Financial services globally are heavily regulated by regulated bodies. The number one concern of the government about FinTech companies is the growing rate of fraud. Over the years, FinTechs have achieved incredible growth and flexibility. They can launch new services quickly, focus on scalability, and adapt fast. Although, the rapid growth of FinTechs doesn’t come without its challenges. As technology is added to the finance sector, regulatory bodies have implemented stricter regulations. Let’s take a look at what these regulatory challenges are for the present state of FinTechs.
Major KYC/AML Regulations for FinTechs in 2022
In many regions, the FinTech sector was unregulated a couple of years ago and became the ground zero for scams and frauds. Because the FinTech industry is so vast, it impacts several industries and the authorities can’t develop a single approach to the problems.
For many areas, governments worldwide have updated the existing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Some regulatory bodies have implemented FATF’s risk-based approach to tackle fraud. However, FinTechs are affected in numerous ways, so an industry-specific customer due diligence (CDD) approach is vital.
United States Regulations
FinTechs in the US aren’t regulated by any particular regulation. However, the firms are subjected to federal and state laws for registration, ID verification, and background screening is vital. The first fighter of fraud in the country “FinCEN” has issued a number of AML/CFT policies for FinTechs. The country’s FinTech companies have to perform customer due diligence during onboarding and submit Suspicious Activity Reports (SARs) to the regulatory body.
United Kingdom Regulations
Just like the US, the United Kingdom doesn’t have any regulatory framework for FinTechs. However, any FinTech that offers traditional financial services, such as banking has to comply with the FinTechs set by regulatory authorities. If FinTech wants to operate in the UK, they have to get authorization from one of the UK’s financial regulators – the FCA (Financial Conduct Authority) or PRA (Prudential Regulation Authority).
EU’s Anti-Money Laundering Directive
The latest AML Directive (AMLD6) has a more profound impact on different sectors of the FinTech industry. From cryptocurrencies to wallet providers, AMD 6 has a far better influence and impact on fraud prevention across industries.
Any platform that offers cryptocurrencies will have to go under tougher regulatory controls. All virtual currency exchanges have to register with the relevant authority, conduct necessary CDD protocols, and submit suspicious activity reports (SARs). Financial intelligence units (FIUs) have to maintain customer records with the name and address of the customer buying and selling digital currency.
- Prepaid Cards
According to the new AML directive, the limit for the prepaid card has been set between €150 to €250 and there’s a limit of €50 for online transactions. Additionally, cards are only allowed in the region unless a foreign provider meets the AML standards. Payments can only be accepted if the jurisdiction meets the AML standards.
- Beneficial Ownership
AMLD6 now requires all businesses to maintain publicly available and interconnected ultimate beneficial ownership (UBO) registries. National authorities will have access to these registries for trusts and bank accounts.
- High-Value Goods
High-value goods have been a part of money laundering activities for a long time. The use of high-value goods is now subject to new reporting requirements with updated thresholds. These goods include art, precious metals, artifacts, tobacco, and other items.
What FinTechs Can Do for Effective Compliance?
The FinTech industry is highly diverse and every sector has to re-evaluate and reform their customer due diligence programs according to the updated regulations. As a part of the FinTech industry you need to consider a few questions:
- Are you complying with the country’s KYC/AML laws that you are serving in?
- What customer due diligence protocols are you following as a business?
- Is your customer screening process effective or is your drop-off increasing?
- Is your customer due diligence process equally effective worldwide?