Businesses are now becoming digital, considering the world of technology. Another important aspect for businesses to opt for digital space was the pandemic of 2020. Technology is growing in every industry as this is the need of the hour. FinTech is aimed to compete with the conventional methods of financial activities.
FinTech has modified the financial sector by using technologies like mobile banking, online payments, and cryptocurrency. These developments in financial activities are making businesses work smoothly in their respective fields. FinTech has enabled businesses to integrate physical and digital payment methods to consolidate multiple bank accounts. This enables the transaction method to be easier along with reduced cost.
Financial Technology (FinTech) Industry Know-How
FinTech companies are providing the best solution for the financial institutes to undergo all types of financial activities. FinTech has to follow laws just like traditional financial institutions. There are certain sets of regulations designed by law for FinTech companies to follow. They are making the process seamless by complying with the regulations. These regulations are the AML regulations.
The finTech industry provides undeniable advantages to industries and businesses. The development of technology in the finance industry also opened an avenue for crimes in this sector. Therefore, there are certain regulations for FinTech companies to follow to keep these FinCrimes in check. If they do not follow these regulations, they may appear to be involved in major crimes such as money laundering, which can have a negative influence on the industry’s reputation.
FinCrimes prevailing in FinTech
There are certain crimes increasing exponentially in financial technology. Money laundering is at the top of the list and it’s a major financial crime these days. Money laundering is an illegal process of hiding the origins through which money was obtained and passing it through complicated bank processes. The purpose of the entire process is to make the money clean and return it to the launderer in an indirect way. As the flow of the money transactions is in the surge, it is attractive for the fraudsters to keep doing their activities in that direction. Also, the fact that electronic anti-money laundering is replacing traditional money laundering thus FinTech is the potential target for a lot of money launderers.
Terrorist financing is another widespread crime in financial technology. Terrorist financiers use formal finance methods to collect money especially in countries with weak anti-money laundering regulations.
AML legislation in FinTech
Anti-money laundering (AML) is the regulatory authority to help financial technology institutes to help combat financial crimes like money laundering and terror financing. The fintech should not give their product to the individuals determined to use them for money laundering purposes. AML covers everything that institutions use to combat financial crimes. In case of failing the AML regulations, the industries may have to pay hefty penalties by the regulators. Another organization aimed to fight money laundering and terror financing in financial technology is the Financial Action Task Force (FATF).
Significance of Know Your Customer (KYC) in FinTech
KYC/AML compliance helps to verify the true identity of the business’s client in order to ensure that the customer is legitimate. Identity verification can be done through any type of documents like government-issued IDs, passports, driving licenses, and many more to prevent potential cybercrimes.
Possible cyber crimes can be prevented by using systems powered by Artificial Intelligence. In 2018, a great investment of $218 billion was seen in the fintech industry which laid the foundation of an improved financial security system in the coming years.
Financial institutions, banks, and other related sectors have incorporated great KYC compliances in order to keep the onboarding process seamless. They are investing in Regulatory Technology (RegTech) to practice the global KYC standards. Know your customer procedures and verify the customers in real-time to eliminate the risks of money laundering, terror financing, cybercrime, fraud, and many more.
The importance of the KYC was specified in the European Union directives called the Financial Action Task Force (FATF). Know Your Customer (KYC) is done to check the identity of the customers as the information of the customer is obtained, and the authenticity of that information is then checked. Verification of the collected information is extremely important to eliminate the risks associated with FinTech.
FinTech industries are the means of digitizing financial activities performed by financial institutions to disrupt traditional methods. As the process incorporates technology, the crimes associated with it are also becoming modernized. FinTech industries must comply with KYC/AML regulations to reduce financial crimes like money laundering and terror financing.