After moving its services online, the payment industry has experienced a boom both in terms of revenue and customer retention. As per AlliedMarketResearch, it is further forecasted to cross $146.45 billion by 2030. With noticeable progress come high risks of money laundering, identity fraud, payment scams, and much more. Legitimate merchants process fund transfers for third parties that are actually risk-possessed entities.
The payment processing industry is subject to AML compliance as they involve third parties and a huge flow of large transactions. Where criminals target these companies to hide their illicit funds, AI-powered AML systems can help better combat their malicious intentions. This blog entails global anti-money laundering regulations and how digital solutions help this industry ensure adherence to them.
Payment processors are seen facilitating seamless transactions for decades. They serve as a bridge between merchants and financial institutions. These companies authorize fund transfers after receiving them either through credit/debit cards or directly from bank accounts.
Due to their far-reaching services and acceptability rate, payment processors fall under the strict scrutiny of AML compliance. However, the regulations vary amongst regions and types of gateways. Despite this, payment processing companies still need to ensure they facilitate fund transfers as per legal guidelines. More details regarding the legal AML security requirements are in the next section;
The EU has put forth a set of six Anti-Money Laundering Directives (AMLD) up till now. Among these, the Payment Services Directive, administered by the EU’s Directorate General Internal Market is responsible for monitoring transaction services and their providers.
The purpose of AML regulations is to increase pan-European competition while increasing involvement of companies in the payment industry. EU further encourages non-banks to build effective AML compliance programs for ensuring customer security and protecting their transactions.
As of April 27, 2022, Canada revamped its AML screening requirements for the payment processing industry. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) disavows its relief for several merchants and payment processors. This regulatory watchdog now sees and regulates them as foreign or regional money services businesses.
FINTRAC has put forth certain amendments within its Proceeds of Crime and Terrorist Financing Administrative Monetary Penalties Regulations. As per them, payment processing companies come under the direct jurisdiction of legal anti-money laundering obligations. Furthermore, they should detect suspicious transactions as well as risk-possessed merchants and report illicit activities to FINTRAC in time.
As the Federal Financial Institutions Examination Council puts the fact into notice that payment processors pose greater risks of money laundering, these companies are kept under strict AML compliance. Therefore, the service providers are subject to verifying merchant identities as well as their practices to deter criminal threats.
Payment processors neglecting integrating AML security requirements can face serious legal repercussions. Moreover, the regulatory authorities regulate transaction processing industry under the Payment Service Providers (PSPs) Act. similarly, ENABLERS Act is also in line to become a part of AML compliance to further combat money laundering risks within fund transferring firms.
As per the regulatory standards of various jurisdictions, the payment processing industry comes under radar of legal scrutiny. Therefore, it is obligatory for service-providing companies to stay put with these requirements. For this, they require efficient and robust AML compliance programs.
As customers are opting for online transactions, it has become more crucial for transaction facilitating companies to enhance security. Therefore, online AML monitoring solutions are helping payment processors to streamline secure transactions. The legal guidelines suggest these companies need to incorporate more robust measures within their anti-money laundering mechanisms. These involve;
In order to detect suspicious activities, payment processing companies require efficient transaction monitoring mechanisms. These help track funds transfers, detect chances of money laundering, and file reports. Furthermore, AML solutions help transaction facilitating companies to instantly identify payments exceeding the threshold. They also aid in keeping tabs on activities of merchants to prevent unforeseen money laundering risks.
Sanction screening involves cross-verifying merchants’ identities against global Politically Exposed Person (PEP), FATF’s grey, and other watchlists. AML solutions enable payment processors to access global records that further ensure digital onboarding of legit customers. They also provide risk assessments of individuals making a transaction to combat money laundering threats.
The payment processing industry is opening many doors to progress including high revenue generation and facilitating huge numbers of money transfers. Simultaneously, they are creating loopholes for financial criminals that increase strict anti-money laundering regulatory scrutiny. Developing an efficient and robust digital onboarding mechanism helps payment processors prevent losses, secure mutual interests, and ensure smooth operations.