The punishment for falling short of AML regulatory requirements for PSPs is severe and the risks are high. It is essential for PSPs to have an effective AML framework of systems and controls as well as the correct level of oversight and resource to protect from being used by criminals to launder money. The PSP should also ensure that its AML framework is suitably aligned to the risks specific to the particular business, customers and merchants.
It is essential that the compliance function is a key stakeholder in the development of the technology that underpins the PSP and that there is board level buy-in. Many firms have failed because the main focus has been on technology with compliance requirements and considerations not being effectively built into the system. Equally, the compliance function must fully understand the structure and capabilities of the technology in order to be able to identify and mitigate money laundering and broader financial crime risks. It is also vital that the compliance function within the PSP is able to evolve with the technology in order for the firm to remain competitive.
Like other financial institutions, customer due diligence is vital to an effective AML framework. A main challenge for a PSP is to obtain as much information on the customer/merchant in a virtual medium in order to assess the risk effectively. This is made easier by the advancements in document verification technologies and in artificial intelligence relating to adverse media searches. Whilst customer due diligence can be burdensome it does allow for PSPs to bring on new business safely and effectively whilst maintaining their regulatory obligations.
Given the nature of the business PSPs offer, transaction monitoring is a vital part of an effective AML framework and should be done in real time. Transaction monitoring systems should be developed and evolved in line with the growth of the business as well as in line with the industries they service – as industries evolve so will the risks. It is important for transaction monitoring systems and capabilities to be responsive.