Money Laundering and Compliance in International Payments and Forex Industry

Achieving the holy grail of great customer experience v Money Laundering and Compliance in the International Payments and Forex industry

Posted on November 1, 2019
Written by Lauren Davison

Sydney City, bank's electronic display

The area of Money Laundering is a key concern and growing threat for Compliance regulators, particularly the FCA (Financial Conduct Authority), and especially so when it concerns the International payments and Forex industries. In this article we explore the key factors.

Compliance in the International Payments and Forex Industry

The Foreign Exchange Market, known as Forex, is the market for trading currencies. This includes all aspects of buying, selling and exchanging foreign currencies. Large International banks are the main participants in this market as financial sectors across the world use Forex as the anchor of trading. Unlike other markets, Forex is open 24-hours-a-day, aside from weekends. 

These features – 24-hour opening; open to international financial sectors; and mostly used by banks – mean that the regulators take a keen interest in all aspects of the transactions being made.

Non-compliance is not an option. Businesses need robust processes in place to generate the information required by providers in order to transact legally. Failure to do so will mean there is a danger that payments do not go through on-time, relationships with both customers and supply chains are jeopardised and cash flow can be comprised.

FCA focus on MSB’s

The FCA, with their remit to regulate all financial firms providing services to consumers and to maintain the integrity of the financial markets in the UK, announced a crack-down on Money Service Businesses (MSBs). The focus is on MSB’s, (businesses that transmit or convert money), who are at risk of being used to launder money to fund organised crime.

This crack-down hit the headlines when West London based Touma Foreign Exchange Ltd was fined £7.8million by Her Majesty’s Revenue and Customs (HMRC) for failing to undertake appropriate actions under the Money Laundering Regulations. Their failures included inadequate customer due diligence measures, inadequate staff training and insufficient risk assessment. 

Following this incident, Simon York, the director of HMRC’s Fraud Investigation Service, said that “we know that criminals use MSBs to disguise and move dirty money, and we’re determined to thwart them by helping businesses avoid being exploited in this way”. 

But this is just one example of the work that the FCA focuses on in this area.

KYC regulations for the International Payments and Forex Industry

To protect customers, all regulated industries are subjected to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These regulations require these organisations to undertake appropriate risk-based customer due-diligence, to ensure the services offered by these financial institutions are not being used for money laundering. 

Money laundering is an issue for regulators, like the FCA, which means that alongside these regulations, MSBs are obligated to adhere to ‘Know Your Customer’ (KYC) regulations. KYC is the process of identifying clients and their suitability, whilst searching for any illicit intentions. In practice, this means conducting appropriate and proportionate background checks to ensure customers are not involved in any illicit financial activity, or using money that has been disguised as legal. 

Balancing compliance and customer experience to achieve the holy grail

As with other areas, ensuring proper compliance with the necessary regulations whilst providing the customer with a positive experience can be challenging. Alex Barr, Director of FinTech at Currencycloud, said that: “the holy grail for ecommerce brands is to move a customer swiftly through a journey from initial click to browsing to paying for goods. The goal for brokers is to encourage traders to go further than simply landing on their page to making trades on a regular basis.”

As investing becomes more focused on technology, Forex brokers need to ensure that it is easy for investors to interact with the markets in a timely manner. As well as this, contributory information (such as market news, social networking, etc.) must be easily accessible.

Facilitating this process requires a balance, between safe, compliant practices and discreet, unencumbered access, that hasn’t always been attainable.

Single API solution to achieve real-time response

With the imperative focussed on regulation there is a common problem of regulatory delay in the International Payment and FOREX markets which has a knock- on effect to the bottom line.

However, by using a single API system to undertake automated customer due-diligence, NorthRow offers greater compliance when it comes to anti-money laundering regulations. By automating the process of validating client data with an international database and returning a real-time response that also includes a risk score and supporting evidential data, NorthRow goes further in supporting the holy grail of seamless client onboarding.

The checks undertaken mean that traders can be assured that the people, or companies, that they are looking to deal with are legitimate, and not involved in money-laundering. NorthRow’s services provide compliance with a variety of anti-economic crime measures, providing optimum verification and fully managed services. 

The powerful API system from NorthRow means that access to multiple data sources can be achieved more effectively than any other platform. This ensures that anyone getting involved with Forex can undertake transactions knowing that the necessary legislation is complied with, that appropriate due-diligence has taken place, and that the transaction is legitimate in all aspects.

Understanding the requirements of businesses is key for the team at NorthRow – we are happy to discuss any issues and offer robust solutions specifically for the International Payments and FOREX markets to ensure compliance is achieved but more importantly the holy grail of customer experience is paramount.