Getting Ready for Future: An AML Compliance Guide for Fintechs

The internet revolution and the smartphone revolution have changed the course of operations in many industries. The digital era brought about significant enhancements to economic utilities -- in form, time, space and possession -- and helped both businesses and consumers with increased market possibilities and better experience, respectively. The finance industry has seen groundbreaking developments with the advent of technology. Initially, technology was applied to back-office functions within banks and trading firms. Now, we have a variety of technologies enabling better personal and commercial finance.

Fintech or financial technology today helps businesses and consumers better manage their financial operations and lives by using modern technologies such as AI and machine learning. With the help of a computer or smartphone, people can now conduct a variety of activities such as money transfers, check deposits, apply for credit, raising funds for a business and manage varied investments without the assistance of staff. By using cutting-edge technologies, Fintech companies look to increase efficiency in financial operations, expand the scope of business, increase competition, and promote financial inclusion.

Learn More: Understanding Money Laundering

Regulators and Fintech

While financial regulators promote the use of technology, they are still assessing how these technologies fit into the existing regulatory framework. In many countries, regulators have opened sandboxes in their efforts to promote fintech activities, while checking if there are any pitfalls that could affect the financial ecosystem. They cannot let inherent risks such as cybersecurity, fraud and money laundering grow along with the growth of fintech. Innovations such as blockchain, peer-to-peer (P2P) platforms, crowdfunding and Distributed Ledger Technology (DLT) might come up with their own regulatory problems. Therefore, regulators must assess each of the fintech innovations and come up with proper amendments or new regulations.

The fintech revolution has significantly impacted the regulatory compliance space in two different ways. First, the regulators want to frame rules and regulations for fintech companies. Second, they want to reassess risks presented by fintechs to their banking and other financial partners. There are concerns that fintechs are legally using the exemptions provided by regulators such as the US Financial Crimes Enforcement Network (FinCEN) with regard to payment processors. In the US, payment processors, payment facilitators, merchant payment companies, etc. may take advantage of various FinCEN rulings for not qualifying as a money services business (MSB) and not be subject to strict anti-money laundering (AML) programs.

How Fintech Companies can Ensure AML Compliance

Different countries have different regulatory frameworks; therefore there cannot be a one-size-fits-all approach when it comes to AML compliance. Compliance requirements vary based on the complexity of financial ecosystems and the degree of openness to innovation. However, from a global perspective, there are certain basic requirements that fintech companies should comply with.

Business registration and licensing

Fintech companies must register themselves and obtain licensing from relevant authorities after properly identifying its nature of business. For countries such as the US, they may need multiple applications to operate in different states. In that case, they need to develop a clear strategy for licensing based on a state-by-state analysis of fintech-specific regulations.

Assessing the scope of AML compliance

Once registered, fintech will get a better understanding of their AML compliance requirements. Accordingly, they can plan their compliance program and register with relevant authorities. In the US, fintech companies are subject to AML oversight from a number of federal and state regulators, including the FinCEN, the Securities and Exchange Commission (SEC), the Office of Foreign Assets Control (OFAC), the Commodity Futures Trading Commission (CFTC), state Attorneys General, and state financial regulators.

Developing and implementing AML program

In general, regulations require companies to have a written AML compliance program with dedicated staff and technology solutions. It should be based on the company’s internal assessment of AML risks relevant to its business model. The AML program should have proper procedures related to customer identification, sanctions screening and transaction monitoring. They need to create and maintain certain records and report regulators when they encounter suspicious activities. They also need to create the designation of an AML compliance officer who will be responsible for oversight, maintenance, reviews and training.

Building compliance for the future

It is essential for fintech companies to have a compliance roadmap involving scalable and sustainable solutions, especially given the ever-rising cost of compliance and emerging complex threats. In line with evolving financial crime landscape, fintech companies should be able to adapt to change, and sometimes conflicting, regulatory requirements with the ability to scale globally.

Aiding fintechs, there are advances in technology that can increase the efficiency and effectiveness of compliance programs through automation and advanced analytics. With the help of technologies such as AI, machine learning and big data analytics, fintech companies can effectively manage the rising cost of compliance by automating repetitive tasks and focusing on AML tasks that matter.

How We Can Help Fintechs

An award-winning Regtech company, Tookitaki provides an out-of-the-box solution for screening, risk scoring and transaction monitoring, named the Anti-Money Laundering Suite (AMLS).

AMLS, which does not require manual threshold tuning, is the best performing alert management system on the market. The AI-powered solution lowers efforts on ongoing maintenance by 70-80% through automatic generation of risk indicators and threshold values. It has a built-in simulation mode functionality to significantly reduce the time it takes to test and deploy new rules. Using our Intelligence Alerts Detection module, we are able to significantly increase alerts yield to 50%, whilst continuing to improve accuracy and reduce maintenance time.

Our fast, low-touch implementation plan means that our solution can be hosted within a secure cloud environment and launched within three months, with practically zero effort required from clients. Using standardized data models, adapters and APIs, we are able to significantly reduce implementation times. Our solution comes with pre-built machine learning pipelines helping enable 40% faster deployment.

We have the largest global typology library that has been built across regulators and financial institutions globally, which includes the typical money-laundering behaviours that you are most at risk from. With our growing collection of financial crime typologies, AMLS provides 100% risk coverage now and in the future. Our typology library is regularly updated to help clients stay on top of new patterns in money-laundering behaviour and changes to regulations globally. As clients’ business grows and their appetite to risk changes, they can easily and configure test new rules and scenarios in a safe environment before they move into production.

AMLS was designed keeping in mind the ability of AML/CTF compliance systems to integrate with disparate data sources and platforms. Users may it as a standalone system or on top of legacy systems to augment their efficiency.

Our solution has been proven to be highly accurate in identifying high-risk customers and transactions. For more details of our AMLS solution and its ability to identify the latest money laundering techniques, please contact us.