As regulators increase their scrutiny of fintechs, not only does this raise the risk of regulatory action and punitive fines, it can also lead to reputational damage and even prevent an otherwise promising early-stage business from fulfilling its potential.

Over the last decade, fintechs have transformed the financial services sector to the enormous benefit of customers, disrupting the incumbents of financial services and capturing significant market share.

But the success of fintechs has not gone unnoticed by financial criminals who also appreciate the speed and convenience that they offer. And just as they have attempted to launder money through conventional financial services businesses, they are now trying to do the same through the fintechs.

The regulators are watching and acting

Regulators are alive to the problem and determined to ensure fintechs are focused on their responsibilities regarding anti-money laundering (AML) and combating the financing of terrorism (CFT).

In the UK, the Financial Conduct Authority (FCA) has investigated the financial crime controls of fintechs offering banking services and identified a number of areas where improvements were needed, especially with regard to AML.

As a result, fintechs need to be on the alert. Their efforts to find new solutions to industry problems, often involving new processes or technologies, potentially leaves them vulnerable to criminals on the look-out for loopholes or unguarded routes for money laundering. The rapid growth many fintechs enjoy puts them at risk of losing oversight and control.

Financial regulators are keen to support innovation, but have little patience for AML and CFT failures. The FCA has imposed a string of fines on banks falling foul of its regulations, with several new entrants to the industry sanctioned. Penalties are increasing elsewhere too. In the US, online broker Robinhood was fined $70m for failures, including on the due diligence of customers. While last year regulators in Abu Dhabi fined money transfer service Wise $360,000 for AML shortcomings.

Fintechs caught up in AML scandals must also take heed of the reputational damage it causes. In the worst-case scenario, this could even prevent an otherwise promising early-stage business from fulfilling its potential.

Where fintechs may be vulnerable to AML risk

Regulatory anxiety about fintechs’ vulnerability to money laundering and other financial crimes has been a constant since the first technology-enabled new entrants to the financial services sector began to emerge.

In 2017, the Financial Action Taskforce (FATF), the inter-governmental body responsible for setting worldwide AML standards, warned of growing concerns about fintechs.

Fintechs, after all, set out to remove many of the friction points that have traditionally frustrated financial services customers. They deliberately seek to make it easier for customers to carry out the transactions that meet their needs. The danger is that in achieving this goal, fintechs also smooth the path for criminals.

The nature of the threat varies according to a fintech’s specific activities. But many firms make a virtue of high-speed and/or high-volume transactions, of unlimited money flows, and of anonymity. All these attributes are ripe for exploitation by money launderers.

The electronic money (e-money) sector has come under particularly scrutiny. In 2018, the FCA conducted a thematic review of e-money providers’ practices amid concerns that products such as pre-paid cards were providing money launderers with an anonymous and easily transportable means to move cash.

Another potential problem lies in customer due diligence. Fintechs operate remotely and as a result, the opportunities to vet customers and to verify their identities can be more limited. While accelerated onboarding procedures may be an outright objective for a fintech, the worry is that firms do not always know who they are dealing with.

In addition, the very nature of fintechs – often early-stage companies experimenting with different models and pivoting at pace – makes them vulnerable. As the business grows, diversifies, and develops, the potential for deficiencies in AML controls can be easily overlooked

In order to spot money laundering, it is crucial that you recognise your AML vulnerabilities

The first, and arguably most crucial step, in any compliance programme is to identify the AML vulnerabilities that can lead to exploitation.

To help you to identify those gaps, we have put together an in-depth report.

Download this valuable compliance analysis today

In this new spotlight report, we cover:

– Where fintechs may be vulnerable to AML risk
– The current regulatory environment in the UK, EU, and US
– The requirements for customer due diligence (CDD) and enhanced due
diligence (EDD)
– Screening for sanctions, ultimate beneficial owners (UBOs), and politically
exposed persons (PEPs)
– How to ensure compliance with AML regulations

Download this valuable compliance analysis here.

After identifying your AML pain points, automated processes are essential to monitor ongoing activity 

Know your customer (KYC) is a basic requirement for fintechs, yet many still rely on outdated processes and procedures that simply aren’t fit for purpose.

The answer lies in the implementation of the latest automated AML & KYC screening solutions that are proven to cut the cost of compliance.

Automating AML processes provides peace of mind that activities such as screening and monitoring are taking place quickly and accurately, reducing the risk of a compliance failure.

RiskScreen’s world leading solutions are being adopted by an increasing number of fintechs to help them to meet the challenges posed by money launderers.

To find out just how RiskScreen’s onboarding and screening solutions can transform your compliance programme in order to meet both existing and future obligations, request a discovery call today.  


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