Financial Crime World

Title: Bank of Lithuania Cracks Down on Electronic Money Institutions’ Compliance in Customer Onboarding

Compliance Woes in Customer Onboarding: A Hidden Risk for EMIs

The Bank of Lithuania issued an advisory to Electronic Money Institutions (EMIs) regarding the importance of compliance, especially during customer onboarding via agents or white label solutions. This warning holds significant implications for European fintech firms.

  • EMIs have onboarded a vast number of customers through agents and white label partners.
  • Compliance responsibilities are often transferred to these entities.
  • Ultimately, the licensed institution is responsible for supervising all customer-related activities.

Taking on Unseen Risks

According to Simonas Krėpšta, a Board Member at the Bank of Lithuania:

“A licensed institution deploying agents or e-money distributors in its activities must adopt a proactive stance towards managing risks.”

EMIs are legally obliged to ensure compliance with regulations and oversee the activities of their agents and e-money distributors.

Why the Trend?

The reliance on agents and white label partners for compliance functions can be attributed to several factors:

  1. Large customer volumes.
  2. Inadequate IT infrastructure.
  3. Inefficient management of customer data and transactions.

To meet regulatory expectations and manage risks effectively, EMIs need to evolve their strategies:

  1. Robust Internal Procedures: Developing stringent control measures for agents and e-money distributors, focusing on money laundering (ML) and terrorist financing (TF) risks, and compliance with international sanctions.
  2. Enhanced IT Infrastructure: Upgrading IT systems to manage large volumes of customer data and transactions proficiently.
  3. Compliance Oversight: Intensifying supervision to ensure all compliance-related tasks, such as KYC, KYB, and TM, are being conducted diligently under their purview.

Brace for Stricter Regulations

In response to these concerns, the Bank of Lithuania plans to reinforce regulations governing these business models. EMIs must be prepared to present evidence of robust internal control systems and enhanced compliance oversight mechanisms when utilizing agents or e-money distributors.