FinTech and AML Program

WHAT IS FINTECH


Financial Technology or FinTech is the technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. FinTech has developed the financial sector using technologies such as mobile banking, mobile payment or cryptocurrencies[i]. FinTechs also provide a variety of financial activities, such as depositing a check with your smartphone, fund-raising for startups, robo-advising or money transfers with a real expansion of their product offerings the last few years. FinTech adoption is higher than ever in our daily lives but so are risks related to money laundering. With the advancement of technology, financial crimes have developed in sophistication. The rise of FinTech innovation has drawn attention of regulators concerned with digitalization and risks related to transaction of anonymous accounts facilitating money laundering for criminals.




FinTech Qualification


In the United States, FinTechs that operate as Non-Bank Financial Institutions (NBFIs) qualify as Financial Institutions and are subject to meeting requirements and to anti-money laundering (AML) oversight from a variety of federal and state regulators. Fintechs subject to AML compliance could include but are not limited to:

- Money Service Businesses (MSBs)

- P2 P Lending

- Payments (payTech)

- Blockchain and Cryptocurrency exchanges

- Crowd funding platforms

- Insurance (InsurTech)

- Trading (TradeTech)


Many FinTech companies qualify as financial institutions under the definition of a money services business. The term "money services business" includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

(1) Currency dealer or exchanger. (2) Check casher. (3) Issuer of traveler's checks, money orders or stored value. (4) Seller or redeemer of traveler's checks, money orders or stored value. (5) Money transmitter. (6) U.S. Postal Service.


An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value. The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity. No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity[ii]


If any products or services a fintech company offers fall within these categories, there’s a high likelihood it may be considered a money services business and subject to BSA/AML requirements.


FinTech AML Compliance Program


FinTechs operating as NBFIs must establish an AML Compliance program. All FinTech companies should prevent the use of their products or services by criminals to launder money or finance terrorism. FinTechs need a special risk-based approach as they provide businesses and consumers with innovative products often leveraging with AI technology with different risk algorithms.


Five Pillars of BSA/AML Compliance


The AML Compliance program must be developed around the five pillars of BSA/AML compliance:

1. System of internal controls

2. Designated BSA compliance officer or individual responsible for day-to-day compliance

3. Appropriate personnel training

4. Independent testing

5. Appropriate risk-based procedures for conducting ongoing customer due diligence – CDD rule[iii]


Failure to implement a comprehensive AML compliance program can expose FinTechs to not only regulatory scrutiny but also to any potential civil or criminal liability.


Although Fintechs should keep their focus on expanding and developing revenue streams and new product offerings, it is essential that they dedicate enough resources and time to develop and implement appropriate AML programs. This would avoid them a heavy price tag of fines, regulatory scrutiny or lost business opportunities.


Having the right AML Controls (e.g. customer identification, sanction screening, transaction monitoring) , technology and expertise from established professionals can help them successfully design and implement an AML program scaled to fit a FinTech model, including a detailed review of the business and prepare effectively a compliance roadmap and culture.


Need help with your AML Program?


Here at UGR, we will help you navigate with success regulations, compliance and AML/KYC requirements needed in your growth journey. We have some of the finest industry experts covering multiple jurisdictions and work with the best digital asset compliance solutions in the industry to meet all your requirements. Our Compliance As a Service (CaaS) allows you to plan, prioritize, and execute against strategic compliance projects and technology initiatives while matching your budget and pay as you need.


Contact us today for a free 30 min consultation!



[i] Wikipedia

[ii] https://www.fincen.gov/money-services-business-definition

[ii] https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule


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