Mitigating Risk in a New Compliance Landscape: Typologies and Red Flags

Recently, we talked about the importance of valid identification documents in the age of digitization. In order 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 can keep their customers and their business safe when sending and receiving money. You can find out more about the identity verification process here.

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, recently 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 to pertaining to typologies and red flags, the emerging issues with eKYC standardization and the unbanked, and how to mitigate risk in the face of this new compliance landscape.

Typologies and red flags

To guide MSBs, regulators and public institutions publish periodically red flags catalogues to inform best practices for Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) programs. By gathering data from different operators across the world, these publications are able to 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.

In order for a money transfer to be cleared by Ria, 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 transaction.

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. You can find more information about how to stay safe online here.

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.

However, no sector can or should ignore technological advancement, as it brings added value and provides innovate 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 a 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.

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.

Mitigating risk in a new compliance landscape

At Ria, your safety is our priority. These could sound like empty words, especially if the company speaking them are constantly bombarded with lawsuits and fines. However, this isn’t our case.

Our compliance spending percentage falls within the double digits, with hundreds of compliance specialists working 24/7 at our different hubs around the world.

We also have a dedicated anti-fraud department that works closely with customers who may have fallen prey to scammers, offering support and best practices to avoid these situations. This same department takes care of high-risk situations where we believe an attempt has been made to use our services for illicit purposes.

“Despite of the risks associated with MSB business as same as any other financial service, we are in position to affirm that the risk is duly mitigated. We do have in place a robust AML/CTF program fitted with the necessary high skilled analysts and systems. We are able to anticipate to the possible offenders 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 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 this technologies and enhance the collaboration between private companies and enforcement agencies.

Compliance is everyone’s business, and our secret sauce is truly 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 expert 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.