Anti-Money Laundering compliance is vital for MFS
Owing to the need of ensuring safety and security of the fund of accountholders, it is of paramount importance that the MFS providers strengthen the compliance practices to keep their services risk-free
The world has witnessed acceleration of contactless payments amidst the fear of paper money contamination during the ongoing pandemic.
In a similar token, the Mobile Financial Services (MFS) industry, especially in Bangladesh, has experienced a surge in adaptation of MFS usages.
In keeping with the growth in the user adoption rate, the MFS providers are also engaged in introducing multitudes of new products and services.
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Owing to the need of ensuring safety and security of the fund of accountholders, it is of paramount importance that the MFS providers strengthen the compliance practices to keep their services risk-free.
Most of the global MFS industries maintain stringent compliance policies following the global standard, as outlined in Financial Action Task Force (FATF) 40 Recommendations and guidance from the regional regulatory watchdog, for example: Asia Pacific Group (APG) on money laundering.
In this context, Bangladesh Bank has established efficacious regulations regarding MFS through promulgation of Bangladesh MFS Regulations-2018.
Furthermore, the Bangladesh Financial Intelligence Unit (BFIU) has introduced detailed Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) guidelines (BFIU Circular-20).
BFIU has also issued Circular-25 to ensure Customer Due Diligence (CDD) while filling out electronic Know Your Customer (e-KYC) form for customer account registration.
Implementation and adoption of these regulations and guidelines relating to KYC by all MFS providers have to be in place to maintain the compliance standard as outlined by Bangladesh Bank and BFIU.
MFS distinctly stands-out as one of the success stories of 'Digital Bangladesh' - a 'dream come true' achievement of the present government.
In this regard, Bangladesh Bank has been accorded the Alliance for Financial Inclusion (AFI) Policy Award for its outstanding contribution to the Mobile Banking policy initiative under its financial inclusion strategy.
However, to maintain the earned trust of consumers, stakeholders and regulators, there is no alternative to understanding the value of compliance, associated risks of non-compliance and establishing a high standard of compliance practices by both licensed and non-licensed MFS providers.
Keeping the fundamental AML/CFT compliance issues in mind, certain vital concerns are deliberated upon in the following paragraphs.
KYC and CDD for Customer On-boarding
MFS providers need to onboard customers, agents and merchants to offer the services through the respective platform.
The fundamental requirement of Customer Due Diligence (CDD) in MFS is to collect "correct" and "complete" information of the customer for adhering to the Know Your Customer (KYC) procedure as defined in BFIU guidelines (BFIU Circular-20).
Currently, MFS accounts are also opened with technology solution by creating e-KYC (BFIU Circular-25). The circular outlines step by step 'maker-checker-approver' process, all done digitally within minutes.
In both options of customer registration, verification of the customer information through a trusted and authentic source is the sole responsibility of the MFS provider.
For example, the NID information of most banks and MFS providers is currently being verified from the Election Commission database.
However, the most important compliance issue relating to KYC is 'face-to-face' interaction in case of both paper and e-KYC (Study Paper on AML/CFT published by BFIU).
In absence of 'face-to-face' interaction and proper KYC procedure, perpetrators get to register MFS accounts with false identity/made-up documents and become untraceable after conducting criminal activities using these accounts.
Therefore, there is no scope of opening MFS account compensating the procedures prescribed in regulatory guidelines.
In summary, opening an MFS account without following the guidelines provided in the BFIU Circular-20 and Circular-25 not only associates tremendous risk, but in true sense remains out of question.
Single Account with One MFS Provider against One NID
According to the regulatory directive, a citizen should maintain only one account against one NID with any of the MFS providers.
Lack of proper KYC procedure and business logic built on the basis of technology may allow opening of countless MFS accounts within a single MFS platform for a single customer.
It should be noted that the BFIU guidelines further say that the ultimate responsibility regarding KYC/e-KYC of MFS account will lie on the MFS providers.
It amplifies that KYC/e-KYC requirement for opening MFS account in no case can be compensated with any registration document other than filling out KYC/e-KYC form of the MFS provider itself.
Carrying Out Sanction Screening
Only collecting correct and complete customer data is not sufficient for battling against the ML/TF risks, especially while onboarding customers.
The regulatory requirement forbids all those who are listed in the UN Security Council Sanction list, other global as well as national sanction lists, to get an opportunity to open MFS account.
Again, both the sender and beneficiary need to be screened against the mentioned sanction lists prior to allowing inward foreign remittance to be sent from abroad to Bangladesh.
Moreover, periodic screening of the entire customer base is required to be carried out as per the BFIU guidelines. This screening mechanism allows the MFS providers to thwart both ML and TF risks.
Field Compliance Assessment of Channel Partners
In the MFS ecosystem, channel partners such as Agents, Distributors, and Merchants act as the bridge between an MFS provider and personal account holders.
These channel partners carry out a considerable number of high-volume transactions. Therefore, intensive transaction monitoring is required to take risk-appropriate measures against non-compliant behavior especially 'Over the Counter Transaction' (OTC).
In addition to technology monitoring, MFS providers need to carryout Field Compliance Assessment (FCA) to physically monitor the activities of agents, distributors, and merchants.
All the MFS providers should diligently conduct regular FCA to detect and prevent different types of non-compliant behaviors of the channel partners.
Vetting of Technology Solution for New Product/Services
Introduction of new products and services and improving the existing services through the adoption of new technology is a necessity for MFS industry.
However, these innovations and alterations should never come at the cost of compliance.
It has been clearly defined in the regulatory framework that new products can be launched by MFS providers upon regulatory review.
Only after making sure that the emerging or remodeled technology solution is in accordance with the imposed regulatory requirements/restrictions, MFS providers may proceed to do risk-assessment and get it reviewed by BFIU prior to rolling out in the market.
Introduction of e-KYC for banks and MFS through a project coordinated by BFIU is one of the best examples of recent times.
The innovative technology solution has been validated only after examining the end to end process to be foolproof.
Digital registration being a delicate process, introduction of an unregulated customer registration activity by any MFS provider, without any regard to BFIU Circular 25, shall result in the loss of trust of the customers and thus, eventually imperil the sustainable growth of the MFS industry as a whole.
Importance of Oversight and Inspection
In order to protect and maintain the security and safety of customer fund as well as the business operation, MFS providers remain responsible for internal audit and self-assessment.
However, regulatory oversight and inspection are needed to assess and examine the outcome of these internal audits/self-assessments to help the entity to take appropriate and corrective measures to avoid predicate offences.
From a customer experience point of view, the MFS operation may seem pretty simple.
On the contrary, different aspects of compliance related to AML/CFT mentioned above illustrate how complex the MFS operation really is.
As MFS providers deal with a huge number of customers, it becomes imperative for them to always stay committed to keeping their platforms risk-free at all times.
There is no denying that any harm to the MFS ecosystem will be socio-economically cataclysmic for the most vulnerable segment of our population.
In this context, maintenance of identical regulatory discipline is the prime essence of the MFS industry.
Major General (retd) Sheikh Md Monirul Islam, is the Chief External & Corporate Affairs Officer of bKash. He can be reached at: [email protected]
