Recently, we talked about the importance of valid identification documents in the age of digitization. To access online financial services, a customer’s identity needs to be validated through eKYC measures. The money transfer industry, responsible for processing billions of dollars in remittances sent worldwide, is no exception.
By following the latest regulations and best practices, money transfer operators (MTOs) like Ria Money Transfer can keep their customers and their businesses safe when sending and receiving money. But, as times change and the internet takes over, MTOs need to find a balance between digital and traditional measures to ensure unbanked customers, who often lack proper identification, can continue receiving the much-needed aid from their loved ones living abroad.
Miguel Aguado, Ria’s FIU Senior Manager for Europe, the Middle East, Africa, and Asia, participated in the 11th International Conference on Financial Crime and Terrorism Financing celebrated in Kuala Lumpur, Malaysia. At the summit, he shared his expertise on the latest threats and trends in the money services business (MSB). Below, we will walk you through the key takeaways from his research on typologies and red flags, the emerging issues with eKYC standardization and the unbanked, and how to mitigate risk in the face of this new landscape, which includes BSA / AML compliance.
What is AML compliance?
AML (Anti Money Laundering) compliance refers to programs and procedures adopted by financial institutions to follow regulations and laws that prevent money laundering. In that sense, AML and KYC compliance are related. KYC rules are used to verify the identity of customers, and thus aid in AML compliance measures. For instance, The Bank Secrecy Act (BSA) approved by the United States Congress In 1970 is part of the BSA / AML compliance landscape, ensuring banks and financial institutions work with the government to prevent money laundering and other related crimes.
Typologies and red flags
To guide MSBs, regulators and public institutions publish periodically red flag catalogs to inform best practices for Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance programs. By gathering data from different operators across the world, these publications provide robust guidelines for MTOs and other businesses in the finance sector.
“Red flags and typologies are dynamic, the approach that works today may not work tomorrow. Therefore, only through a constant and consistent analysis of data and monitoring, we can achieve the effective protection of our customers, our business, and our society,” shared Aguado.
For us to clear a money transfer, several things need to match up. For example, if John Doe, who is Canadian living in Bolivia, needs to send money to Jane Doe, his sister, who lives in Nigeria, then we expect his last name to match his sister’s. Otherwise, we’d need to ask for extra documentation to prove the relationship and purpose of the transaction. This way, we can follow all AML compliance measures.
Just because something smells fishy, doesn’t mean it is. Still, we need to do enhanced due diligence and take a closer look at the transfer if our system has flagged it as possible foul-play. This can happen if we fall prey to online schemers or are tricked by acquaintances to send money to a third party on their behalf.
Emerging issues when merging traditional and new payment methods
As we’ve discussed, the emergence of eKYC brings about unique challenges for the underbanked. If we remove all forms of physical KYC measures, what happens with the many customers who rely on traditional identification to receive funds?
MSBs play a key role in serving the most financially vulnerable, so we should be the first to put our foot down in the face of total digitization. With 1.7 billion unbanked adults in the world, money transfer operators have a responsibility to continue serving these customers, while also following AML compliance rules.
However, no sector can or should ignore technological advancement – such as edge computing – as it brings added value and provides innovative solutions to age-old problems.
At the same time, digital-only payment methods require a higher level of mitigation. New players, who have only existed in a digital world, will struggle to secure these kinds of licenses that often require physical presence within each jurisdiction.
In fact, going digital-only before having specific risk-mitigating controls could prove detrimental from an AML compliance perspective. Among the risks associated with new payment methods, not backed by a physical network, is a higher level of anonymity, being subject to more permissive regulations, and finding difficulty identifying a customer’s location with certainty. For hybrid methods, we need to keep in mind that different licenses, jurisdictions, and regulations will apply.
However, for us, who started out traditional, it is easier to have these in check. Before the digital age descended upon us, we already had the necessary operating licenses in the many countries currently shaping our money transfer network.
A new compliance landscape
At Ria Money Transfer, your safety is our priority. These could sound like empty words, especially if the company speaking them is bombarded continuously with lawsuits and fines. However, this isn’t our case.
Our compliance spending percentage falls within the double digits. We also have hundreds of compliance specialists working 24/7 at our different hubs around the world. A dedicated anti-fraud department works closely with customers who may have fallen prey to scammers. They offer support and best practices to avoid these situations. This department also takes care of high-risk situations where we believe our services might have been used for illicit purposes.
“Despite the risks associated with MSB business as same as any other financial service, we are in a position to affirm that the risk is duly mitigated. We do have in place a robust AML/CTF compliance program fitted with the necessary high skilled analysts and systems. We can anticipate possible offenses by applying a surgical and risk-based approach that protects our business and allows us to provide a high quality and safe service to our customers,” commented Aguado.
Ria Money Transfer counts with the latest compliance technology, including graph visualization tools, that allow us to detect possible networks, unusual relationships, and hidden trends by analyzing the entire database in real time. At the same time, we collaborate with public institutions at the highest level to extend the usage of these technologies and enhance the cooperation between private companies and enforcement agencies.
AML compliance is everyone’s business, and our secret sauce is genuinely getting to know our customers. From our cashiers, who take the time to listen to our customers and can recognize when something is off, to our compliance officers, who study every flagged case carefully, consulting with other in-house experts whenever necessary.
We know many are joining the digital-only race, but we will continue to offer hybrid solutions as long as there are customers who need it and risk to be mitigated.