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Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) in Fintech

Collins Boit's photo
Collins Boit
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4 min read

Photo by Christine Roy on Unsplash

Financial Technology uses technology to ease financial access for customers. Fintech in Kenya is among the fastest growing in Africa. In addition to mobile banking and savings, these businesses also include remittances and digital payments. Regulators have some obligations at financial institutions to reduce financial crime risk. FinTech may face crimes such as money laundering if it does not comply with these regulations.

What is AML/CFT and Why is it Necessary in the Fintech Industry?

AML refers to the web of laws, regulations, and procedures aimed at uncovering efforts to disguise illicit funds as legitimate income. Money laundering seeks to conceal crimes ranging from small-time tax evasion and drug trafficking to public corruption and the financing of groups designated as terrorist organizations.

CFT is a set of government laws, regulations, and other practices intended to restrict access to funding and financial services for those the government designates as terrorists. By tracking down the source of the funds that support terrorist activities, law enforcement may be able to prevent some of those activities from occurring. CFT is also known as Counterfinancing of Terrorism or Countering the Financing of Terrorism.

The reason AML/CFT is necessary for the Fintech industry is that the sector is particularly vulnerable to financial crimes such as money laundering and terrorism financing. Fintech companies deal with large amounts of data and transactions, making them attractive targets for criminals seeking to launder money or finance terrorism.

If a Fintech company fails to comply with AML/CFT regulations, it may face legal and reputational risks. Regulatory bodies such as the Financial Action Task Force (FATF) and the Central Bank of Kenya (CBK) require Fintech companies to implement AML/CFT policies and procedures to detect and prevent financial crimes.

How AML/CFT Affects Fintech Businesses

Fintech companies operating in Kenya must comply with AML/CFT regulations. These regulations include the Anti-Money Laundering Act (2009) and the Proceeds of Crime and Anti-Money Laundering Regulations (2013).

To comply with these regulations, Fintech companies must implement AML/CFT policies and procedures such as:

KYC (Know Your Customer).

  • Financial institutions and other businesses use this process to verify the identity of their customers and assess the potential risks of doing business with them. It helps financial institutions and other businesses ensure that their customers are legitimate and not involved in illegal activities.

  • KYC involves collecting and verifying personal and financial information about the customer. Common KYC documents for Onboarding Domestic and International Persons include:

  1. Identity Card (National Identity Card (ID), Passport, Driver’s License Military ID, Alien ID)

  2. Birth certificate

  3. Source of income

  4. Bank Referee

  5. Utility Bill

  6. Company Registration Documents

There are several companies in Kenya offering KYC services, CreditInfo, TransUnion, etc.

Transaction monitoring

  • The process of reviewing and analyzing customer transactions to detect suspicious behaviour that may indicate money laundering or terrorism financing. Fintech companies must monitor all transactions and identify unusual patterns, such as frequent transfers or large amounts of money.

Suspicious activity reporting.

  • The process of reporting any transactions suspected of criminal activity or terrorism financing. Fintech companies must have policies and procedures in place to detect, investigate, and report suspicious activity to regulatory bodies.

  • By submitting Suspicious Activity Reports (SARs) to the relevant authorities, Fintech companies can help law enforcement agencies identify and prevent financial crimes.

They must also conduct regular risk assessments and train their employees on AML/CFT compliance.

By doing so, Fintech companies can build trust with customers, protect themselves from legal and reputational risks, and contribute to the fight against financial crimes. Failure to do so could result in hefty fines, legal penalties, and reputational damage.

There are several companies in Kenya offering Anti-Money Laundering compliance and fraud prevention services, including Flagright, Compulynx, etc.

Conclusion

The Fintech industry is revolutionizing the way we access financial services. However, with increased technology use comes increased risk. AML/CFT regulations are in place to mitigate these risks and prevent financial crimes such as money laundering and terrorism financing.

By complying with these regulations, Fintech companies can reduce their risk of financial crimes but also demonstrate their commitment to ethical and responsible business practices. Ultimately, the successful integration of AML/CFT policies and procedures into Fintech businesses is essential for the industry’s continued growth and success.

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