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Complying with Anti-Money Laundering Regulation in Fintech

Revolut, the digital banking service with over four million registered users across Europe, announced last week that their CFO Peter O’Higgins was leaving the business after three years. The start-up had been battling a damning report by the Daily Telegraph which revealed lapses in compliance between July and September 2018. The digital banking service switched off an anti-money laundering (AML) system designed to flag suspicious transactions, potentially allowing thousands of illegal transactions to pass across the banking platform.

In a blog posted recently, Revolut CEO, Nik Storonsky, has denied allegations of non-compliance and provided an explanation on the AML breach that never was. This however brings back into focus the compliance challenges fintechs face as they continue to grow and its impact on their workforce.

Disruptive Technology and AML regulation

From making faster digital payments to depositing a check to your account using a banking app on your mobile phone (without setting foot in a bank!), customers today are spoilt for choice when it comes to choosing a financial service for managing their finances and day-to-day transactions. Fintech is transforming the way traditional financial institutions operate and the way customers are consuming financial services. Outdated manual processes and operations are now replaced by state-of-the-art apps and software, making the finance sector more user friendly than ever. Even the big financial institutions are moving on from their conservative approach to new technologies and investing in the workforce to develop innovative solutions to compete with fintech unicorns such as Revolut and Monzo.

With transactions taking place online through apps or websites, regulatory bodies, like the FCA, are wary of how new technology could be used for money laundering and other illicit activity by criminals. Most fintech businesses are subject to AML regulation just like any other financial institution or business. In some countries, including the UK, failure to disclose suspicious transactions is considered a criminal offence that could result in a prison term – in addition to fines. This is detrimental to fintech businesses as it will affect their market share and uptake, and lead to poor reputation. After all customers are more likely to have faith in regulated industries than unregulated ones.

Role of the Workforce in Compliance

Fintech businesses must look at the impact on their workforce and how they can ensure compliance with regulations while adapting to digital transformation. The FCA requires financial services firms to maintain robust AML systems and controls, since they are at risk from those seeking to launder the proceeds of crime or to finance terrorism. Knowledge and understanding of compliance are therefore essential to ensure that fintech businesses don’t get caught out by criminals looking to outsmart the system. There is a need for businesses to enforce compliance with a proactive approach, developing controls and processes with security and regulation in mind.

Businesses must also ensure that staff are aware of necessary actions to take when they spot irregularities. As part of AML regulation, the FCA requires financial businesses to file suspicious activity reports when the company knows, suspects or has reason to suspect that a transaction may involve money laundering or other unlawful activity.

In the long term, fintechs are expected to work closely with regulatory and legal bodies to develop a common regulatory framework in order to make compliance more seamless and efficient.

With the UK leading global fintech regulation, the best solution for fintech businesses is to adopt compliance as part of their culture and conduct as they continue to innovate with technology.

Compliance and FCA training from DeltaNet

Find out how DeltaNet can support your business with a wide range of corporate eLearning solutions dedicated to compliance and FCA led regulations. Our eLearning can be delivered as off-the-shelf packages, or we can customise the content to suit your organisation. Visit our website for more information.

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