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A sound concept, a complex reality

When Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) legislation came onto the scene in the early 1990s, one might say it lacked finesse – it was highly prescriptive in nature, leaving little room for interpretation and forced banks and financial institutions (FIs) to tick the boxes of compliance controls. Within a decade, it started to become clear that one size actually didn’t fit all.

 These regulations originally based on the risks and controls related to retail banking simply didn’t fit other business models, such as private, institutional or investment banking and wealth management. But because compliance isn’t optional, all businesses had to comply as best they could – even if that meant shoehorning retail AML control concepts to fit their own business models, while potentially missing the real risks to which they were exposed. The end result was that compliance efforts frequently failed to meet regulatory expectations.

And then came the Risk-Based Approach (RBA), a logical new approach to managing risk.

 An added layer of complexity

Imagine a compliance environment where the controls match the actual risk. That was the goal of RBA – a more flexible and rational approach, shifting the focus to banks and FIs demonstrating they were addressing actual risks that AML controls exposed, rather than simply ticking (sometimes irrelevant) boxes hoping to satisfy the regulator. Prior to RBA, controls were black and white regardless of circumstances. The RBA allowed flexibility to reduce or increase controls based on the customer and the risk they posed.

 While the RBA made life easier in some ways, it made it harder in others. Firms were expected to understand and assess the specific risks they faced and have a deeper understanding of risk in general. The new approach also required a degree of interpretation and individualization by firms and their compliance departments.

 Risk-based approach and the financial action task force

In 2007, the Financial Action Task Force (FATF) stepped in with its first attempt at implementing an RBA, issuing a paper which stated:

 “By adopting a risk-based approach, competent authorities and financial institutions are able to ensure that measures to prevent or mitigate money laundering and financing threats are commensurate to the risks identified. This will allow resources to be allocated in the most efficient ways. The principle is that resources should be directed in accordance with priorities so that the greatest risks receive the highest attention. The alternative approaches are that resources are either applied evenly, so that all financial institutions, customers, products, etc., receive equal attention, or that resources are targeted, but on the basis of factors other than the risk assessed. This can inadvertently lead to a ‘tick box’ approach with the focus on meeting regulatory needs rather than combating money laundering or financing threats.”

 The intention of the RBA was clear: to create more pragmatic processes. The result was somewhat different, with highly complex processes emerging in many instances as a direct result of individual interpretation of the new guidelines. This led to widespread confusion throughout the industry.

 The FATF then revised its guidelines in 2010. The Expert Working Group advising the FATF on the risk-based approach and FATF Recommendations in 2010 said:

 “As a basic principle, financial institutions and DNFBPs (Designated Non-Financial Businesses and Professions) should be required to take steps to identify and assess their money laundering/financing threat risks for customers, countries or geographic areas, and products/services/transactions/delivery channels. Additionally, they should have policies, controls and procedures in place to effectively manage and mitigate their risks, which should be approved by senior management and be consistent with national requirements and guidance.”

This language was materially different from the 2007 FATF paper and signaled a seismic shift in clarity over what RBA means. 2010 was also the first time the FATF articulated the concept of “effective” risk-based controls, and this definition also makes national legislators responsible for defining what is deemed to be effective.

Despite being issued in 2010, this concept is still filtering through: Regulators around the world are increasingly using the language of “effectiveness” in their dialogue with industry. Effectiveness has further been pushed up the agenda of national regulators as the FATF’s fourth round of mutual evaluations specifically focuses on “effective in practice” assessments.

 In 2012, as part of their revision of the 40 Recommendations, the FATF issued a further definition regarding the RBA requiring countries to assess and understand their money-laundering/financing-threat risks and to designate an authority to coordinate actions to assess and mitigate risks using a risk-based approach. It also noted that countries should require reporting entities to assess and take effective action to mitigate their money-laundering/financing-threat risks.

 The 2010 and 2012 definitions delivered largely positive results: By focusing on understanding money- laundering/financing-threat risk and then deploying effective controls to manage and mitigate those risks, the current guidelines are far more “workable” and therefore much more useful to banks and FIs grappling with a constantly increasing regulatory burden.

 Two pillars of risk assessment

This evolution in the RBA has resulted in two distinct pillars of risk assessment. First, on a country-by-country basis, each individual government needs to understand their vulnerability to money laundering through national risk assessments. Social demographics are, of course, unique to each country, so this exercise in understanding your environment forms an important pillar in a successful AML strategy.

 Second, against the context of national risk, each FI must complete its own internal risk assessment, tailoring its money-laundering/financing-threat risk management program around this. However, these internal assessments can be quite complex, particularly when individual interpretation of guidelines is thrown into the mix.

What risks need to be addressed?

 There are four main categories of risk to consider:


The first category concerns the vulnerability of a specific business operation. FATF 2012 sets out a lengthy list of offenses, and firms must guard against each and every one of these. Compliance professionals should be asking questions such as, “Are we vulnerable to, for example, people smuggling or drug trafficking?”

 Create an environment that promotes money laundering?

The second category centers on the risk of a bank or FI inadvertently creating an environment that promotes or allows money laundering. Questions to ask include, “Do our controls create an environment where the money launderer can thrive? Are there any gaps in our controls that a money launderer could exploit?”

 More specific risks

The risks above are general in nature, and the third category comprises a selection of more specific risks, including:

  1. Customer risk – Banks and FIs must have adequate KYC processes in place to ensure they understand whom they’re doing business They must fully understand the risks posed by a particular person or entity, including politically exposed person (PEP) risk and sanction risk.
  2. Product vulnerability – Certain products are naturally more attractive to money launderers than For example, a checking account offers more scope for laundering than a fixed-term deposit. Factors such as the availability and flexibility of a product could make it inherently risky from a money- laundering perspective.
  3. Geographic risk – Not all countries carry the same risks, and banks and FIs need to be aware of the specific risk environments where they Operating in high money-laundering/financing- threat risk countries means that a more stringent control environment could be necessary.

 Regulatory risk

The final category is regulatory risk. There is always the risk that banks and FIs don’t adequately measure up to regulatory expectations. The stakes are high, and the financial and reputational fallout from compliance breaches is well-documented.

 Regulatory risk is sometimes poorly understood and inconsistently addressed. This risk often keeps compliance professionals awake at night and, just possibly, takes their collective eye off identifying the business-specific risks outlined above. The fear of regulatory failure could well be driving a disproportionate interpretation of what is required and, perversely, contributing to increased regulatory risk.

 What’s hampering risk-based approach?

Over the last decade, compliance professionals have joined the C-suite as the “new” importance of this “hot topic” has resulted in a drive to keep the institution safe. At the same time, there is often a tendency to overly complicate processes. The risk with that complexity is that the controls implemented are not commensurate with actual risk, which was the original aim of RBA.

 It is clear from the FATF 2012 guidelines and the evolution of RBA that while this fresh approach has been widely implemented, it is not well understood. Processes have not been fully formed and, in some cases, are driving the wrong outcomes. Despite all the efforts of FATF, local regulators and entire compliance teams, there are still some cases where there are inadequate controls in place to manage and mitigate money-laundering/financing-threat risk.

 The fact that current regulations were originally based on the risks and controls relating to retail banking has unintentionally created regulatory barriers to the effective deployment of an RBA in many sectors. The more progressive regulatory regimes recognize this and are striving to address the polarized nature of legislation and regulation to create regulatory environments where a truly risk-sensitive regime can be sustained.

 Legislation around AML and RBA was also largely written in the pre-digital age when access to the data that helps firms understand and document risk was limited. There is now a plethora of data available, but many organizations struggle to take advantage of this. Solutions are becoming widely available to help firms harness the power of information to drill down and find the risks they need to be considering.

 Thomson Reuters has devoted significant resources to developing a suite of risk products and services that support a firm’s development and the operation of an effective RBA. Thomson Reuters Org ID, as one possible solution, provides a KYC-managed service that supports systematic risk identification based on identity data, and documents and carries out ongoing monitoring, alerting a firm to any changes surrounding a corporate customer and the potential risks they pose.

 Back to simplicity

RBA as a concept remains sound – and it is far superior to the tick-box approach it has replaced. What’s needed is simplicity of assessment and application, because the very real risk faced by firms is that they may spend vast amounts of time and effort creating a control environment that complies with regulations but doesn’t actually manage the real risks they face – all while inadvertently contributing to increased regulatory risk.

 Here’s an alternative approach: Focus on simplicity – on identifying and managing the actual money- laundering/financing-threat risks a firm faces – and deploy controls that are proportionate to those risks. The result will be that firms will automatically comply with the aim and philosophy of the vast majority of AML regulations.

About the Author

Neil Jeans

Neil Jeans

Neil Jeans                                                                                                    

Head of Policy & Regulation – Thomson Reuters Org ID 

Neil has a unique background in financial crime risk management with extensive experience in AML/CTF, sanctions and anti-bribery across banking products and services, spanning over 20 years.

Neil has worked as a Police Officer investigating financial crime, including domestic and international fraud and money laundering.  As a financial services regulator,  Neil was central to developing the anti-money laundering regulation and handbook, as well as the supervision techniques for the UK FSA (FCA) in the late 1990’s/early 2000’s.

Neil has also worked at senior levels managing AML, sanctions and anti-bribery risk management and compliance across Europe, the US, Latin America, Asia and Australia. This included three major European financial services companies (ABN Amro, UBS, and Santander) and one major Australian bank (National Australia Bank).

Neil was a member of the UK Joint Money Laundering Steering Group (JMLSG) Board responsible for the major revision of AML guidance published in 2006; he was also a founding member of the SWIFT Sanctions Advisory Group, representing Asia Pacific banks. Neil also regularly participated in the Private Sector Expert forum of the Financial Action Task Force (FATF).

In addition, Neil is a Member of the Faculty and teaches the ICA (Post Graduate) Australian AML Diploma.

Neil has been working with Thomson Reuters, advising on the design, development, and build of the Org ID KYC Managed Service since May 2013.

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Using payments to streamline everyday transport



Using payments to streamline everyday transport 1

By Venceslas Cartier, Global Head of Transportation & Smart Mobility at Ingenico Enterprise Retail

Once upon a time the only way to get from A to B on public transport was with cash – and likely a pre-paid ticket bought from a physical office. Nowadays, thanks to technological developments, options range from contactless and mobile payments, to in-app tickets and more. As payment methods advance, consumers and merchants are naturally moving towards Mobility as a Service (MaaS) systems, integrating various forms of transport services into a single mobility service, accessible on demand.

This move towards MaaS does not only streamline the consumer experience, it has other positive impacts too. Incentivising public transport use reduces environmental pollution, improves mental wellbeing by reducing travel-related stress, and aids productivity by freeing up time otherwise spent driving. With this in mind, let’s take a look at the current trends affecting the transport sector, as well as how payments can optimise transportation for both operators and consumers alike.

Optimising transport with payments

The payment process is integral to any service. A payment service provider (PSP) can provide a range of key benefits to operators by proving a gateway to the transportation open payment ecosystem, and ensuring they meet objectives in 3 key areas.

  1. Environmentally, by reducing the use of personal cars and alleviating pollution and congestion.
  2. Societally, making urban mobility more inclusive in terms of improving access to all areas and for all socioeconomic classes.
  3. Economically, by optimising investment in eco-structure and fostering financial transactions, therefore improving the wealth of the city.

Payments professionals’ expertise and technological solutions can make payments easy again for transport operators. They can provide a range of options so that the customer can choose which one is right for them, leveraging the capabilities of the mobility services’ infrastructure (contactless, mobile wallets, P2P, closed-loop, QR code, and blockchain).

Furthermore, they can help promote inclusion and sustainable urban development. For example, methods such as prepaid virtual cards, or mobility accounts linked to a prepaid account can reduce the risks of excluding the unbanked. The environmental impact per kilometre can also be reduced, along with the use of vehicles with lower emissions per person per kilometre.

Finally, PSPs can put merchants’ minds at ease, providing payment liability, allowing aggregation of all due amounts from all mobility service providers, and collecting payments in one single transaction from users while dispatching revenue between mobility service providers.

Managing coronavirus

Venceslas Cartier

Venceslas Cartier

COVID-19’s disruption to the travel industry cannot be overlooked. In fact, research suggests that public transit ridership is down 70% across the globe since the onset of the virus, longer distance travel has seen reductions of up to 90%, and payment by cash has seen a 60% drop.

Being realistic, these behavioural shifts are unlikely to revert anytime soon, so it’s important for merchants to keep this in mind when thinking about payment methods. More than 70% of consumers and travellers say they are likely to avoid the use of cash over the next six months. As a result, more than 40 countries have already raised their contactless payment threshold, further helping consumers to avoid contact with frequently touched pin pads.

However, the pandemic has only accelerated the way things were heading already and highlighted the benefits. Within the context of the pandemic, transportation needs to reinvent itself and adapt its processes to suit the shift in commuter habits that we’ve already seen and will continue to see in the future.

Other trends to keep an eye on

Contactless has been steadily growing on the transport scene, as have mobile payments and in-app purchases. In fact, the recent move to mobile and online ticketing is the most promising method so far, having seen significant growth in the last few years and having been accelerated by COVID-19 as discussed above. Once consumers move to these easy, convenient, and seamless methods, it’s rare that they revert – so it’s a good idea for operators to think how they can cater to these preferences.

Speed and convenience are a must for busy travellers – but not at the expense of data security. Finding the right payments partner is therefore crucial so operators can safeguard their customers’ personal data, while also keeping on top of other security regulations/features such as P2P encryption, PCI certification, and tokenisation.

Next steps for operators

Public transport is essential for many peoples’ everyday lives – COVID-19 or no COVID-19. As such, mobility service providers can make a great difference to their service and operations by implementing the right solutions.

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Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime



Grey skies ahead – Malta prepares for a gloomy 2021 if they can’t tackle financial crime 2

By Dhanum Nursigadoo, ComplyAdvantage

With the summer drawing to a close, many countries who rely significantly on warm weather tourism will be assessing the impact of Covid-19. Being a small island in the middle of the Mediterranean you would expect Malta to be taking a significant economical hit – just like we are seeing in other popular European holiday destinations – but this doesn’t take into account the strength of the Maltese economy.

Emerging from the eurozone crisis with one of the most dynamic economies strategically positioned between three continents, Malta has had one of the lowest unemployment rates in the EU and has recently seen its GDP growth expand year-on-year.  But perhaps the most important aspect of the Maltese economy has been its attraction for foreign businesses with only a 5% tax on profits. It is no secret that Malta is a tax haven, probably one of the most effective tax havens in the world.

But you can’t pick and choose who takes shelter, and it’s no secret that money launderers have been taking advantage of the regulatory landscape in this archipelago.

The conditions of a tax haven suit criminal enterprises, who can take advantage of the opaque environment and blend their illegal activities with the same operations enjoyed by high net worth individuals and corporations who are looking to reduce their tax bill. And last year Malta’s keenness for secrecy and avoidance resulted in a damning report by Moneyval – the Council of Europe’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) body – which found that while the nation had made some efforts to curb money laundering there was still much to be desired in order to bring the tax haven up to standard. Overall, they were of the opinion that Malta viewed combating money laundering as a non-priority and this resulted in branding Malta with low to partial ratings for 30 out of the 40 Financial Action Task Force (FATF) recommendations.

The findings of the report were stated to have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”. This follows on from a series of international high-profile stories regarding Malta and financial crime. Most shocking was the murder of journalist Daphne Caruana Galizia – who investigated corruption and money laundering in her native country – and was killed by a car-bomb three years ago leading to international outrage and condemnation.

Now Malta is in a race against time to turn their reputation around or they will suffer genuine consequences. The FATF have threatened to place Malta on a “greylist” of high-risk jurisdictions unless they have shown a genuine commitment to combatting financial crime and implemented the recommendations of the Moneyval report. If they fail, this would make Malta the first EU country to make the list and join others such as Panama, Syria and Zimbabwe.

The pandemic has actually given Malta more time to meet these obligations, and it has been widely reported that an initial summer deadline has now been moved to October due to the widespread disruption.

As we head into the autumn, there are signs that Malta has begun to take action. The Malta Financial Services Authority (MFSA) has created and established an empowered AML now headed up by Anthony Eddington, formerly of the UK’s Financial Conduct Authority and who has previous experience of tackling anti-financial crime at Deutsche Bank. This team has already begun working closely with international experts, specifically partners in the US through the US embassy in Malta and the United States Commodities Futures Trading Commission (CFTC). In May this collaboration led to 25 new cases focused on money laundering in particular, and with plans to increase standard inspections and on-site investigations into businesses in Malta, it appears there is a change to the country’s priorities.

Importantly, the report highlighted a problem for countries that choose to become tax havens. In some cases it was not that the Maltese authorities deliberately turned a blind-eye, but simply that they did not have the necessary knowledge to effectively tackle financial crime in the first place. Law enforcement appeared unable to even recognise when crime was occurring.

But this blurring of financial compliance will not help businesses if Malta does indeed become “greylisted” this year. While not as devastating as being blacklisted (the two occupants of this list are Iran and North Korea) there are significant detrimental effects to being put on the FATF greylist. Although this signals that the country is committed to developing AML/CFT plans (unlike the blacklist) it still sends out a warning signal to the world that this is a high-risk area, with the country in question subject to increased monitoring and potential sanctions from the IMF and the World Bank. Make no mistake, being put on the greylist will be catastrophic for Malta’s economy.

It remains to be seen how the work to avoid such a calamity will affect Malta’s tax haven status. Perhaps with an increased fight against financial crime there will be less ability to defend one of Europe’s most competitive tax regimes. But if Malta does not show they are genuinely committed to tackling this problem, then the pandemic disruption to the island’s tourism may be minor in comparison to the grey clouds that now approach their shores.

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How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines?



How will the UK prepare a supply chain for the distribution of the Covid-19 vaccines? 3

By Don Marshall, Marketing role at Exporta.

The challenge of mobilising a supply chain for the introduction of a global and nationwide vaccine will be enormously complex. The process will be costly, and it’s likely the figures will stretch to the hundreds of millions for both the production of the vaccine itself and its distribution across the UK. We must prepare and plan a supply chain strategy to ensure it reaches those most in need in a timely and safe manner.

The task of immunising a whole population is something that has never been planned or likely imagined by anyone within a standard supply chain. A supply chain that goes directly from the manufacturer to the end consumer, or user/ patient in this case, is complex and goes beyond the scope of any single logistics company. It would have to be conceived and delivered via a large joint effort and collaboration between multiple organisations. Effectively distributing the vaccine will depend on the source of manufacture, its storage requirements, and protection of the vaccines from manufacture through to patient administration.

The majority of vaccines require storage within a specific temperature range and need to be handled safely and in hygienic conditions. Depending on where the vaccines are manufactured, the transport legs will vary; if they are coming from overseas, air freight will increase cost and complexity. In addition to supplying the vaccine, syringes, needles and containers also need to be taken into account when preparing the supply chain.

Securing the specific types of boxes or containers i.e. the lidded containers normally used for transporting pharmaceutical products will mean acquiring them from all available stockists and manufacturers. Delivery vehicles would then need to be considered, with temperature-control factored in. The medical supply chain can inform their approach to distribution by assessing data from previous supply chains, and how large quantities of vaccines have been sent out in the past. Collating successful vaccine delivery examples from other parts of the world would be advantageous here, the more we can do to prepare for a logistical challenge of this magnitude, the better.

The distribution of this COVID vaccine will be unique in its scale and for that reason, additional supply chains will need to be mobilised. Apart from medical supply chains, those best suited for this type of transportation are the fresh/frozen food industries and supermarkets. I would mobilise these businesses to assist with the vaccine’s distribution wherever possible and use their car parks and facilities for the temporary medical centres needed to administer the vaccine to the public.

Using the food industry and supermarket networks would leave the current pharmaceutical supply chains intact for health services, pharmacies and the NHS. It would protect those vital services and continue to serve communities across the UK. Inevitably, it would place a short term strain on food supply chains, but these are supply chains that are well-equipped and versed in coping with excess demand i.e. the spike endured from the brief spell of public panic buying at the start of the crisis. With adequate resourcing and planning, I believe the UK supply chain can and will handle this challenge.

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