AML / KYC - KEEPING INVESTMENT PLATFORMS FREE FROM FRAUDSTERS - Page 8 (Feature story) - PYMNTS.com
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JANUARY 2019
AML /
KYC TRACKER™
KEEPING
INVESTMENT
PLATFORMS
FREE FROM
FRAUDSTERS
- Page 8 (Feature story)
UBS fined $15 million for How a DIY approach to AML/KYC
lax AML practices can create a standardization gap
– Page 12 (News and Trends)
– Page 17 (Deep Dive)
TABLE
OF
CONTENTS
3 17
WHAT’S INSIDE DEEP DIVE
Presenting the inaugural AML/KYC Tracker™, Fighting Fraud With AI And ML
a PYMNTS and Trulioo collaboration. An examination into how the 2008
This monthly report highlights how new financial meltdown paved the way for
technologies and solutions are helping existing AML/KYC practices, and how FIs
FIs and merchants comply with AML can work toward remaining compliant
regulations while following KYC best
practices
8 22
FEATURE STORY ABOUT
Keeping Investment Platforms Free Information about
From Fraudsters PYMNTS and Trulioo
An interview with Anthony Couture,
investment platform FrontFundr’s chief
compliance officer, on ensuring investors
and entrepreneurs stay safe from fraud and
friction
12
NEWS AND TRENDS
A look at the new solutions improving
KYC and onboarding processes for banks,
merchants and retailers, including AML
offerings from Pay.UK and KYC solutions
from Arachnys
ACKNOWLEDGMENT
The AML/KYC Tracker™ was done in collaboration with Trulioo, and
PYMNTS is grateful for the company’s support and insight. PYMNTS.com
retains full editorial control over the findings presented, as well as the
methodology and data analysis.
3
WHAT’S
INSIDE
T
he global economy’s expansion is bringing vehicle owners looking to drive for Uber will likely abandon
new opportunities to a range of markets. the operation — and possibly turn to a competing platform —
Businesses are no longer limited by if they encounter cumbersome onboarding processes.
geography when promoting their brands,
products and services, and can instead This conundrum presents a challenge for merchants engaged
reach fresh overseas regions and new client pools. in global business: How can they remain confident that they
are transacting with trustworthy actors while also matching
Consider today’s rapidly growing sharing economy, which the speed the global economy demands?
is dominated by high-profile companies like Uber, Lyft and
Airbnb and engages some 162 million consumers in the To keep up, companies must deploy top-notch know-your-
United States and European Union. The market is on track customer (KYC) solutions that can quickly verify users.
for even greater expansion in the coming years, with the U.S.
Of course, market regulators are also working to ensure
expected to see approximately 86.5 million users by 2021.
transactions are legitimate as money flows faster in the
The sharing economy would not be facing such expansion global economy. Aside from quickly identifying all parties
potential if its participants were unable to trust each other, involved in a financial transaction, banks, retailers, payment
however. Property owners who rent out their homes on providers and enterprises must also make certain that cash
Airbnb must be able to believe that a customer who presented flow complies with local regulations.
a certain identity online matches the person who will show
This global growth has prompted an ever-larger share of
up with a suitcase in hand.
regulatory agencies to implement anti-money laundering
On top of that, sharing platform verification must essentially (AML) and fraud efforts. The U.S. Federal Deposit Insurance
be second nature when it comes to onboarding users. Corp. (FDIC), Financial Crimes Enforcement Network (FinCEN)
Property owners posting listings to a home rental site or and Office of the Comptroller of the Currency (OCC) recently
© 2019 PYMNTS.com All Rights Reserved January 2019
What’s Inside 4
issued a joint AML statement highlighting new technologies’
potential to boost related systems. Artificial intelligence (AI)
can be used to rapidly monitor millions of global transactions
and report suspicious activities, for example. Other agencies
and third-party players are exploring blockchain, which offers
an unalterable record of transactions, to track money’s global
moves.
Shifting regulations are also prompting markets to make
new investments in AML and KYC solutions. The U.K.’s open
banking initiative requires banks to provide third-party
providers and FinTechs access to their data. The move aims
to level the playing field, empowering the latter to use banks’
data toward financial services product innovations. The
effort is already leading to partnerships between financial
institutions (FIs) and large technology firms. U.K. bank HSBC
recently announced a cloud-based AML collaboration with
Google Cloud that relies on Google’s storage capabilities to
reduce financial risks.
So, how can businesses eager to expand into new global
markets be confident that they are transacting with
trustworthy partners and legally handling money? They are
quickly learning that it pays to have help navigating the ever-
shifting world economy terrain.
That global economic growth is creating a market for solutions
to help banks, FinTechs, retailers and other businesses remain
AML regulation-compliant and follow proper KYC practices.
In that vein, PYMNTS presents the brand-new AML/KYC
Tracker™, a monthly guide for players venturing into uncertain
global trade waters. The report is produced in collaboration
with Trulioo and highlights the expanding roles technologies
and solutions have in helping various global firms seamlessly
authenticate while remaining compliant with regional AML
efforts.
© 2019 PYMNTS.com All Rights Reserved January 2019
What’s Inside 5
Each Tracker will showcase the latest developments in the mint their tokens and list them in phases on Aphelion DEX.
AML/KYC space, including blockchain-based tools and the
newest products changing KYC. It will also consider how Other financial firms are facing regulatory fines for delivering
these solutions are being used by sharing economy platforms. underwhelming AML efforts. Morgan Stanley Smith Barney
LLC was among the FIs affected, hit by a $10 million Financial
Industry Regulatory Authority (FINRA) fine for failing to meet
NEWS FROM THE AML/KYC SPACE
key Bank Secrecy Act (BSA) requirements. Allegations include
Several companies released solutions to improve AML and insufficient monitoring of penny stock activity for potentially
KYC efficiency in the past few weeks. Among them was risk suspicious activity, among others.
intelligence solutions provider Arachnys, which launched its
new Arachnys Customer Relations Intelligence platform to Morgan Stanley was not alone in drawing FINRA’s ire, though.
help FIs sharpen their AML and KYC priorities. Its offerings UBS Financial Services (UBSFS) and UBS Securities (UBSS),
include real-time money laundering interdiction and two divisions of Swiss investment firm UBS, also faced a
accelerated client onboarding features, among others. combined $5 million in fines for failing to implement sufficient
penny stock AML programs. The company was recently hit
New features were also added to person-to-person (P2P) with an additional $5 million in fines by both the Securities
cryptocurrency trading platform Aphelion. The company and Exchange Commission (SEC) and FinCEN for other AML
announced that its ICO Hub had been added to DEX, its violations.
decentralized exchange, to remove the complications
presented by KYC processes and token distributions. This will For more AML/KYC developments, turn to the Tracker’s News
be accomplished by enabling initial coin offerings (ICOs) to and Trends section (p. 12).
© 2019 PYMNTS.com All Rights Reserved January 2019
What’s Inside 6
KEEPING INVESTMENT PLATFORMS FREE FROM month’s feature story (p. 8), Anthony Couture, chief
FRAUDSTERS compliance officer of investment platform FrontFundr,
explains how the company provides tight security
Building trust is critical in the financial services
without instituting so many steps that customers feel
industry, as one security slip-up too many can
they’re jumping through hoops to use its service.
quickly scare off participants. That’s a major concern
for investing platforms that seek to link enterprises
looking to grow with investors looking for profit. These DEEP DIVE: THE TROUBLE WITH EXISTING AML/
platforms need to assure investors that their money KYC
will go where it is intended — and not into the hands Each Tracker will take a Deep Dive into the AML/
of a fraudster masquerading as a legitimate entity — if KYC market. The inaugural edition includes a look at
they want to stay in business. They must also ascertain the current state of compliance, why many FIs have
that investors are who they claim to be and are not struggled with standardization and an examination of
engaging in criminal activity like money laundering. recent years’ top AML/KYC offenders.
Keeping everyone safe and compliant with local and
federal regulations requires constant vigilance. In this
© 2019 PYMNTS.com All Rights Reserved January 2019
What’s Inside 7
FIVE $1.7B
FAST APPROXIMATE VALUE OF
THE FINES ISSUED BECAUSE
OF AML COMPLIANCE
FACTS
FAILURES IN THE FIRST
HALF OF 2018
75% 44%
SHARE OF SENIOR COMPLIANCE ESTIMATED SHARE OF AFRICAN
AND CORRESPONDENT BANKING BANKS THAT IDENTIFIED KYC
PROFESSIONALS WHO STRUGGLE TO AND KYCC REGULATIONS AS
COMPREHEND AND COMPLY WITH BARRIERS TO IMPLEMENTING
LOCAL KYC REGULATIONS SUPPLY CHAIN FINANCE
SOLUTIONS
64% 76%
PORTION OF FINTECH FIRMS’ SHARE OF CORPORATE AND
SENIOR COMPLIANCE BUSINESS SURVEY RESPONDENTS
PROFESSIONALS WHO AGREE WHO IDENTIFIED CUMBERSOME
THAT AML COMPLIANCE PROCESSES AND HIGH COSTS AS KYC
REGULATIONS SHOULD ALSO CHALLENGES
COVER ADVERSE MEDIA
© 2019 PYMNTS.com All Rights Reserved January 2019
FEATURE
8
STORY
KEEPING INVESTMENT
Platforms Free From
F r a u d s t e r s
© 2019 PYMNTS.com All Rights Reserved January 2019
Feature Story 9
“ The financial services industry is a trust
industry. If you have too many instances [in
which] that trust is damaged, it hurts the “
whole systemic nature of our economy.
Anthony Couture,
chief compliance officer at FrontFundr
T
his month, police arrested 63-year-old George David Sure, not everyone involved is acting in good faith, but
George in relation to an investment scheme through entrepreneurs and investors are still drawn together in hopes
which he allegedly defrauded investors of millions of mutual benefit. The former need cash infusions to get
of dollars. George’s company, WellCity, marketed their business ideas off the ground or advance their latest
itself as a social media network for the health and projects. The latter want to put their money to work for them,
wellness marketplace run out of Brentwood, Tennessee. The con reaping profits and boosting the companies that appear to be
man pleaded guilty to misrepresenting his company in 2016, pursuing compelling endeavors.
then later withdrew his plea and disappeared while on pre-trial
release. Funding platforms seek to bridge the gap between these
parties and make the processes as safe as possible. They’re
George is now facing charges for lying to investors about his on the hook with regulators should something go wrong, after
company’s assets and revenues, falsely claiming WellCity all.
had “million-dollar proprietary software and million-dollar
contracts with corporate sponsors,” according to assistant The threat of fraud forces fundraising platforms into a delicate
U.S. attorney Ryan Raybould. balancing act, one in which they must comply with various
region-specific regulatory rules while continually updating
Investing is rife with risks, and this is far from the only case their client-safety approaches. At the same time, these entities
in which an entrepreneur has looked good on paper but cannot introduce so many steps and frictions that customers
turned out to be a fraudster. These bad actors often make off are turned off by using the services they provide.
with investment funds for personal benefit or funnel them
into illegal operations. On the flip side, an interested party Among the platforms facing this challenge is FrontFundr,
claiming to be a normal investor could be hiding a money an online investment portal operating in eight Canadian
laundering scheme. provinces that focuses on helping established and newer
investors connect with early-stage companies. PYMNTS
© 2019 PYMNTS.com All Rights Reserved January 2019
Feature Story 10
recently caught up with Anthony Couture, the firm’s chief sending and receiving money, and comply with anti-terrorist
compliance officer, to discuss how it balances keeping funding (ATF), AML and KYC guidelines, among others. That
investors and entrepreneurs safe from fraud with a friction- requires analyzing investment data and monitoring for
free experience. inconsistencies that could indicate criminal involvement.
The stakes are high, Couture said. Things going wrong “We want to have consistent and reliable information on
and bad actors running unchecked could harm not only a the individual who comes to the platform,” Couture said.
particular platform, investor or enterprise, but also damage “[This is] both to undertake our responsibilities and also to
faith in the system. provide a modicum of protection for issuers that come to our
platform, so that they know that the money and capital they’re
“The financial services industry is a trust industry,” he receiving is coming from a place of good intention — not from
explained. “If you have too many instances [in which] that bad actors within the marketplace.”
trust is damaged, it hurts the whole systemic nature of our
economy.” Such consistency can be difficult to achieve, though, especially
for smaller operations. Partnering with a specialized third-
STAYING A STEP AHEAD OF CRIMINALS party — in FrontFundr’s case, Trulioo — can help these players
gain access to additional resources and a deeper data pool.
Investment firms typically face more extensive oversight Both help them remain vigilant in the fight against fraudsters.
procedures than nonprofits or other organizations focused
on donations-based fundraising. To stay on the right side of “Bad actors within this area tend to move quickly,” Couture
the law, investment platforms must be able to identify who is said. “Those providers that are helping companies like ours
© 2019 PYMNTS.com All Rights Reserved January 2019Feature Story 11
address these responsibilities must move quickly as well, Educating clients on why the platform asks for certain
and alter their products accordingly so that we can remain information can help, as those who know the value of
competitive.” providing such sensitive details are often more willing to do
so. Investing platforms must strike the right balance between
RETAINING CUSTOMERS security and convenience for their customers if they want to
keep money flowing. Potential investment gains are high, of
Customers who wish to interact on the FrontFundr platform course, but the damage from becoming entangled with bad
must register and undergo a KYC process, which is intended actors can be quite severe.
to help ensure they are who they claim. Identity verification
can’t be too long or burdensome, however, or users might find “The risk for entrepreneurs can be significant, [particularly if
it too painful and switch to a competitor. they accidentally end up involved in] money laundering or
nefarious activities,” Couture said.
“It’s a delicate dance,” Couture said. “Coming up with a
program that allows clients to come to the process [and] The right security strategy and partners can make a significant
give us what we need, but also allows for a very smooth difference.
onboarding experience — [that] is a challenge.”
© 2019 PYMNTS.com All Rights Reserved January 201912
NEWS
&TRENDS
NEW KYC TOOLS
ARACHNYS LAUNCHES NEW CRI PLATFORM
and on-chain token distributions can consume both time
Customer Risk Intelligence (CRI) platform provider Arachnys and money. Aphelion’s ICO Hub will be the first DEX-based
recently launched a cloud-native offering to help FIs improve ICO of its kind, enabling token minting and listing in phases
their KYC efforts. The solution provides real-time money on the DEX — without requiring entities to build and pay
laundering interdiction and accelerated client onboarding, for their own KYC or token distribution models. The hub will
according to a press release announcing the launch, also achieve regulatory compliance after blacklisting U.S
as well as investigative knowledge syndication, re-use participants from engaging in DEX trading activities.
of compliance data exhaust and analyst empowerment
features.
THE FINANCIAL
CRI aims to help financial firms expedite onboarding by
several weeks, offset potential AML remediation costs and
PENALTY BOX
increase investigative throughput with fewer false positives MORGAN STANLEY FACES $10 MILLION FINE FOR AML,
and quality assurance error rates. The platforms share SUPERVISORY FAILURES
several attributes, including a cloud-native solution for global
use, an entity-centric infrastructure and a curated online Some FIs are paying stiff penalties after failing to meet AML
information library tailored to firms’ compliance policies — all requirements. FINRA, a nonprofit organization authorized
to deliver differentiation and financial crime prevention. to regulate U.S. financial services, announced in December
2018 that it had levied $10 million in fines against Morgan
Stanley Smith Barney LLC for failing to meet BSA-based AML
APHELION ADDS NEW FEATURE TO PLATFORM, standards over a five-year period.
RELAUNCHES DEX
P2P trading platform Aphelion recently added a new function First, the FI’s automated AML surveillance system did not
to its own cryptocurrency trading platform. The company receive crucial data from several systems, shortchanging
announced the introduction of the Aphelion ICO Hub to its its ability to regulate billions in international wire and
Aphelion DEX decentralized exchange. ICO operation requires foreign currency transfers — including in countries that
integrated KYC, the company noted in a recent Medium post, carry high money-laundering risks. Second, Morgan Stanley
© 2019 PYMNTS.com All Rights Reserved January 2019News and Trends 13
against UBS Financial Services (UBSFS) and UBS Securities
(UBSS). The penalties were incurred for failure to implement
AML programs and monitor certain high-risk transactions,
such as foreign currency wire transfers at UBSFS and low-
priced equity securities at UBSS. FINRA’s fine against UBSFS
was $4.5 million while UBSS saw just $500,000.
The nonprofit claims UBSFS used lax oversight while
processing foreign currency wire transfers worth billions
from 2004 to 2017, and that UBSS failed to monitor penny
stock transactions. Swiss-based UBS was recently fined $5
million by both the SEC and U.S. Department of Treasury’s
FinCEN group for additional AML violations. It is currently
facing scrutiny from the U.S. Department of Justice for its role
in selling complex financial services products that may have
contributed to the 2008 financial crisis.
NEW AML SOLUTIONS,
ROLES
CREDIT UNIONS ASSUME NEW ROLE IN AML FIGHT
allegedly did not allocate sufficient resources to review
alerts generated by the system and frequently closed alerts Banks are not the only FIs that must meet AML and KYC
without adequate review. Finally, it did not take enough regulations, though. Credit unions (CUs) are member-owned
action to monitor penny stock deposits and trades. and operate on a profit-sharing model — they must also
comply with BSA requirements. AML and KYC regulations
On that last point, Morgan Stanley customers deposited often put CUs in the uncomfortable position of acting as law
approximately 2.7 billion penny stock shares and generated enforcement agencies, according to Colleen Kelly, senior
$164 million over five years. FINRA found it had failed to federal compliance counsel for the Credit Union National
comply with a provision of the BSA that bans the offer Association (CUNA). She recently spoke with PYMNTS about
and sale of unregistered securities, and that it had shifted how such requirements can extend into various layers
responsibility for vetting customer deposits and sales to of CU operations, encompassing front-facing staff, back-
branch management and home office departments without end workers, senior management and even the board of
proper coordination. directors.
One of the biggest challenges relates to cash transactions
UBS FINED $15M FOR LAX AML PRACTICES
greater than $10,000, which often trigger suspicious activity
Morgan Stanley was not the only FI to land in FINRA’s reports (SARs) that must be filed with FinCEN, Kelly said.
crosshairs, as the nonprofit also levied $5 million in fines SARs might ultimately prove unwarranted, but they can
© 2019 PYMNTS.com All Rights Reserved January 2019News and Trends 14
spread a CU’s resources thin in the process. Fortunately, In a statement, Trulioo CEO Stephen Ufford called compliance
several agencies — including the Federal Reserve Board, a “complex topic” and said the comic was designed to help
NCUA, FDIC, OCC and FinCEN — released new rules in explain compliance professionals’ jobs and responsibilities. It
October 2018 that outlined how banks and CUs can share also aims to highlight the importance of regulations around
resources to bolster AML efforts and streamline BSA the globe, and is available online as a printable coloring
compliance. book or in full-color digital book format.
CAN COMIC BOOKS BOOST COMPLIANCE AND AML GLOBAL AML/KYC
EFFORTS?
INITIATIVES
At least one company is taking a slightly unorthodox
approach to raising awareness about AML and KYC PAY.UK LAUNCHES NEW AML SOLUTION
compliance. Identity and verification solutions provider
Several new solutions have been released worldwide to
Trulioo recently produced a free comic and coloring book
help companies meet AML and KYC requirements, like
entitled “The Adventures of ID Man and Compliance Kid.” It
those from U.K.-based Pay.UK. The financial services firm’s
was written for adults and children, following the adventures
Faster Payments team recently introduced its Mule Insights
of a compliance officer with a superhero alter ego, “ID Man,”
Tactical Solution (MITS), a feature that tracks fraudulent
and his daughter, “Compliance Kid.” Together, the duo fights
transaction flows for both bank and CU accounts. The
villain Moneybags’ money laundering schemes.
support technology was developed by payment solutions
© 2019 PYMNTS.com All Rights Reserved January 2019News and Trends 15
provider Vocalink, and collects payment data, analytics and
algorithms to detect and highlight suspicious activities.
“By bringing together payments data from multiple banks
in a secure way, we are able to deliver a new kind of
intelligence that analyzes billions of transactions, connects
the dots and then [identifies] how the laundered money
is split, layered and dispersed across the whole banking
network,” said David Rich, Vocalink’s executive vice
president, in a statement.
FRENCH BANKS, COMPANIES COMPLETE
BLOCKCHAIN-BASED KYC TRIAL
More than two dozen French companies and five major
banks have been trialing a potential blockchain-based KYC
solution called CordaKYC. A press release from automotive
financing and insurance solutions provider RCI Bank and
Services said the test was conducted in conjunction with
the Association Française des Tresoriers d’Enterprise (AFTE),
and that participating firms represented department stores,
food processing, insurance, pharmaceuticals, investment
management and aerospace, among other industries. intensive” KYC processes can be “radically simplified”
using a distributed blockchain solution. Its first phase was
RCI Bank is a member of the R3 consortium, a group completed with the Financial Services Regulatory Authority
that focuses on blockchain research. It revealed that trial (FSRA) and project adviser KPMG.
participants were able to implement KYC requests within
a shared network, banks were able to request data access ADGM’s KYC app aims to offer FIs a single location in
and business clients could approve and revoke access with which customer identification and verification can be
all data being recorded on the blockchain. completed just once for a customer rather than multiple
times. The company claims it offers an unalterable audit
trail, secure data sharing, compliance with the EU’s General
ADGM COMPLETES KYC APP TRIALS
Data Protection Regulation (GDPR) privacy rules and
United Arab Emirates-based Abu Dhabi Global Market interoperability with both third-party systems and customer
(ADGM) — an international financial center that supports consent.
member institutions by developing and providing regulatory
framework, legal jurisdiction and business environments
DUBAI JEWELRY TRADE GROUPS JOINS INDIA’S
to grow their businesses — has reported that its own
MYKYCBANK PLATFORM
blockchain-based KYC app’s trial has completed. The
test found that often “cumbersome, repetitive and cost In other UAE news, a group of Dubai’s jewelry trade groups
recently took steps to help members remain compliant
© 2019 PYMNTS.com All Rights Reserved January 2019News and Trends 16
MyKYCBank was launched by GJEPC last year after billionaire
Nirav Modi defrauded the Punjab National Bank (PNB) of
approximately Rs13,000 crore (roughly US$2 billion) in early
2018.
MONAMI TECH LAUNCHES NEW KYC SOLUTIONS FOR
UAE
Another UAE-based company recently launched a KYC
solution of its own. Dubai-based FinTech Monami Tech has
released its EZmatch and EZverify solutions to help FIs offer
better user experiences, prevent fraud, mitigate risks and
meet compliance regulations. EZmatch’s facial recognition
software was designed to enable streamlined onboarding by
verifying a person’s identity in a digital image or video frame.
The EZverify solution offers real-time ID verification to reduce
both fraudulent activity and the time required to meet
KYC requirements during application or account creation
processes.
BELFRICS GROUP RELEASES KYC-COMPLIANT
when trading with India-based partners. The Gems and BLOCKCHAIN SOLUTION
Jewelry Export Promotion Council (GJEPC) and Dubai A Malaysian company’s new solution also aims to make
Diamond Exchange (DDE), a Dubai Multi Commodity Centre KYC processes less time-consuming. Belfrics Group, a
(DMCC) subsidiary, recently signed an agreement to join the FinTech specializing in blockchain-based solutions and
country’s MyKYCBank platform. cryptocurrency exchanges, recently launched its Belrium
Mainnet offering. The product was designed to reduce the
MyKYCBank offers a centralized platform for global gems
time enterprises spend onboarding customers, simplify
and jewelry industry companies to complete, manage and
compliance and eliminate the need for repetition. Belfrics
share their KYC information and more easily comply with
plans to replace its traditional Belfrics Exchange KYC system
local AML laws. The agreement allows industry members
with the new Belrium blockchain verification.
to join the platform, and makes it easier for banks to
review companies’ relevant KYC information. It also aims The company has goals to release two additional
to reduce KYC regulation compliance costs while offering decentralized blockchain apps (dapps), one for certificate
greater transaction transparency, especially for FIs and issuance and another for payroll. The dapps will make it
governments. easier for small- to medium-sized businesses (SMBs) to
experience distributed ledger technology’s potential benefits.
© 2019 PYMNTS.com All Rights Reserved January 2019DEEP
17
DIVE
THE TROUBLE WITH
EXISTING AML/KYC
HOW TO IMPROVE
EXISTING AML/KYC
REQUIREMENTS
Banks, CUs and other FIs have a significant Failure to meet AML/KYC requirement challenges can
responsibility, one that goes far beyond managing be costly for FIs, too, with regulators issuing heavy
customers’ financial assets: They’re tasked with fines for lax security practices or failure to devote
safeguarding the financial services ecosystem against sufficient resources to oversight. Money laundering
bad actors, money launderers and other criminals. remains a significant problem in the financial services
sector, though, despite the urgency brought about by
A series of regulations was established to encourage a 2008. Some of the highest activity has been reported
safer, more transparent financial services environment in Europe, with a recent report finding that 90 percent
following the 2008 financial crisis. FIs have made of the region’s banks have been sanctioned for money
strides in establishing KYC and AML policies, but laundering in the past decade. The United Nations Office
these changes are routinely challenged by emerging on Drugs and Crime (UNODC) estimates the market for
technology and cross-border transaction costs. global money laundering is worth approximately $2
trillion per year.
© 2019 PYMNTS.com All Rights Reserved January 2019Deep Dive 18
It’s clear that money laundering is not going away on its
own, and understanding potential solutions first requires
grasping the current state of AML/KYC efforts. The following
Deep Dive examines both the financial penalties FIs can face
as well as the best practices to remain AML/KYC regulation-
compliant.
A DIY APPROACH TO AML/KYC
One of the problems that AML/KYC procedures face is
lack of standardization. The issue dates to 2014, when
the procedures were first rolled out by FinCEN, which
intentionally left out specific authentication standards that
FIs must follow. It did this in hopes that such groups would
implement their own high standards and raise the bar for
stricter compliance requirements.
Allowing banks and FIs to pursue do-it-yourself
standardization has unfortunately resulted in a chaotic
and confusing system. Different institutions use varying
forms of customer identification for verification, for example.
One bank might require a birth certificate or passport,
but another might need to see a Social Security card or USHERING IN AN AML/KYC CULTURE CHANGE
government-backed identification in addition to a driver’s Technology isn’t the only way FIs can address AML/KYC
license. issues. Another is adopting a more aggressive approach
to rooting out bad actors, a top goal in places like Europe
A confusing verification process further contributes to
where money laundering continues to be a significant
onboarding frictions, often causing customers to re-evaluate
problem.
their FI relationships. This puts FIs in the delicate position
of trying to balance meeting AML/KYC obligations with The region has faced 83 separate AML-related fines awarded
delivering smooth onboarding and verification. To strike by 17 regulators in the past decade, with total penalties
the right balance, they must embrace automated identity valued at approximately $1.7 billion. London-based AI firm
verification technology during the onboarding process. This, Fortytwo Data recently reported that 18 of the 20 banks in
in turn, can offer a more thorough customer identification the region had been sanctioned for AML-related offenses in
review. the past 10 years, including Barclays, BNP Paribas, Deutsche
© 2019 PYMNTS.com All Rights Reserved January 2019Deep Dive 19
Bank, HSBC, ING, Lloyds and Santander. fines in Europe in the past 10 years. It appears ready to make
AML/KYC even more of a priority with its Senior Managers
The Dutch market faced the highest AML violation penalties and Certification Regime (SM&CR), a program which took
in a decade in 2018. Following a joint investigation with effect last year to make financial services more accountable.
U.S. authorities, ING admitted that criminals had laundered Under the new rules, the FCA will need to approve senior
money through its accounts between 2010 and 2016 managers at financial services firms and ensure that they
because of “serious shortcomings” in enforcing due clearly understand their responsibilities.
diligence policies. The bank was fined $900 million to settle
the investigation. Europewide rules could also further AML/KYC cultural shifts.
The implementation of new legislations like the GDPR and
Certain European markets are flexing more regulatory the updated Markets in Financial Instruments Directive
muscle than others, though. The U.K.’s Financial Conduct (MiFID II) in 2018 could lead to even greater enforcement
Authority (FCA) is a current leader in enforcement, efforts. FIs will face a higher AML/KYC compliance bar as
accounting for more than 30 percent of issued AML/KYC
© 2019 PYMNTS.com All Rights Reserved January 2019Deep Dive 20
regulators become more aggressive. They must adopt their for KYC and AML checks. Potential customers flagged as
own cultures of due diligence to meet rising expectations, politically exposed persons can be assigned higher risk
avoid running afoul of regulators and reduce the risk of hefty scores, and FIs can perform random ID checks throughout
fines. patrons’ customer life cycles.
There are several steps banks can take to remain compliant It appears banks have a clear path forward as regulators
while delivering smooth onboarding processes. They can prepare to turn up the AML/KYC heat: Get aggressive about
onboard high-value customers when physically in a branch compliance or risk getting burned by fines.
location, for example, and ask for a wide range of ID types
© 2019 PYMNTS.com All Rights Reserved January 201921
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Trulioo, an identity verification solutions provider, aims to create products that can
solve online identity verification challenges in ways that are accessible to both
SMBs and large enterprise customers. The company offers a single portal/API
that assists businesses with their AML/KYC identity verification requirements by
providing secure access to more than 5 billion identities worldwide.
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