Countering Financial Crime: A Challenge for Payment Service Providers

Payment Service Providers (PSPs) are facing a growing concern of financial crime, which poses significant implications for their business model, customers, and internal operations. In this article, we will discuss the importance of developing effective controls to counter financial crime and provide guidance on how PSPs can approach this challenge.

The Importance of Effective Controls

PSPs must develop effective controls to prevent and detect financial crime, such as money laundering and terrorist financing. This requires creating compliant-by-design processes with few data or system constraints, designing controls in proportion to the business model, thinking ahead and focusing on data, always building a business case, planning for complexity, and extracting better value from existing controls.

Key Strategies for PSPs

Embedding Controls within Processes and Decisions

• Create compliant-by-design processes with few data or system constraints.
• Ensure that controls are integrated into all aspects of the business, including customer onboarding, transaction monitoring, and reporting.

Designing Controls in Proportion to the Business Model

• Invest in more effective and efficient controls and frameworks for serving higher-risk parts of the market.
• Tailor controls to specific business lines and risk profiles.

Thinking Ahead and Focusing on Data

• Define data requirements early, standardize, and capture them to improve customer experience and inform business decision making.
• Leverage data analytics and machine learning to identify potential financial crime risks.

Always Building a Business Case

• Support infrastructure investments with a clear business case to avoid expensive solutions that are only marginally effective.
• Prioritize controls based on risk and business value.

Planning for Complexity

• Establish a robust infrastructure for managing financial-crime risks, which requires dedicated experts.
• Develop a comprehensive understanding of the control environment and identify areas for improvement.

Extracting Better Value from Existing Controls

• Many anti-financial crime controls can be better utilized, yielding insights into company activities and ESG profiles.
• Leverage existing controls to improve operational efficiency and reduce costs.

Conclusion

PSPs must proactively develop their approaches to counter financial crime, taking advantage of their advanced technical knowledge and the prior experience of banks. By embedding effective controls within processes and decisions, designing controls in proportion to the business model, thinking ahead and focusing on data, always building a business case, planning for complexity, and extracting better value from existing controls, PSPs can mitigate the risks associated with financial crime and maintain trust with their customers.