Since the Bank Secrecy Act (BSA) introduction in 1970, global regulators have strengthened Anti Money Laundering (AML) obligations. The enactment of 6AMLD in 2021, MiCA in 2022, and (Amendment) (No.2) in Money Laundering and Terrorist Financing Regulations are some of the common examples. However, more rigid requirements are making compliance risky.
Criminals use advanced techniques to mask their malicious intentions and FinTech companies failing to identify them face regulatory scrutiny. Whilst they offer digital banking solutions, protecting customers becomes more crucial. Hence, FinTech companies should integrate AML solutions to improve their compliance tactics. This article provides detailed insights into how these firms are regulated and what they can do to stay put with changing obligations.
Shedding Light on Position FinTech Companies Amid Evolving Regulations
AML verification regulations are enforced to curb increasing financial crimes. With money laundering equivalent to 2 – 5% of global GDP, increasing precautions against illicit actions is now a topmost priority. However, sophisticated human trafficking, investment scams, terrorist financing, and other such techniques make fraud detection challenging.
FinTech companies are investing in AML compliance solutions to develop crime prevention strategies that not only counter illicit activities but prevent them from happening in the first place. Furthermore, staying put with regulations is another concern they need to address. With diverse obligations and different regulatory bodies such as FinCEN in the US, UK’s FCA, and the global watchdog FATF, meeting anti-money laundering requirements becomes somewhat tedious.
The evolving regulatory landscape is a daunting reality as obligations vary in regions. This makes strengthening AML systems necessary to overcome compliance risks and prevent hefty penalties.
FinTech Firms and the Consequences of Stringent AML Security Regulations
Strict regulatory measures are beneficial in countering criminal actions but can bring adverse effects for FinTech companies. Where they disrupt client conversion rates, tougher anti-money laundering obligations, slow down payment speed, hinder cross-border transactions, and increase false-positive alerts.
FinTech companies should be aware of the following drawbacks whilst inefficiently strengthening their AML compliance programs.
Payments Get Slower
Inefficiently implemented AML protections can slow down transactions. Unnecessary authentication, friction-involved digital onboarding, and time-taking clearance can negatively influence customer experience. Whilst FinTech companies promise swift payments, they can not afford needless delays. Additional authentication checks might be evitable to counter criminal attempts and ensure AML compliance but can increase customer annoyance.
Disrupts Cross-Border Money Transfers
Faster and more secure cross-border transactions directly influence business growth and profitability. However, unchecked payments can leave enough room for money laundering as fraudsters target less regulated regions to conceal their illicit funds. With the inefficient implementation of stringent requirements, FinTech companies can make adherence to anti-money laundering obligations challenging, unwieldy, and complicated.
Reduced Client Conversion Rates
Implementing stronger AML screening requirements can slow down customer conversion as users are less likely to stay connected with a tiring and complex onboarding process.
False Positive Alerts Rise
The blend of ineffective AML solutions with strict regulatory obligations can increase false positive alerts. As a result, FinTech companies will face inaccurate risk assessments and see legitimate customers as fraudsters.
AML Verification Compliance Program – An Overview of its Components
Regulatory watchdogs have also outlined specific requirements and guidelines for FinTech to reduce adverse effects on their services. These majorly involve the inclusion of the following AML security components:
Officials’ Training
FinTech companies focusing on training their employees periodically regarding the updates on legislation can identify potential risks at the initial stages.
Compliance Officers Appointment
As per Federal Financial Institutions Examinations Council (FFIEC) guidelines, hiring AML compliance officers help oversee crucial tasks such as audits.
Ongoing Transaction Monitoring
Keeping track of payments and identifying suspiciousness in them helps meet regulatory standards and prevent flow of illicit funds.
Screening Against Sanctions and Watchlists
By integrating AML solutions, FinTech companies can screen both customers as well as businesses against sanctions, PEPs, adverse media, and other watchlists. Hence, it will help them stay put with another regulatory obligation.
Suspicious Activity Reporting (SAR)
SAR is a crucial component in AML monitoring requirements as it helps regulatory bodies take timely action against financial criminals.
In a Nutshell
The majority of financial institutions face AML compliance challenges due to inefficient fraud prevention controls and toughening legal requirements. Regulatory bodies are continuously tossing amendments to keep up with present criminal threats. If FinTech companies fail to stay put, they will experience sanctions, penalties, and several other consequences.
Integrating AML solutions will address every challenge whilst improving compliance programs, reducing false positives, deterring fraud risks, monitoring transactions, and retaining a high level of customer experience.
