Overcoming AML Challenges for Payment Service Providers
The payments industry has accelerated its digital transformation during the COVID-19 Pandemic. Accepting and managing payments has changed as a result of client behaviours and technological changes. The focus now is on customer excellence, effective operational payments processes, and modernisation.
There is a balance, however, between reducing friction and protecting the payments system from bad actors. While Payment Service Providers (PSPs) are striving to deliver the best experience possible, they are also responsible for performing the due diligence required to identify and verify who they are doing business with, which includes understanding a business’s beneficial ownership. As a result, PSP's need to ensure that they are collecting and verifying beneficial ownership information during the underwriting process, without creating friction in the onboarding process as much as possible.
AML Regulations in the UK and the EU are also evolving along with international standards set by the Financial Action Task Force (FATF). A data-driven approach to customer due diligence (CDD) is now key to meet Anti-Money Laundering (AML) requirements and engage with stakeholders from customers to vendors, partners, and regulators. Recently we have seen G7 Finance Ministers and Central Bank Governors Communiqué supporting the establishing and strengthening of beneficial ownership registers calling on countries across the globe to implement and strengthen FATF’s standards.
The Ecosystem for Accepting and Managing Payments Continues to Evolve
Traditional payment providers are innovating to support the demands of a very competitive environment, optimize the customer payment experience and compete in new revenue streams. PSPs are now servicing their clients remotely with staff working from home. Criminals are using this move to digitalization to become more sophisticated and creative.
Financial crime is increasing and evolving both in-person and online. The use of cash has dropped dramatically during the pandemic in the UK and the EU with a shift to online and contactless transactions. Two-thirds of all Mastercard transactions in the UK are now contactless. Regulations are key for the industry to thrive but it brings challenges from a service provider’s perspective. Customers and business owners expect a 24/7 frictionless experience, so PSPs need to remain competitive, but also compliant.
One of the main AML challenges for a PSP is to obtain current and accurate data on their customers and beneficial owners in a virtual medium in order to assess the risk effectively. This can be made easier by the advancements in document verification technologies and accessing reliable data. Whilst CDD can be burdensome it does allow for PSPs to bring on new business safely and effectively whilst maintaining their regulatory obligations.
Regulatory Challenges and Penalties non-Compliance
The payments industry is undergoing a period of significant change with the EU’s Payment Services Directive 2 (PSD2) and the SEPA Instant Credit Transfer (SCT Inst) scheme to allow euro transactions to be processed in seconds at any time (24/7/365). PSD2 created opportunities for new PSPs to offer and support innovative customer products.
Instant payments are now expected in the agile business’ ecosystem of the new virtual world. PSPs can have a competitive advantage by adopting technologies that can help automate onboarding, fraud prevention, and also boost regulatory compliance. Adopting a solution like UBO Service can help with manual and regulatory compliance functions which obliged entities, like banks, know better than anyone is of utmost importance. If a bank deprioritizes these activities or loses focus for just an instant, you can be sure that the regulator will be knocking at the door.
Regulators are increasing penalties for individuals and companies for non-compliance. They are using the lessons learned from crises such as Wirecard and EML:
Wirecard scandal: The Financial Conduct Authority (FCA) in the UK called all Wirecard regulated activity to a halt. That translated to millions of credit card customers not able to use their cards. UK-based banks that did not own their banking license, were using Wirecard for processing purposes. Customers were left unable to use their money and Germany called for a review of their accounting regulation after Wirecard collapsed.
EML: Shares dropped 46 % on May 19th as EML revealed the Central Bank of Ireland (CBI) was considering taking action against PFS Card Services (Ireland) Ltd, part of Prepaid Financial Services (PFS), which EML bought last year. The CBI’s concerns related to anti-money-laundering and counter-terrorism financing matters, risk, control frameworks, and governance at PFS Card Services (Ireland).
Create Value and a Competitive Advantage for your Organization with AML Solutions
Scandals and issues like the ones created by Wirecard and EML are driving regulators to review and introduce further regulations to protect customers and the financial system. PSPs should anticipate and prepare for new regulations and understand the requirements to ensure ongoing compliance. It will be risky to ignore these.
PSPs face sophisticated attempts by criminals to exploit any AML/KYC weaknesses. This includes the use of complex clients’ entities, multiple instruments like mobile apps, cards, and other channels to hide transactions. The importance of KYC procedures is key to verify third parties by using primary sourced data as part of their due diligence and screening procedures.
The implementation of instant payments does not need to impact the efforts for AML, fraud detection, and verifying your Ultimate Beneficial Owners. Fortunately, technology can help with this.
Your customers expect transactions to be completed instantaneously and regulatory compliance should not stand in the way. Adopting a digital solution like UBO Service will reduce PSP's regulatory risk and operational costs. We provide detailed AML reports on individuals, businesses, and beneficial owners, ensuring you know who you are doing business with and meet your regulatory requirements.
Reduce unnecessary delays during onboarding and begin processing payments quickly and easily. Our reliable and enhanced due diligence tools provide the structure, speed, and flexibility needed to conduct efficient and effective customer screening for AML, PEP’s, Sanctions, Ownership, and other financial crime risks.