Payment Service Providers (PSPs): How To Mitigate The Risks Of Money Laundering

Whilst the risks PSPs face from money laundering are vast, there are ways in which well governed platforms can mitigate these risks.

Placing restrictions on geographical or cross-border payments, or limiting usage to a single geographical location will reduce the risk of facilitating money laundering. Should the PSP have a considered exposure to a jurisdiction known to have a higher risk of financial crime or corruption, such as certain geographies within the iGaming market, then restricting values and volumes of transactions will decrease this risk. It is worth considering that whilst this approach may reduce the risk of money laundering it is likely to have a lesser impact on reducing the sanctions risk.

Having controls in place which limit or review the locations which funds can be deposited from or withdrawn to, will have a significant impact on reducing the money laundering risk for a PSP.

An emerging market in which PSPs have been entering is facilitating payments for one-off events such as major sporting events or festivals. Having the ability to have a closed market, which the user and merchant is contained to, will heavily reduce the risk of money laundering as there will be an ability to control who can enter the system, and where funds can be transferred to and limitations can be easily placed on the number of merchants within the market. This model will also offer the customer and the merchant a positive user experience as payments and transaction will be uniform in their nature.

In the same way source of funds is a key part of customer due diligence within more conventional financial service industries, knowing the source of funds of a customer or merchant using a PSP will reduce the risk of money laundering. Having the assurance that funds are being transferred from an existing and verified account held by recognised financial institution, subject to a country risk assessment, will reduce (but not remove) the risk of money laundering as these institutions are well regulated and should have effective financial crime controls in place.