Identifying Anti-Money Laundering and Sanctions Risks
Question
An institution is about to release a new peer to peer (P2P) funds transfer product to provide much needed remittance services to an under-banked population segment in the country.
The service allows customers to transfer funds through a mobile banking application to individuals worldwide entering only a name and mobile number. The new service charges less than comparable market solutions and offers real time transfer of funds. The customer onboarding process is conducted at branch locations with identity verification.
Which three present the highest anti-money laundering or sanctions risk and will require controls prior to launch? (Choose three.)
Answers
Explanations
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The three highest anti-money laundering (AML) or sanctions risks that require controls prior to launching the new peer-to-peer (P2P) funds transfer product are:
Customer Onboarding: The customer onboarding process is a crucial point in identifying and verifying customers and their identity to ensure they are legitimate. A robust onboarding process will help to mitigate the risk of fraud, identity theft, and money laundering. Therefore, the institution must implement strong Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures to ensure the customer is legitimate and not a high-risk individual, such as a Politically Exposed Person (PEP) or a person listed on a sanctions list.
Cross-border Functionality: Cross-border transactions pose a higher risk of money laundering and terrorism financing due to the complexity of different jurisdictions and regulations. The institution must identify and verify the identity of both the sender and the recipient of funds, as well as determine the source of funds and the purpose of the transaction. Additionally, the institution should monitor and report any suspicious activity related to cross-border transactions.
Real-time Transfer of Funds: The real-time transfer of funds poses a higher risk of money laundering and terrorist financing due to the speed and volume of transactions. The institution must have strong transaction monitoring and filtering systems to detect and prevent suspicious activities, such as transactions with high-risk countries or entities. Additionally, the institution should have policies and procedures in place to handle potential incidents and report any suspicious activities to the appropriate authorities.
In summary, the three highest AML or sanctions risks that require controls prior to launching the new P2P funds transfer product are customer onboarding, cross-border functionality, and real-time transfer of funds. The institution must implement strong KYC and CDD procedures, monitor and report suspicious activities related to cross-border transactions, and have robust transaction monitoring and filtering systems in place to detect and prevent suspicious activities related to real-time transfer of funds.
