The Importance of Compliance to Money Service Businesses: Research Findings

Know, your, customer.

Anti-Money Laundering (AML) rules and regulations came to prominence when the Financial Action Task Force (FATF) was formed to tackle the issue of money laundering, terrorist financing, and other threats to the global financial system.

Since then, AML compliance has become a critical concern for financial institutions and it is becoming increasingly important to adhere to the guidelines set by the FATF.

A report published by Lexis Nexis, a global legal research firm, has shed some light on the direct and indirect costs to financial institutions (including Money Service Businesses like money changers) when it comes to AML compliance.

Here are some of the relevant findings from the report:

  • Top drivers for AML initiatives at firms: Regulatory compliance came out as the top driver. Significantly, this was followed by a concern with reputational risk and improving business results. Financial institutions in Asia thus see AML compliance being driven nearly as much by business issues as by regulatory or risk concerns.
Figure: Top Drivers for AML initiatives at firms

Fig 1: Top Drivers for AML initiatives at firms

  • AML compliance costs have been increasing in Asia Pacific. Eighty-five per cent of respondents indicated that costs have increased over the past two years. Nearly one-third estimate their firms’ costs rose  by 20% or more during this period.
Figure: Change in firms' AML compliance costs over the past 24 months

Fig 2: Change in firms’ AML compliance costs over the past 24 months

  • Within this framework, regulatory reporting, customer risk profiling and KYC (Know Your Customer) for account onboarding were cited as the most challenging aspects of compliance screening operations for firms.
Figure: Largest challenges in compliance screening operations under compliance change

Fig 3: Largest challenges in compliance screening operations under compliance change

  • The most important benefit as seen by survey respondents is an increased understanding of customers. Improvements in data management for business and risk management purposes, and deriving insight into customer suitability were the next most cited benefits.
Figure: Benefits to the business brought by AML compliance change

Fig 4: Benefits to the business brought by AML compliance change

  • Eighty-two per cent of survey respondents saw overall AML compliance costs increasing in 2016, with one-third projecting that costs will rise by 20% or more.
Figure: Expected Change in firms' AML compliance costs in 2016

Fig 5: Expected Change in firms’ AML compliance costs in 2016

It is understandable to see why financial institutions are placing a high importance on AML compliance. Not only have they spent more money on it in the last few years, they anticipate costs to rise in the future.

So what does this mean for money changers?

As we already know, it is increasingly important for money changers to modernize their operations and become more effective at detecting suspicious transactions.

Conducting stringent KYC checks for money changers can be an arduous task. Thankfully, software solutions like Biz4x exist to make life easier. By accessing a large international compliance database through Biz4x, money changers can verify the identity of a customer using various parameters like a person’s name, DOB, passport number and country of origin. If the details are unclear, no matter! Biz4x has a fuzzy search feature that will return a wider search result while still retaining accuracy.

Performing comprehensive KYC checks and adhering to AML compliance regulations is necessary in the money exchange business today. Failure to do so can result in licenses being revoked by the authorities. We’ve written a white paper on the penalties money service businesses may incur if they do not conduct proper KYC checks – you can download a copy of that paper here. Increasingly, investing in a commercial software is business-critical, and often recommended by authorities to ensure full compliance with local regulatory laws.

To check out the full report by Lexis Nexis, click here.


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