Anti-Money Laundering Guidance for FinTech

Financial Technology (FinTech) is used to improve and automate the use of financial services using new technologies. FinTech aims to compete with the traditional financial services method because technology has developed, and traditional methods are insufficient, so the financial sector needs FinTech and its solutions. FinTech has developed the financial sector using technologies such as mobile banking, mobile payment, cryptocurrency, and bitcoin. FinTech has to comply with regulations just like traditional banks.


These regulations are AML Regulations. All financial sectors have financial crime risks, so FinTech, like other financial sectors, must comply with the AML obligations set by regulators. Although these regulations generally differ from country to country, there are also FinTech Regulations in the World that have to follow. In the rest of our article, you can find detailed information about Anti-Money Laundering for FinTech.


Meaning of Anti-Money Laundering for FinTech


With the advancement of technology, financial crimes also developed. Regulators have some obligations at financial ınstutions to reduce the risk of financial crime. Especially, After the 2008 financial crisis, regulators made some arrangements to protect financial institutions and customers, including anti-money laundering regulations. Like other financial industries, FinTech may face crimes such as money laundering if it does not comply with these regulations. Therefore, regulators can impose severe sanctions, such as fines and disciplinary action. Money laundering in FinTech companies causes serious reputation losses, which leads to unpleasant consequences. On the other hand, there is a crucial point that should be considered, traditional methods are not enough for FinTech companies to comply with AML regulations, so FinTech companies should prefer technology compatible AML solutions.


How Great Is the Risk of Money Laundering for FinTech?


FinTech service in the financial sector has provided undeniable convenience to the industry and customers, and FinTech is growing and developing day by day. As Fintech continues to grow, money laundering (AML) concerns also develop. In FinTech, money laundering is attractive for offenders because the increase in the rate of initiation of transactions in these systems, unlimited money flow, and the transaction of anonymous accounts facilitates money laundering for criminals. With the increase in digital money circulation, criminals continue their money laundering activities in this direction. Also, the fact that electronic anti-money laundering (transaction laundering) has started to replace traditional anti-money laundering. In this case, it shows that FinTech is a potential target for money laundering criminal organizations. As a result of all these data, FinTech may be exposed to serious AML risks. To prevent AML / CTF and avoid criminal investigations, FinTech should use best practices.


AML Compliance Program of FinTech


All FinTech companies should prevent the use of their products or services by people wishing to launder money or finance terrorism, no matter small or large. The use of services provided by financial technology companies as a potential crime method by criminal organizations has made it necessary for FinTech companies to play an effective role in combating financial crimes. Therefore, FinTech initiatives should not underestimate AML compliance Program. The Anti-Money Laundering (AML) Compliance Program covers everything that companies at risk of financial crime do in combating financial crime and compliance processes. To avoid the risk of money laundering, FinTech has to fulfill its AML obligations in the regions they serve. To meet the requirements of FinTech regulations, they must create an AML compliance program. Otherwise, FinTech can be punished by regulators.


AML Compliance For FinTech- Case Study


The Some Great Risks of Fintech


FinTech provides businesses and consumers with innovative tools and products, such as online credit, trading platforms, or AI management-led wealth management. Since these services are different from traditional financial services, there are different risk algorithms, according to them. FinTech businesses need a special policy to manage evolving risks.


Regulatory Review

With the development of FinTech, regulators began to express their expectations from FinTech, because as this market evolved, the regulatory environment change, so the regulatory became a major risk for Fintech. Also, FinTech who wants to operate internationally must comply with different regulations in more than one region.


Cyber Event

As a result of the services provided by FinTech, it has become a potential target for cybercrime because services such as mobile payment may pose risks such as data breaches and network security, which is a great risk for FinTech. 


Theft of funds

FinTech can become vulnerable to money theft and money laundering with high volume payments and their rapid growth. Therefore, it is an important risk for FinTech in money theft.


Risk Assessment and Management in FinTech


AML risk assessment can identify the easiest places where money laundering can be carried out in FinTech and identify those who want to finance terrorist activities. Objectives such as identifying risk sources, evaluating risk reduction controls, and running successful AML / OFAC compliance programs are important for making AML Risk Assessment at FinTech. There are key money laundering risk indicators used in risk assessment; the nature and size of a business, types of customers, types of products and services offered to customers, method of getting new customers and communicating with existing customers, and geography risks. All of this is important information that should be used when evaluating risk in FinTech. So how should risk management be done in FinTech?


At FinTech companies, critical processes, internal controls, and risk appetite should be understood by the board. As a result of the AML risk assessment, it is important to define and document a risk framework compatible with regulatory and operational risks. All aspects of the risk should be taken into account as new services are developed, and new relationships with external parties are established.


You can find detailed information about AML Risk Assessment.


Risk-Based Approach in FınTech


As we mentioned earlier, FinTech has some serious risks, and they have to deal with risks such as money laundering, compliance with regulations, cybercrime. If they do not cope with these risks, FinTech may be exposed to undesirable negative situations. While dealing with these risks, they should apply the risk-based approach, which is one of the most important elements of AML / CTF programs. Not every FinTech risk perception and the risk of each customer are the same, so the implementation of the same AML controls is insufficient, and a risk-based approach should be applied to every customer and process that needs to be done to perform the control processes.


In general, when opening the customer account, the customer should periodically check the customers to evaluate the new risks that may occur after the risk assessment made by applying the due diligence. PEP and adverse media scanning are some of the most used methods to determine customer risk levels.


Get to know the Rısk-Based Approach more closely.


Know your Customer in FinTech


Know Your Customer procedures are control procedures that financial services apply to exist and new customers to identify and prevent risks. KYC (Know Your Customer) plays an important role in eliminating the risks associated with money laundering, terrorist financing, corruption, fraud, bribery, and other illegal financial activities. With the development of technology, crime techniques and risks also change. FinTech must comply with KYC regulations and Anti-Money Laundering laws to detect and prevent crime risks that organized crime organizations have developed using technology.


The importance of KYC was specified in the European Union Directives and Financial Action Task Force (FATF) proposals. At Fintech, new customers are also checked to get to know your customer, and the information of the customer is collected, and then the accuracy of this information is checked. Money laundering risks may increase if these checks cannot be made or if they are disrupted.

You can browse information about Know your Customer(KYC)


Customer Due Diligence in FinTech


Customer Due Diligence (CDD) information contains facts information about the customer that will enable organizations to assess their customers' risks. The most important of customers' risks are money laundering and financing of terrorism. Customer Due Diligence at FinTech is used to making sure of customers, to comply with the requirements of the relevant regulations, to prevent money laundering and financing of terrorism, to reliably provide the desired services, to detect and analyze unusual events and situations. So how are CDD procedures applied in FinTech?


First, information about the customer is collected. This information includes full name, contact information, place of birth, and date of birth, nationality, marital status, etc. Second, scanning is performed to authenticate so that in case of doubt, this information can be used. Then, customer activities are examined, and if this customer enters the high-risk category, Enhanced Due Diligence (EDD) is performed. Finally, as customer risk may change in the ongoing processes, customer screening is carried out at certain intervals. 


AML Name Screening Software for CDD Requirements


Enhanced Due Diligence (EDD) in FinTech


Enhanced Due Diligence is the process of collecting information about the customer, just like the Customer Due Diligence, but the difference is that EDD is made only for high-risk customers, not for every customer. High-risk customers or transactions at FinTech can create big problems, and FinTech can perform EDD procedures to prevent this. Political Exposed Persons (PEPs) and their family members or partners should undergo a more comprehensive review process at FinTech. EDD allows you to identify risks that cannot be detected by the CDD so that FinTech can protect their business from financial crimes such as money laundering and protect their companies' reputation. 


Adverse Media Screening in FinTech


Adverse Media Screening is a service that allows you to search for adverse media and negative news about a person or a business. Adverse Media is an essential part of Know Your Customer and Anti-Money Laundering processes. With Adverse Media, FinTech can detect and protect the risks of companies. Therefore, Adverse Media screening is a critical element in Fintech institutions and is considered a key factor in combating financial crime and reputational risk. FinTech, which can scan customers and business partners in Adverse Media data in seconds using Adverse Media Screening software, also comply with EU Directives and FATF recommendations. Adverse Media controls can scan and find high-risk customers and partners.


Adverse Media Screening Service for Fintechs


Much new news is published worldwide every day, and it is almost impossible to scan them manually. However, there is the fact that this news should be scanned because you do not want someone with a bad title in your FinTech company to be your customer. To illustrate, customers may have crimes such as money laundering, terrorist financing, tax evasion, corruption, fraud, human trafficking, etc. That's why FinTech companies can scan their customers with Adverse Media and protect their business from risks.


Transaction Monitoring in FinTech


Transaction Monitoring can instantly monitor customer transactions of financial institutions. Transaction Monitoring helps FinTech combat financial crimes, and we can even say that this is the most effective method. Transaction Monitoring software helps them comply with Terrorism Counter-Financing regulations. At FinTech companies, a lot of financial transactions are taking place during the day, and these transactions should be scanned, Transaction Monitoring allows this process to be fully automated. Criminals can realize money laundering, fraud, identity theft, terrorist financing on FinTech platforms using developing technology. For example, thanks to FinTech's mobile payment services, customers can perform financial transactions on their phones without a lot of security systems at the click of a button. This leaves an open door for criminals Transaction Monitoring can prevent such crimes by scanning transactions instantly.


FinTech companies create various rules thanks to AML Transaction Monitoring software, and each transaction is automatically controlled according to these rules. Changes made in rules created with the Advanced Protected Area Test Environment can be tested in existing processes. The alarms and alarm levels (1-5) of the transactions determined according to the scenario and rules can be seen in the real-time alarm system so that the suspicious activities can be responded in the fastest way. With risk-based scorecards, advanced risk assessments can be made according to criteria such as country and currency. The Transaction Monitoring has many more useful features like these. As a result, FinTech companies can protect their companies from financial risks thanks to Transaction Monitoring, so they can both protect their company's 'reputation and avoid regulatory' penalties.


Transaction Monitoring Software for Fintechs


How Sanction Scanner Helps FinTech?


Sanction Scanner provides technology-compatible Anti-Money Laundering solutions to strengthen FinTech company's AML compliance processes.


Most countries have regulations for FinTech, and new regulations come every day. Regulations Anti-Money Laundering and Financing of Terrorism are different in each country. Sanction Scanner is designed with global regulations in mind, and Anti-Money Laundering solutions are always compliant with dynamic global regulations and practices. In this way, the Sanction Scanner can enable FinTech companies to comply with AML Programs. 

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