedite future processes by simply granting those new institutions access to their Parallel Passport. We take care of the data collection, validation, and upkeep, so our institutional partners do not have to, and investors have a single place where they need to keep their information up-to-date. Any change in investor information is automatically disseminated to the rest of the permissioned group immediately. To the extent an investor no longer wishes a firm to have access to their information, they can do so in their own identity dashboard. This concept has many names — the AIMA calls this type of company an MCDDP, and others refer to it as an Identity Utility. Parallel Markets is proud to be leading the way with AVG to help bring investors streamlined access to high-quality venture deals.
AVG announced in December their decision to use Parallel Markets for all of their accredited investor verification needs, and we could not be more excited about our partnership. AVG was an early investor in Parallel and has been instrumental in our success. AVG’s commitment to Parallel is also a commitment to their investors as we are working together to make investors’ onboarding experience as delightful as possible. We have a shared vision of increasing access to alternative investments online, and creating true Identity Utility in the form of the Parallel Passport is a huge step in that direction.
Tony Peccatiello has demonstrated solid commercial skills by quickly signing up paying customers and platforms as Parallel Markets CEO. Tony brings previous experience as founder of Pyne, a social polling app and tool for publishers to embed polls in their websites, and then as EIR of digital media platform Futurism. Most recently, Tony served as Principal at Social Starts, a VC investing in companies that leverage social and mobile technologies, emphasizing the emerging science and technology of health and happiness. Before tech and VC, Tony worked as a financial analyst for the University of Virginia Investment Management Company, focusing on modeling illiquid asset cash flows and fund selection. After leaving UVIMCO, he worked for Wiseman and Associate as the director of portfolio management. He studied Economics and Mathematics at the University of Virginia.