What are the main trends in transactions monitoring, KYC, and AML?

What are the main challenges in cross-border transfers from a fraud prevention and detection perspective?


In the case of cross-border money transactions, the main challenges are often linked to regulatory technical standards for Strong Customer Authentication, monitoring, reporting, secure communication, and fintech software systems.

It is imperative to have the highest security for payment services and strict security requirements for any type of payment and ensure the protection of consumers’ financial data. In this regard, the Payment Services Directive (PSD2) requires that payment service providers (PSPs) apply Strong Customer Authentication (SCA) each time a payment service user accesses its payment account online, initiates an electronic payment transaction, or carries out any action through a remote channel which may imply a risk of payment fraud.

To prevent fraud in a money laundering or terrorist financing scheme, each MSB must continuously monitor the customer’s transactions and the extent of the monitoring that is required will depend on the customer’s risk profile. This is a part of the compliance process that financial institutions have to comply with and certain smart financial systems can be handy for automation, monitoring, and reporting to prevent and detect fraud.

On the other hand, one can argue about the additional challenges of limited access, insufficient transparency, and process ownership responsibility issue between all partners involved. Multiple stakeholders participate when facilitating a cross-border transfer. Therefore, assuming the ownership and responsibility of the entire process for one partner alone can be difficult. Hence, one can assume that the lack of a centralised intelligence unit that holds all the information and insights about a customer can be considered a barrier to monitoring and reporting the ongoing business relationships and review of individual transactions for money service businesses. Each party collects and monitors certain parts of the fund flow process and oftentimes it is not clear when and where in the process the one responsibility starts and/or ends. 


What about meeting compliance in the remittance sector, what is challenging for payments providers considered working in multiple jurisdictions?

Financial services are among the most heavily regulated industries. Any business that involves the management and transfer of money, particularly cross-border, requires careful monitoring and control. Meeting the compliance standards in the case of cross-border payments is business-critical for all financial institutions such as money service businesses (MSBs), payment service providers (PSPs) but also banks. Each payment institution should have a thorough and well-defined compliance process that serves as guidance when conducting business activities within the remittance sector.

The complexity of working in multiple jurisdictions is high because national regulators in different jurisdictions can take different views on what is acceptable in terms of monitoring, especially when screening transactions. For instance, a system alert arising from a calibration issue may not be seen as an issue in some jurisdictions, but others would expect all alerts to be reviewed, regardless of the cause. Thus, the compliance technology infrastructure is becoming more critical than ever. Also, there is a need for supporting compliance and regulatory technology to analyse data at a large scale, ensuring the accuracy needed to comply with ever-evolving AML regulations.


How to mitigate these problems? How can tech help?

To mitigate some of the challenges in the remittance sector and make more secure payments, organisations need access to a secure payment system, which includes a set of instruments, procedures, and rules for the transfer of funds between participants nationally or across different jurisdictions. Also, the system solution needs to meet the technical requirements and include micro and macro transaction analysis and the identification and reporting of suspicious or unusual transactions and orchestrate the Anti Money Laundering procedures, Know Your Customer, Politically Exposed Person checks, Sanctions Screening, IDs check, transfer limits and other ‘flags’ serving the MSB’s license compliance, and more.

Therefore, the solution should provide the capacity and should be designed to ensure a secure transaction orchestration that is in line with and able to mimic the compliance requirements of financial institutions. The system can be set up in a way that includes the necessary protocols and monitoring controls to ensure business protection against compliance violations. Once the system setup is completed, it has all the security in it and the client cannot make any changes since we lock it. Moreover, it should also have the ability to lock certain critical compliance rules so that the system performs operations according to the pre-defined conditions applied on corridors for cross-border transactions.


What are the main trends in transactions monitoring, KYC, and AML to watch out for in 2023 and how can payments services providers get ready?

Financial and regulatory technology is key for future innovation in the remittance sector. Advancements in technology can help financial institutions and regulators as they seek to keep ahead of the complexity of financial fraud. New technologies tackle financial crime, including blockchain, biometrics, AI and ML, predictive analytics, and Application Programming Interfaces (APIs), and underlying many of these innovations is automation.

This can make AML processes less time-consuming for compliance professionals within companies while allowing them to flag high-risk behaviours and detect patterns more accurately.

Another area of opportunity is data sharing between the different partners involved in transaction monitoring, particularly in the context of regulatory reporting and the creation of audit trails. Also, the collaboration among financial institutions and partners is increasing in the fight against financial crime, to the extent that may choose to share data insights on monitoring and reporting model performance and use results from multiple financial institutions to fine-tune and optimise these models.

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