This is a guest post by our good friend Elina Karpacheva, PhD, a lawyer and an academic researcher. She is the founder of the European Compliance Center – an international network of compliance experts in the CEE region and the first NGO in Bulgaria specifically focused on corporate compliance. Elina is Bulgarian Editor in Chief of the Risk & Compliance Platform Europe.
We hope that you will enjoy it!
Historically, the attention of the payment service industry was focused on the frightening threat of cybersecurity fraud. However, the risks and consequent penalties for AML/KYC violations and deficiencies have been steadily growing. According to Reuters, since 2009, there have been over $342 billion in fines for money laundering offences. One such penalty has the potential to kill a FinTech startup. Hence, companies need to choose their KYC/AML solution provider wisely.
There are a lot of AML/KYC products in the market. Choosing the right one for your business is a complex undertaking. The goal of this article is to help you structure the vendor search process, formulate the right questions for the request for proposal (RFP) and advise you how to reduce compliance risks when outsourcing AML/CTF processes.
To begin with, it is crucial to perform a precise assessment of your business risk in terms of money laundering and terrorist financing. What are the characteristics of your product? What is the geographic location of your customers? Is your focus on people or corporate entities? Are you able to identify and verify customers online? Do you need a solution to help you with risk profiling and customer due diligence? Despite the unified regulation across Europe, access to data is very different in every country. Hence, you need clarity on these topics before starting your vendor search.
Second, you are responsible for the service providers you choose at all times. In the event of an investigation, regulators are looking for a proof that you diligently and with due care made effort to prevent money laundering/terrorist financing of occurring. Diligence starts with the selection of your AML/KYC providers. Carefully document your evaluation and decision process. The questions you need to answer are:
You have selected a set of vendors that cover your business and risk needs. To assess their expertise and fit-for-purpose, ask the following questions:
AML/KYC requirements are here to stay. The trend shows that they will only get tougher. Startups should use their resources smarter. Building immediately fully-fledged compliance department and dedicating staff to perform costly, manual compliance process might be not the most efficient way. AML/KYC providers help new companies automate authentication and due diligence processes as well as reduce regulatory risk. However, you have to choose your provider wisely. And not to rely on banks to be responsible instead.
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