KEEPING INVESTMENT

PLATFORMSFREE FROM

FRAUDSTERS- Page 8 (Feature story)

UBS fined $15 million for lax AML practices

– Page 12 (News and Trends)

How a DIY approach to AML/KYC can create a standardization gap

– Page 17 (Deep Dive)

JANUARY 2019

TRACKER™

AML / KYC

CONTENTSWHAT’S INSIDEPresenting the inaugural AML/KYC Tracker™, a PYMNTS and Trulioo collaboration. This monthly report highlights how new technologies and solutions are helping FIs and merchants comply with AML regulations while following KYC best practices

3FEATURE STORYKeeping Investment Platforms Free From Fraudsters An interview with Anthony Couture, investment platform FrontFundr’s chief compliance officer, on ensuring investors and entrepreneurs stay safe from fraud and friction

8NEWS AND TRENDSA 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

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DEEP DIVEFighting Fraud With AI And ML An examination into how the 2008 financial meltdown paved the way for existing AML/KYC practices, and how FIs can work toward remaining compliant

17ABOUTInformation about PYMNTS and Trulioo22

TABLE OF

ACKNOWLEDGMENTThe 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.

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T he global economy’s expansion is bringing new opportunities to a range of markets. Businesses are no longer limited by geography when promoting their brands, products and services, and can instead

reach fresh overseas regions and new client pools.

Consider today’s rapidly growing sharing economy, which is dominated by high-profile companies like Uber, Lyft and Airbnb and engages some 162 million consumers in the United States and European Union. The market is on track for even greater expansion in the coming years, with the U.S. expected to see approximately 86.5 million users by 2021.

The sharing economy would not be facing such expansion potential if its participants were unable to trust each other, however. Property owners who rent out their homes on Airbnb must be able to believe that a customer who presented a certain identity online matches the person who will show up with a suitcase in hand.

On top of that, sharing platform verification must essentially be second nature when it comes to onboarding users. Property owners posting listings to a home rental site or

vehicle owners looking to drive for Uber will likely abandon the operation — and possibly turn to a competing platform — if they encounter cumbersome onboarding processes.

This conundrum presents a challenge for merchants engaged in global business: How can they remain confident that they are transacting with trustworthy actors while also matching the speed the global economy demands?

To keep up, companies must deploy top-notch know-your-customer (KYC) solutions that can quickly verify users.

Of course, market regulators are also working to ensure transactions are legitimate as money flows faster in the global economy. Aside from quickly identifying all parties involved in a financial transaction, banks, retailers, payment providers and enterprises must also make certain that cash flow complies with local regulations.

This global growth has prompted an ever-larger share of regulatory agencies to implement anti-money laundering (AML) and fraud efforts. The U.S. Federal Deposit Insurance Corp. (FDIC), Financial Crimes Enforcement Network (FinCEN) and Office of the Comptroller of the Currency (OCC) recently

WHAT’SINSIDE

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4What’s Inside

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.

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Each Tracker will showcase the latest developments in the AML/KYC space, including blockchain-based tools and the newest products changing KYC. It will also consider how these solutions are being used by sharing economy platforms.

NEWS FROM THE AML/KYC SPACE

Several companies released solutions to improve AML and KYC efficiency in the past few weeks. Among them was risk intelligence solutions provider Arachnys, which launched its new Arachnys Customer Relations Intelligence platform to help FIs sharpen their AML and KYC priorities. Its offerings include real-time money laundering interdiction and accelerated client onboarding features, among others.

New features were also added to person-to-person (P2P) cryptocurrency trading platform Aphelion. The company announced that its ICO Hub had been added to DEX, its decentralized exchange, to remove the complications presented by KYC processes and token distributions. This will be accomplished by enabling initial coin offerings (ICOs) to

mint their tokens and list them in phases on Aphelion DEX.

Other financial firms are facing regulatory fines for delivering 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 key Bank Secrecy Act (BSA) requirements. Allegations include insufficient monitoring of penny stock activity for potentially suspicious activity, among others.

Morgan Stanley was not alone in drawing FINRA’s ire, though. UBS Financial Services (UBSFS) and UBS Securities (UBSS), two divisions of Swiss investment firm UBS, also faced a combined $5 million in fines for failing to implement sufficient penny stock AML programs. The company was recently hit with an additional $5 million in fines by both the Securities and Exchange Commission (SEC) and FinCEN for other AML violations.

For more AML/KYC developments, turn to the Tracker’s News and Trends section (p. 12).

What’s Inside

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KEEPING INVESTMENT PLATFORMS FREE FROM FRAUDSTERS

Building trust is critical in the financial services industry, as one security slip-up too many can 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 platforms need to assure investors that their money will go where it is intended — and not into the hands of a fraudster masquerading as a legitimate entity — if they want to stay in business. They must also ascertain that investors are who they claim to be and are not engaging in criminal activity like money laundering.

Keeping everyone safe and compliant with local and federal regulations requires constant vigilance. In this

month’s feature story (p. 8), Anthony Couture, chief compliance officer of investment platform FrontFundr, explains how the company provides tight security without instituting so many steps that customers feel they’re jumping through hoops to use its service.

DEEP DIVE: THE TROUBLE WITH EXISTING AML/KYC

Each Tracker will take a Deep Dive into the AML/KYC market. The inaugural edition includes a look at the current state of compliance, why many FIs have struggled with standardization and an examination of recent years’ top AML/KYC offenders.

What’s Inside

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What’s Inside

FIVEFA CTSFAST

SHARE OF SENIOR COMPLIANCE AND CORRESPONDENT BANKING

PROFESSIONALS WHO STRUGGLE TO COMPREHEND AND COMPLY WITH

LOCAL KYC REGULATIONS

75%

PORTION OF FINTECH FIRMS’ SENIOR COMPLIANCE

PROFESSIONALS WHO AGREE THAT AML COMPLIANCE

REGULATIONS SHOULD ALSO COVER ADVERSE MEDIA

64%

ESTIMATED SHARE OF AFRICAN BANKS THAT IDENTIFIED KYC AND KYCC REGULATIONS AS

BARRIERS TO IMPLEMENTING SUPPLY CHAIN FINANCE

SOLUTIONS

44%

SHARE OF CORPORATE AND BUSINESS SURVEY RESPONDENTS

WHO IDENTIFIED CUMBERSOME PROCESSES AND HIGH COSTS AS KYC

CHALLENGES

76%

APPROXIMATE VALUE OF THE FINES ISSUED BECAUSE

OF AML COMPLIANCE FAILURES IN THE FIRST

HALF OF 2018

$1.7B

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KEEPING INVESTMENT Platforms Free From F r a u d s t e r s

FEATURE

STORY

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Feature Story

“ “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.

This month, police arrested 63-year-old George David George in relation to an investment scheme through which he allegedly defrauded investors of millions of dollars. George’s company, WellCity, marketed itself as a social media network for the health and

wellness marketplace run out of Brentwood, Tennessee. The con man pleaded guilty to misrepresenting his company in 2016, then later withdrew his plea and disappeared while on pre-trial release.

George is now facing charges for lying to investors about his company’s assets and revenues, falsely claiming WellCity had “million-dollar proprietary software and million-dollar contracts with corporate sponsors,” according to assistant U.S. attorney Ryan Raybould.

Investing is rife with risks, and this is far from the only case in which an entrepreneur has looked good on paper but turned out to be a fraudster. These bad actors often make off with investment funds for personal benefit or funnel them into illegal operations. On the flip side, an interested party claiming to be a normal investor could be hiding a money laundering scheme.

Sure, not everyone involved is acting in good faith, but entrepreneurs and investors are still drawn together in hopes of mutual benefit. The former need cash infusions to get their business ideas off the ground or advance their latest projects. The latter want to put their money to work for them, reaping profits and boosting the companies that appear to be pursuing compelling endeavors.

Funding platforms seek to bridge the gap between these parties and make the processes as safe as possible. They’re on the hook with regulators should something go wrong, after all.

The threat of fraud forces fundraising platforms into a delicate balancing act, one in which they must comply with various region-specific regulatory rules while continually updating their client-safety approaches. At the same time, these entities cannot introduce so many steps and frictions that customers are turned off by using the services they provide.

Among the platforms facing this challenge is FrontFundr, an online investment portal operating in eight Canadian provinces that focuses on helping established and newer investors connect with early-stage companies. PYMNTS

Anthony Couture, chief compliance officer at FrontFundr

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Feature Story

recently caught up with Anthony Couture, the firm’s chief compliance officer, to discuss how it balances keeping investors and entrepreneurs safe from fraud with a friction-free experience.

The stakes are high, Couture said. Things going wrong and bad actors running unchecked could harm not only a particular platform, investor or enterprise, but also damage faith in the system.

“The financial services industry is a trust industry,” he explained. “If you have too many instances [in which] that trust is damaged, it hurts the whole systemic nature of our economy.”

STAYING A STEP AHEAD OF CRIMINALS

Investment firms typically face more extensive oversight procedures than nonprofits or other organizations focused on donations-based fundraising. To stay on the right side of the law, investment platforms must be able to identify who is

sending and receiving money, and comply with anti-terrorist funding (ATF), AML and KYC guidelines, among others. That requires analyzing investment data and monitoring for inconsistencies that could indicate criminal involvement.

“We want to have consistent and reliable information on the individual who comes to the platform,” Couture said. “[This is] both to undertake our responsibilities and also to provide a modicum of protection for issuers that come to our platform, so that they know that the money and capital they’re receiving is coming from a place of good intention — not from bad actors within the marketplace.”

Such consistency can be difficult to achieve, though, especially for smaller operations. Partnering with a specialized third-party — in FrontFundr’s case, Trulioo — can help these players gain access to additional resources and a deeper data pool. Both help them remain vigilant in the fight against fraudsters.

“Bad actors within this area tend to move quickly,” Couture said. “Those providers that are helping companies like ours

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Feature Story

address these responsibilities must move quickly as well, and alter their products accordingly so that we can remain competitive.”

RETAINING CUSTOMERS

Customers who wish to interact on the FrontFundr platform must register and undergo a KYC process, which is intended to help ensure they are who they claim. Identity verification can’t be too long or burdensome, however, or users might find it too painful and switch to a competitor.

“It ’s a delicate dance,” Couture said. “Coming up with a program that allows clients to come to the process [and] give us what we need, but also allows for a very smooth onboarding experience — [that] is a challenge.”

Educating clients on why the platform asks for certain information can help, as those who know the value of providing such sensitive details are often more willing to do so. Investing platforms must strike the right balance between security and convenience for their customers if they want to keep money flowing. Potential investment gains are high, of course, but the damage from becoming entangled with bad actors can be quite severe.

“The risk for entrepreneurs can be significant, [particularly if they accidentally end up involved in] money laundering or nefarious activities,” Couture said.

The right security strategy and partners can make a significant difference.

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NEW KYC TOOLSARACHNYS LAUNCHES NEW CRI PLATFORM

Customer Risk Intelligence (CRI) platform provider Arachnys recently launched a cloud-native offering to help FIs improve their KYC efforts. The solution provides real-time money laundering interdiction and accelerated client onboarding, according to a press release announcing the launch, as well as investigative knowledge syndication, re-use of compliance data exhaust and analyst empowerment features.

CRI aims to help financial firms expedite onboarding by several weeks, offset potential AML remediation costs and increase investigative throughput with fewer false positives and quality assurance error rates. The platforms share several attributes, including a cloud-native solution for global use, an entity-centric infrastructure and a curated online information library tailored to firms’ compliance policies — all to deliver differentiation and financial crime prevention.

APHELION ADDS NEW FEATURE TO PLATFORM, RELAUNCHES DEX

P2P trading platform Aphelion recently added a new function to its own cryptocurrency trading platform. The company announced the introduction of the Aphelion ICO Hub to its Aphelion DEX decentralized exchange. ICO operation requires integrated KYC, the company noted in a recent Medium post,

and on-chain token distributions can consume both time and money. Aphelion’s ICO Hub will be the first DEX-based ICO of its kind, enabling token minting and listing in phases on the DEX — without requiring entities to build and pay for their own KYC or token distribution models. The hub will also achieve regulatory compliance after blacklisting U.S participants from engaging in DEX trading activities.

THE FINANCIAL PENALTY BOXMORGAN STANLEY FACES $10 MILLION FINE FOR AML, SUPERVISORY FAILURES

Some FIs are paying stiff penalties after failing to meet AML requirements. FINRA, a nonprofit organization authorized 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 standards over a five-year period.

First, the FI’s automated AML surveillance system did not receive crucial data from several systems, shortchanging its ability to regulate billions in international wire and foreign currency transfers — including in countries that carry high money-laundering risks. Second, Morgan Stanley

NEWS &TRENDS

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allegedly did not allocate sufficient resources to review alerts generated by the system and frequently closed alerts without adequate review. Finally, it did not take enough action to monitor penny stock deposits and trades.

On that last point, Morgan Stanley customers deposited approximately 2.7 billion penny stock shares and generated $164 million over five years. FINRA found it had failed to comply with a provision of the BSA that bans the offer and sale of unregistered securities, and that it had shifted responsibility for vetting customer deposits and sales to branch management and home office departments without proper coordination.

UBS FINED $15M FOR LAX AML PRACTICES

Morgan Stanley was not the only FI to land in FINRA’s crosshairs, as the nonprofit also levied $5 million in fines

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

Banks are not the only FIs that must meet AML and KYC regulations, though. Credit unions (CUs) are member-owned and operate on a profit-sharing model — they must also comply with BSA requirements. AML and KYC regulations often put CUs in the uncomfortable position of acting as law enforcement agencies, according to Colleen Kelly, senior federal compliance counsel for the Credit Union National Association (CUNA). She recently spoke with PYMNTS about how such requirements can extend into various layers of CU operations, encompassing front-facing staff, back-end workers, senior management and even the board of directors.

One of the biggest challenges relates to cash transactions greater than $10,000, which often trigger suspicious activity reports (SARs) that must be filed with FinCEN, Kelly said. SARs might ultimately prove unwarranted, but they can

News and Trends

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News and Trends

spread a CU’s resources thin in the process. Fortunately, several agencies — including the Federal Reserve Board, NCUA, FDIC, OCC and FinCEN — released new rules in October 2018 that outlined how banks and CUs can share resources to bolster AML efforts and streamline BSA compliance.

CAN COMIC BOOKS BOOST COMPLIANCE AND AML EFFORTS?

At least one company is taking a slightly unorthodox approach to raising awareness about AML and KYC compliance. Identity and verification solutions provider Trulioo recently produced a free comic and coloring book entitled “The Adventures of ID Man and Compliance Kid.” It was written for adults and children, following the adventures of a compliance officer with a superhero alter ego, “ID Man,” and his daughter, “Compliance Kid.” Together, the duo fights villain Moneybags’ money laundering schemes.

In a statement, Trulioo CEO Stephen Ufford called compliance a “complex topic” and said the comic was designed to help explain compliance professionals’ jobs and responsibilities. It also aims to highlight the importance of regulations around the globe, and is available online as a printable coloring book or in full-color digital book format.

GLOBAL AML/KYC INITIATIVESPAY.UK LAUNCHES NEW AML SOLUTION

Several new solutions have been released worldwide to help companies meet AML and KYC requirements, like those from U.K.-based Pay.UK. The financial services firm’s Faster Payments team recently introduced its Mule Insights Tactical Solution (MITS), a feature that tracks fraudulent transaction flows for both bank and CU accounts. The support technology was developed by payment solutions

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News and Trends

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.

RCI Bank is a member of the R3 consortium, a group that focuses on blockchain research. It revealed that trial participants were able to implement KYC requests within a shared network, banks were able to request data access and business clients could approve and revoke access with all data being recorded on the blockchain.

ADGM COMPLETES KYC APP TRIALS

United Arab Emirates-based Abu Dhabi Global Market (ADGM) — an international financial center that supports member institutions by developing and providing regulatory framework, legal jurisdiction and business environments to grow their businesses — has reported that its own blockchain-based KYC app’s trial has completed. The test found that often “cumbersome, repetitive and cost

intensive” KYC processes can be “radically simplified” using a distributed blockchain solution. Its first phase was completed with the Financial Services Regulatory Authority (FSRA) and project adviser KPMG.

ADGM’s KYC app aims to offer FIs a single location in which customer identification and verification can be 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 Data Protection Regulation (GDPR) privacy rules and interoperability with both third-party systems and customer consent.

DUBAI JEWELRY TRADE GROUPS JOINS INDIA’S MYKYCBANK PLATFORM

In other UAE news, a group of Dubai’s jewelry trade groups recently took steps to help members remain compliant

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when trading with India-based partners. The Gems and Jewelry Export Promotion Council (GJEPC) and Dubai Diamond Exchange (DDE), a Dubai Multi Commodity Centre (DMCC) subsidiary, recently signed an agreement to join the country’s MyKYCBank platform.

MyKYCBank offers a centralized platform for global gems and jewelry industry companies to complete, manage and share their KYC information and more easily comply with local AML laws. The agreement allows industry members to join the platform, and makes it easier for banks to review companies’ relevant KYC information. It also aims to reduce KYC regulation compliance costs while offering greater transaction transparency, especially for FIs and governments.

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 BLOCKCHAIN SOLUTION

A Malaysian company’s new solution also aims to make KYC processes less time-consuming. Belfrics Group, a FinTech specializing in blockchain-based solutions and cryptocurrency exchanges, recently launched its Belrium Mainnet offering. The product was designed to reduce the time enterprises spend onboarding customers, simplify compliance and eliminate the need for repetition. Belfrics plans to replace its traditional Belfrics Exchange KYC system with the new Belrium blockchain verification.

The company has goals to release two additional decentralized blockchain apps (dapps), one for certificate issuance and another for payroll. The dapps will make it easier for small- to medium-sized businesses (SMBs) to experience distributed ledger technology’s potential benefits.

News and Trends

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HOW TO IMPROVE EXISTING AML/KYC REQUIREMENTS Banks, CUs and other FIs have a significant responsibility, one that goes far beyond managing customers’ financial assets: They’re tasked with safeguarding the financial services ecosystem against bad actors, money launderers and other criminals.

A series of regulations was established to encourage a safer, more transparent financial services environment following the 2008 financial crisis. FIs have made strides in establishing KYC and AML policies, but these changes are routinely challenged by emerging technology and cross-border transaction costs.

Failure to meet AML/KYC requirement challenges can be costly for FIs, too, with regulators issuing heavy fines for lax security practices or failure to devote sufficient resources to oversight. Money laundering remains a significant problem in the financial services sector, though, despite the urgency brought about by 2008. Some of the highest activity has been reported in Europe, with a recent report finding that 90 percent of the region’s banks have been sanctioned for money laundering in the past decade. The United Nations Office on Drugs and Crime (UNODC) estimates the market for global money laundering is worth approximately $2 trillion per year.

DEEPDIVETHE TROUBLE WITH EXISTING AML/KYC

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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 government-backed identification in addition to a driver’s license.

A confusing verification process further contributes to onboarding frictions, often causing customers to re-evaluate their FI relationships. This puts FIs in the delicate position of trying to balance meeting AML/KYC obligations with delivering smooth onboarding and verification. To strike the right balance, they must embrace automated identity verification technology during the onboarding process. This, in turn, can offer a more thorough customer identification review.

USHERING IN AN AML/KYC CULTURE CHANGE

Technology isn’t the only way FIs can address AML/KYC issues. Another is adopting a more aggressive approach to rooting out bad actors, a top goal in places like Europe where money laundering continues to be a significant problem.

The region has faced 83 separate AML-related fines awarded by 17 regulators in the past decade, with total penalties valued at approximately $1.7 billion. London-based AI firm Fortytwo Data recently reported that 18 of the 20 banks in the region had been sanctioned for AML-related offenses in the past 10 years, including Barclays, BNP Paribas, Deutsche

Deep Dive

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Bank, HSBC, ING, Lloyds and Santander.

The Dutch market faced the highest AML violation penalties in a decade in 2018. Following a joint investigation with U.S. authorities, ING admitted that criminals had laundered money through its accounts between 2010 and 2016 because of “serious shortcomings” in enforcing due diligence policies. The bank was fined $900 million to settle the investigation.

Certain European markets are flexing more regulatory muscle than others, though. The U.K.’s Financial Conduct Authority (FCA) is a current leader in enforcement, accounting for more than 30 percent of issued AML/KYC

fines in Europe in the past 10 years. It appears ready to make AML/KYC even more of a priority with its Senior Managers and Certification Regime (SM&CR), a program which took effect last year to make financial services more accountable. Under the new rules, the FCA will need to approve senior managers at financial services firms and ensure that they clearly understand their responsibilities.

Europewide rules could also further AML/KYC cultural shifts. The implementation of new legislations like the GDPR and the updated Markets in Financial Instruments Directive (MiFID II) in 2018 could lead to even greater enforcement efforts. FIs will face a higher AML/KYC compliance bar as

Deep Dive

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regulators become more aggressive. They must adopt their own cultures of due diligence to meet rising expectations, avoid running afoul of regulators and reduce the risk of hefty fines.

There are several steps banks can take to remain compliant while delivering smooth onboarding processes. They can onboard high-value customers when physically in a branch location, for example, and ask for a wide range of ID types

for KYC and AML checks. Potential customers flagged as politically exposed persons can be assigned higher risk scores, and FIs can perform random ID checks throughout patrons’ customer life cycles.

It appears banks have a clear path forward as regulators prepare to turn up the AML/KYC heat: Get aggressive about compliance or risk getting burned by fines.

Deep Dive

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PYMNTS.com is where the best minds and the best content meet on the web to learn about “What’s Next” in payments and commerce. Our interactive platform is reinventing the way in which companies in payments share relevant information about the initiatives that shape the future of this dynamic sector and make news. Our data and analytics team includes economists, data scientists and industry analysts who work with companies to measure and quantify the innovation that is at the cutting edge of this new world.

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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