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 Outdated manual processes and operations are now replaced by state-of-the-art apps and software, making the finance sector more user friendly than ever.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 VinciWorks

Find out how VinciWorks 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.

How can Compliance Keep up with Fast-Moving FinTech?

New technologies have revolutionised how we do business, find love, travel and shop. And more recently, the digital age has shaken up the worlds of finance and banking.

But as people move to innovative banking and saving formats, how can regulators protect the public while also providing a level playing field for established banks and new entrants alike?

And how can the new breed of FinTech companies adhere to regulations without being crippled by the administrative overload?

Before we try to answer these questions, let’s define FinTech.

What is FinTech?

In brief, FinTech is the application of new operating models and software solutions to traditional financial services.

In reality, FinTech means many different things. FinTech includes mobile apps, cryptocurrencies, blockchain, peer-to-peer lending and flexible investment platforms. FinTech firms are often new startups founded by technical experts with the skills to bring bold new ideas to life.

While FinTech startups move quickly and attract bright young developers, they may not have the resources and customer base to capitalise on the promise of their inventions. This has led to a number of partnerships (and buyouts) of FinTech startups by established banking giants, meaning that some of the innovators are now underpinned by the very ancestors they sought to disrupt.

The FinTech regulation puzzle

One challenge for FinTech companies is the weight of regulation.

Starting a new financial service company can be immensely challenging, because of the huge number of laws that protect consumers and governments from bad banking practices. While the current regulatory landscape has emerged over many years, giving banks plenty of time to comply, new entrants must meet all the regulatory requirements from day one – something that can become a financial drain when income is minimal.

Consequently, FinTech startups and their supporters advocate for a light-touch approach to regulation so that they can find their feet and bring customers new ways to bank, borrow, invest and save.

On the other side of the coin, regulators want to give FinTech startups the room to grow, while also protecting consumers, corporations and governments from unorthodox financial experiments.

Regulatory sandboxes

One approach to fostering innovation while protecting consumers is to create a regulatory sandbox – essentially an environment for testing new financial products and services under tight control by regulators.

In 2013 the UK’s Financial Conduct Authority (FCA) created a regulatory sandbox for FinTech startups in their London headquarters. This gave startups a chance to develop their ideas without the usual degree of red tape and compliance challenges.

Compliance and FCA training from VinciWorks

VinciWorks provides a wide range of corporate eLearning solutions, including a suite dedicated to compliance and a selection of FCA training modules. Our eLearning can be delivered as off-the-shelf packages, or we can customise the content to suit your organisation.