Having full identification of a client to mitigate the risk of being used as vehicles for money laundering is the biggest challenge for financial technology platforms (fintech) in preventing money laundering, said Omar Torres López , Deputy Director General for Prevention of Operations with Resources of Illegal Origin of the National Banking and Securities Commission (CNBV).
During the conference “Fintech Law and its implementation”, which took place in the Faculty of Law of the National Autonomous University of Mexico (UNAM), Torres Lopez explained that currently the financial technology platforms are in the process of learning the risks of money laundering that they can face due to their operability.
Prevention for fintech
“There are no black ribbons yet in terms of money laundering prevention for fintech. We are just getting to know each other. Even the risks that could arise for a platform, (the fintech) are not yet clear what are all the risks they could face. There is knowledge about those who imagine, but there is no clarity about it. There will be a lot to learn and a lot to do”, said Torres López.
The official stressed that currently, in traditional financial services, there is a complexity for a financial institution, such as a bank, to have full knowledge of its client for purposes of money laundering prevention, so the issue becomes more complicated when remote services are granted, as is the case with all fintechs.
“If it is difficult to know a person face-to-face, imagine it in a face-to-face manner and only uploading information through these platforms. There is a real challenge (…) I, to be a client of a platform (fintech), do not need to go anywhere, nor will they identify me with my voter card. So, to prevent money laundering, it will be very complex, “insisted the CNBV official.
About the Fintech Law
Torres López recalled that as part of the publication of the Law to Regulate Financial Technology Institutions, or the Fintech Law, the platforms must have a systematized scheme in order to give timely follow-up to the operations of their clients.
“It is of the central obligations, because a bank or an entity of the financial system, and even the platforms (fintech), will have many clients operating at all times (…) Then, they must have an automated system that has at least functionality, that is, not to lose track of customers in their operations, especially for money laundering prevention issues.
Preventing illegal activities
“Evidently, in a non-contact manner someone could open an account (in a fintech) and leave a quantity of money that could be a product (of an illegal act)” he added.
The official explained that last September, as part of the secondary provisions of the Fintech Law, the rules for these platforms were published in terms of prevention of money laundering, which have much essence of what is required of traditional institutions, but these demands could only be the basis of a series of provisions that are required as more risks are identified in these platforms.
EU points out risks
The US government reported that the Fintech Law on the prevention of money laundering has been identified as allowing additional money laundering vulnerabilities, since it is very flexible with entities that adhere to said regulations.
“As of April 2018, customer due diligence standards also cover financial technology institutions (ITF). Critics (of the law) argue that the secondary regulations of the law allow for additional money laundering vulnerabilities because they went too far in financial market flexibility for ITFs”, detailed the US State Department in its recent International Narcotics report. Control Strategy Report 2019.
Also published on Medium.