How should payment platforms and neo-banks comply with LCB-FT?

Electronic money payment platforms and neo-banks have experienced a growing growth since the 2010s. In particular they offer the issuance and management of electronic money. Neo-banks sometimes join forces with payment platforms, to offer a new user experience by combining the dematerialization and digitization of their services, but also allow their customers to have lower banking expenses. Its cutting-edge features have won many customers in a short time.

But this rise of new services and automated systems creates new issues of banking compliance and financial security. The integration and development of these new naturally digitized services require the adaptation and strengthening of regulatory obligations in relation to the fight against money laundering and the financing of terrorism (AML/CFT), to which the institutions submitted are bound. However, in terms of regulation, not all European countries are as advanced as France. To answer this, the desire to create a European body must be pursued.

Payment platforms and neobanks: financial security systems to be adapted

Among the new services, “Lydia” and “Paypal”, allow users who have these mobile applications to instantly exchange money. They are thus characterized by ease and speed of the execution of transactions.

Neo-banks are an alternative to traditional commercial bankss. His limitations are less, especially when he enters into a relationship with his clients natural persons. Opening bank accounts can be done remotely, online or by physically going to a tobacconist, just by providing an identity document and a bank account.

If these new platforms for the issuance of electronic money and other services offered by neo-banks constitute a simple alternative for their users, their ease of access and their speed of use and execution make them more vulnerable to cybercrime and money laundering and terrorist financing. The challenge is to develop their control systems and optimize their due diligence process, to be efficient and comply with the regulations. This requires strengthening the third-party assessment and adapting the resulting risk map.

Payment platforms and neo-banks: enhanced regulation

The European directives have governed AML / CFT and increased customer knowledge since 1991. They govern the legislation in this area and are increasingly restrictive for supervised institutions. Thus, through the national supervisory authority, they can question the authorization given to financial institutions subject to the regulations.

This is how since 2019, the fintech “N26”, a German online bank with almost 2.5 million customers in France, has been targeted by the German supervisory authority BaFin.. BaFin accuses him of violations and negligence regarding security provisions and AML/CFT. As a fintech, “N26” does not provide the same guarantees as online banks whose main shareholders are traditional banks, such as Société Générale and Boursorama or BNP Paribas with Hello Bank. Having long enjoyed greater flexibility to comply with the procedures set by the supervisory bodies, the investigations revealed the freezing and closing of customer accounts without notice, as well as suspicious transactions not reported within the time limits . The communication of the German establishment remains opaque to this day, justifying the confiscation of the funds of many of its clients under the pretext of “non-compliance” with banking regulations.

Taking their exposure into account, regulators are strengthening their controls. Online banking is evolving in a new digital environment that involves many new risks, often poorly evaluated. Their vigilance must be strengthened. It must have an appropriate approach to the detection of illegal activities and adapt its reaction by establishing effective controls.

Where they constitute a digital, fast and dynamic alternative, electronic money platforms and neo-banks seem to be approaching a close model, but more flexible and dynamic than that of traditional banks. As for the latter, they take a very rigorous digital turn for better positions in the face of growing competition. The procedures carried out in terms of compliance, such as AML/CFT, are increasingly demanding. They are particularly so towards these establishments, due to their increased exposure to risk and the need to solidify a somewhat fragile model. However, even if the tendency on the part of the regulatory bodies to legislate in front of the arrival of new players had a little delay, it has been strengthened for some time. Neo-banks and digital service platforms must strengthen their operating model in terms of AML/CFT or risk being removed from the market by the evolution of regulatory requirements over time.

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