Remittances Get A Needed Boost From AML/KYC/CTF

Remittances are a lifeline for those working abroad and sending funds to with loved ones back in their country of origin. But COVID-era workarounds like remote onboarding and account creation have left many doors and windows open for cybercrooks to slip through.

That’s left many financial institutions (FIs) wondering if remittances are worth the risk, which is really bad timing for millions of workers and their dependents as COVID lingers.

“Financial institutions (FIs), FinTechs and other remittance service providers play a valuable role in facilitating and safeguarding the cross-border movement of funds that keeps many households afloat. These financial services firms must also be on guard against criminals who often seek to abuse these services,” according to PYMNTS’ September Smarter Payments Tracker®, powered by Nium.

Noting that “bad actors are eager to move illicitly obtained money overseas to fund terrorism, stash in tax havens and more, this risk makes it essential that money transfer providers perform careful know your customer (KYC) and sanctions list checks to ensure that they do not offer their services to criminals,” the Tracker states. “Remittances providers must also meet the anti-money laundering (AML), counter-terrorist financing (CTF) and other regulatory requirements of each market in which they wish to operate to further safeguard these payment flows.”

“A Harmonized and Scalable Experience”

A lack of standardization is hindering remittances, which is becoming a bigger problem as cross-border commerce and payments currently present a major new business opportunity.

“While digital cross-border remittances and digital financial services in general look to reduce cross-border payment friction and provide a harmonized and scalable experience, a fragmented approach to regulatory change can lead to a struggle to maintain pace or at times implement local requirements that limit harmonization,” Laurent Reichert, chief compliance officer at Nium, told PYMNTS. “This can contradict the fast pace of the evolving compliance environment [that is] adopting increasingly advanced control systems to maintain a strong compliance framework while reducing the cost of remittance through high levels of efficiency and scale.”

Nium performs constant compliance with a dedicated team that monitors regulatory changes and “works closely with regulators and governing bodies,” Reichert said.

FIs that fail to provide powerful tools to foil financial crime are “unlikely to be able to persuade overseas banks to work with them on facilitating remittances. This could force FIs to find other methods of offering such services or curb their abilities to provide them at all.”

Reducing Friction and Risk in Remittances

Best efforts probably won’t prevent a drop-off of remittances in the short term. For example, “researchers project that remittances into the Asia-Pacific will likely fall by $54 billion in 2020,” the new Tracker states, adding that “the amount of remittances expected to arrive in South Asia this year will be 25 percent lower than the amount received in 2018.”

While “some major FIs in developed countries have decided that it is no longer worth the risks to facilitate remittances to and from countries that they perceive to have looser anti-financial crime policies or more lax enforcement,” steps are being taken to secure a vital service.

“Some researchers believe that the right tools and services can help banks in allegedly high-risk countries improve their security to the point at which foreign FIs feel safe forging correspondent banking relationships,” according to the Smarter Payments Tracker®.

“Digital KYC solutions may be one important piece of this puzzle for financial companies that offer international money transfer apps. These firms can enable customers to verify their identities prior to transferring funds by first scanning ID documents into the apps or using fingerprint biometrics,” the Tracker notes. “Adopting these and other anti-fraud technologies might help financial organizations persuade other FIs to trust that they can detect and stop attempted crimes.”