AML Risks for Fintechs

Share
Disclaimer: The contents of this article are meant to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice and should not be relied on as such.

Digital modernization has impacted and revolutionized nearly every business sector. Financial institutions have experienced various transitions and innovations with the emergence of new technology and assets, such as cryptocurrencies and other virtual assets. This has sparked the relatively new industry of financial technology, or fintechs for short. With the many regulations tied to financial institutions, it is natural that modernization may bring about some confusion for compliance professionals. As a result, we wanted to provide insight into fintech anti-money laundering (AML) risks, and provide solutions and guidance for minimizing said risk.  

Fintech Compliance

Fintechs are subject, like most sectors in finance, to compliance standards. They must adhere to regulations and policies mandated by the Financial Action Task Force (FATF). These regulations are numerous, and can be complex. This emphasizes the importance that fintechs must appropriate proper funding, time and effort into compliance to avoid penalizations, and must be able to identify and avoid AML risks.  

There are several key areas to focus on:  

Fintech Customer Acquisition Analysis 

A key area for minimizing AML risks for fintechs is to employ the use of effective services and data collection and analysis to gain a full understanding of new and existing customers.  

Customer Due Diligence  

Customer due diligence (CDD) involves properly vetting customers to ensure that a fintech firm is not providing its services to a money launder, or terrorist financier. While a challenging proposition on its own, fintech CDD is even more nuanced. Obtaining accurate names, addresses and other pertinent personal information from prospective customers can be difficult when dealing with online services.  

 

To minimize AML risks, fintechs must employ real-time due diligence solutions. Running client information through continually updated data bases gives fintechs the best chance of detecting false information and filtering out unwanted customers.  

Sanctions Screening 

Similar to effective CDD measures, fintechs must employ sanctions screening tools to ensure that customers subject to international sanctions are detected and rejected. Identifying sanctioned individuals and politically exposed persons can help prevent compliance infractions, minimizing AML risks.   

Fintech Transaction Monitoring 

Once customers have been properly vetted and approved it is imperative to have effective transaction monitoring systems in place to detect suspicious, erroneous or fraudulent transactions. These instances can point to money laundering and terrorist financing, and effective transaction monitoring can provide another safety net to protect a fintech against AML risks.  

 

Transaction monitoring for fintechs can be difficult due to the frequency and number of transactions possible with virtual currencies and other fintech services. Our Fintech AML software provides your firm with the ability to scale current and future operations to monitor transactions in real time, notifying you of suspicious transactions.  

Changing Compliance Regulations 

As a relatively new industry, fintech compliance regulators often times finding themselves playing catch-up, as they work to create new policies to combat money laundering and terrorist financing. This creates the possibility for bad actors to identify blind spots in regulations and use them to their advantage.  

 

Ensure your compliance professional, or team, is staying up to date with the latest regulations, and is equipped with modern tools for meeting compliance standards. 

Mitigating Fintech AML Risks  

A modern sector like the financial technology industry needs modern solutions. Alessa provides AML software solutions with transaction monitoring, sanctions screening capabilities and more. Contact us today to learn more about how Alessa can help you meet compliance standards.  

Recent Posts

Crypto Travel Rule

The Travel Rule for Crypto

An overview of the Travel Rule for crypto with explanations of AML regulations and best practices for compliance.