Fintechs must invest heavily in financial compliance mechanisms – experts

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  • move to increase trust in services

Experts have called on the fintech industry to invest in compliance, especially ensuring adequate adherence to Anti-Money Laundering rules and other relevant regulations.

This call was made when the Ghana Fintech and Payments Association, in partnership with the e-Crime Bureau, organised a highly informative session on strategies for Fintech actors to ensure compliance with Anti-Money Laundering (AML) rules.

During this forum, the presenters took participants through some vital discussions and shed more light on issues in the fintech ecosystem pertaining to compliance and anti-money laundering issues in Ghana and on the international stage. The event was attended by participants from banks, microfinance institutions, fintech startups and companies, tech law firms and the business community.

Martin Kwame Awagah, President of the Ghana Fintech and Payments Association, moderated the session which saw a tech innovations consultant and scrum-master, Dr. Kwami Ahiabenu II of Global Centre for Fintech Innovations (GCFI), and Financial Crimes & Anti-Money Laundering Lead Eric Kwaku Mensah, from the e-Crime Bureau, making presentations.

Dr. Kwami Ahiabenu II, in his presentation on the topic ‘Global overview: Fintech and compliance’, said Fintech by its association with banking and finance is a highly regulated industry, and when it comes to Fintech innovations and regulations there are lots of unknown factors at play.

Dr. Ahiabenu noted that regulations work best within known parameters, creating friction between Fintech innovations and regulations. This is because the Fintech industry is always ahead of regulations, hence regulators’ inability to catch up quickly with laws and regulations to address the fast pace of developments in the Fintech sector.

“Some of the compliance issues encountered are about having innovations and regulators not figuring out a way to deal with them,” he added. He further cited real-time scenarios around the world of cases wherein Fintech, most especially startups, fail to comply with laid-down regulations.

Dr. Ahiabenu explained to Fintech companies the urgent need to prevent fraud and money laundering from occurring on their platforms. “When Fintech actors fail to ensure compliance and adherace to relevant laws, regulations, standards or ethics, consumers will lose trust and faith in the financial system,” he noted.

He further stressed that Fintech, especially startups, do not pay enough attention to these laws. He advised fintech institutions to pay close attention to local and global compliance, as the need to scale-up internationally may arise. “Compliance is hard, but ignoring it is costly,” he added.

Dr. Ahiabenu in closing his remarks shared some solutions which he believes will assist Fintech companies adhere to issues of compliance. Top of the list was the need for a governance structure to direct and steer their affairs, ensuring optimum compliance with relevant laws and regulations.

“Fintechs have a similar responsibility to banks and financial institutions when it comes to compliance – making Fintech a heavily regulated sector with new regulations raising the compliance bar every time. Therefore, there’s need for a balancing act that drives Fintech innovation while at the same time ensuring compliance with relevant laws and regulations.”

Eric Kwaku Mensah, speaking on money laundering, Fintechs and associated risks, revealed that most Fintech startups do not do proper assessment when it comes to the fraud and money laundering risks of their solutions. In the African context, most Fintech platforms leverage more on mobile money and ATM cards, and have seen a rise in money laundering practices over the years due to the unavailability of a robust anti-money laundering system.

He went on by stating some vulnerability areas within Fintech operations that are often exploited by criminals – i.e. on-boarding lapses, governance, and internal control gaps among others. In a quest to combat money laundering, Mr. Mensah applauded the laudable effort by government to have the Ghana Card linked to other databases. This, he revealed, will assist in KYC (Know Your Customer) to curb money laundering.

Touching on key money laundering risks in the Fintech space, Mr. Mensah revealed that customer identity risk, transaction spend, money-muling, cross-border transactions and regulatory-lag issues must be addressed in order to mitigate money laundering.

Pointing to some best practices to prevent money laundering, Mr. Mensah said: “Per our experience at the e-Crime Bureau, oftentimes risk assessments are not conducted or are one-sided”. He therefore advised Fintech leaders to pay close attention to them, as adhering to these practices will help the country build on combatting the financing of terrorism, and in the end protect investments.

The experts made some recommendations to participants that will ensure compliance with laws and develop a cyber-free fintech space.

For a start, it was recommended that there is need to develop a comprehensive Fintech-specific directive on Anti-Money Laundering for the Ghanaian environment. Also, participants were tasked to strengthen governance measures and ensure a positive culture of their institutions to ensure AML/CFT compliance.

In addition, attendees were encouraged to develop strong partnerships with stakeholders to ensure effective and efficient due diligence on customers, as well as transactions. Ensuring Fintech products and services are developed with security and risk controls in design is key, the experts cautioned.

Furthermore, there is a need to make conscious efforts to develop human capital within the Fintech industry. Developing strong a collaboration with Law Enforcement Agencies and Financial Intelligence Units to mitigate ML in the industry is vital.

Fintechs were also advised to adopt End-to-End compliance Tech solutions as well as keep up with regulations and directives across the globe; and to ensure regular risk assessments and gap analyses on platforms are made to reach minimum thresholds. Participants were also advised to invest in the capacity building and training of their members.

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