The regulatory bodies within the UK and US are making utmost efforts to fight financial crimes since Bank Secrecy Act (BSA) as well as the First Anti-Money Laundering Directive (1AMLD) came into force in 1970 and 1994 respectively. As criminal threats are becoming more sophisticated, these watchdogs are coming up with periodic amendments. The FinTech industry is falling victim to money launderers which directs it under strict regulatory scrutiny.
AML compliance helps FinTech companies curb financial crimes such as account takeover, flow of illicit funds, and investing proceeds of crimes. As money laundering reaches $2 trillion from $800 billion per annum, establishing efficient combatting mechanisms has become topmost priority for this industry. This blog entails why FinTech companies require AML verification mechanisms.
AML Security Solutions – Safeguarding FinTech Companies’ Operations
Implementing regulatory standards is mandatory for the FinTech industry to reduce criminal activities and safeguard its system. This has become necessary since customers are rapidly adopting innovations like digital banking. Simultaneously, transformations within the FinTech companies are opening doors to criminals by creating loopholes. Lax AML compliance programs, identification checks, and document validation further leave enough room for cybercriminals.
To mitigate attempts of financial criminals, FinTech companies require AML solutions. With efficient risk assessment, due diligence, and tracking of activities, this industry can place sufficient preventive measures in place. Regulatory watchdogs are enforcing strict regulations such as 6AMLD to deter rising finance crimes. As per the guidelines of this anti money laundering law, FinTech companies should carry out efficient identification of customers while analyzing their backgrounds. This way they can ensure the client was not a part of any criminal activity in the past.
The digitization of financial services is bringing convenience and several other benefits but at the expense of AML security measures. Banks and other institutions are providing customers with e-deposits of money and cashless payments. However, this process is making clients vulnerable to cybercrimes. According to the Federal Financial Institutions Examinations Council (FFIEC), FinTech companies need to meet following anti-money laundering requirements:
Building an AML Laws Compliant System
The foremost requirement for FinTech companies is to build AML compliance programs that leverage efficient measures for combating financial crimes. As per obligations, it should include the following;
- Monitoring of Transactions
AML screening of transactions is one of the major prerequisites as regulatory bodies have set a threshold to prevent money laundering. Fund transfers exceeding the limit are indicators of financial crimes. Customers depositing, withdrawing, or shifting more than $10,000 require anti-money laundering screening. Furthermore, FinTech companies should also monitor transactions taking place from off-shore accounts or high-risk jurisdictions.
- Sanctions and Watchlists Screening
FinTech companies are also subject to legal due diligence obligations that require them to carry out background checks on customers. Fraudsters use synthetic identities to escape AML compliance checks. Similarly, criminals belonging to high-risk regions or those falling under sanctions make various malicious efforts to launder their money. This requires the FinTech industry to integrate AML systems solutions that provide access to global watchlists for the active screening of customers.
- Suspicious Activity Reporting (SAR)
In order to stay in line with AML compliance, FinTech companies need to build suspicious activity detectors and report such cases to Financial Crimes Enforcement Network (FinCEN) or other respective authorities.
Bring in Know Your Customer (KYC) Requirements
KYC adds as a major anti-money laundering compliance component. Regulatory bodies mandate FinTech companies to verify customers prior to their digital onboarding. They require this industry to be proactive towards criminal attempts by drawing a line between legit clients and fraudsters at the time of account opening. Criminals often make several small money transfers to escape suspiciousness detection. This further makes KYC and AML compliance liability for FinTech companies.
Customer Due Diligence (CDD) Standards
CDD is another core component of the anti-money laundering process which leverages risk management tactics for FinTech companies. It helps keep tabs on customers’ activities to stay a step ahead of suspicious activities. Regulatory bodies within the European Union, UK, and the US oblige FinTech companies to vet their clients while recording along with analyzing their transactions.
As per anti-money laundering laws, CDD process further involves validating Ultimate Beneficial Owners (UBOs), developing risk profiles, AML monitoring to detect suspiciousness, screening against sanctions, and tracking any adverse media.
FinTech companies are falling vulnerable to financial criminals due to rapid adoption of digital banking. Where e-payments, online accounts, and seamless fund transfers bring convenience to customers, these innovations are also becoming a major attraction for cyber bad actors. Considering the perils of money laundering, regulatory bodies are putting necessary AML compliance checks in place for making FinTech companies a safe haven for legit customers.