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Financial technology ("FinTech") has had an unprecedented increase in this generation. However, with that, it has also introduced unique and significant anti-money laundering ("AML") risks. This is mostly due to its rapid speed, digital nature and at times, unmonitored global reach.
In the European Banking Authority ("EBA") 2025 Opinion, it raised concerns over the above across the EU financial sector. In the report, it identified that these vulnerabilities stem from geopolitical instability, regulatory changes, and digital transformation, which are reshaping the compliance landscape for financial institutions.
As FinTech is a relatively new and ever-expanding phenomenon, AML compliance is struggling to keep up which is seen via poor governance frameworks, underdeveloped AML/CTF systems, a lack of in-house expertise, a lack of oversight which has led to ineffective deployment and, in some cases, it has exacerbated vulnerabilities instead of mitigating them. Lastly, many FinTech firms are prioritising rapid growth over regulatory compliance. This is a significant concern for the EBA as these firms continue to expand and influence across the European market.
One of the main risks that FinTech poses to AML compliance is the emergence of cryptocurrencies, digital assets and generally the use of AI within the financial sector. This remains high-risk due to the potential for anonymity, ease of cross-border transfers with limited financial checks, criminals are easily able to obscure source of funds this way, and non-fungible tokens ("NFTs") have been used for laundering through inflated sales.
Hence, this growing sector continues to challenge regulators attempting to strike a balance between innovation and financial crime prevention. Financial institutions are struggling to keep pace, underscoring the need for responsible AI adoption and strong monitoring systems.
The question therefore is, how does one mitigate these kinds of risks?
FinTech companies have been encouraged to adopt a risk-based approach to AML compliance via:
- Introducing Robust Technology ("RegTech") into companies. This will leverage AI and machine learning that can create a more accurate form of transaction monitoring and reduction of false positives.
- Enhanced Due Diligence (EDD). This includes adverse media screenings, Politically Exposed Persons ("PEPs") checks, and an accurate and concise verification of the client's source of funds.
- Ongoing Monitoring for Existing Clients. AML is a continuous and rigorous process, where clients are monitored on the level of risk they pose, which then will either require more intensive monitoring or less depending on the circumstances. Regular monitoring of customer activity and updating risk profiles are a core part of AML compliance.
- Having an Internal Policy in Place. Companies need to really think about their risk appetite when it comes to FinTech and what they are willing to risk.
FinTech is an ever-changing reality that companies have yet to handle within the AML compliance sphere. You can try to mitigate the mentioned risks with introducing RegTech into companies, however, the ability for fraud to take place can still remain quite high, even with these policies in place.
MK Compliance Limited can provide daily/weekly/monthly updates on sanctions, and AML regulatory developments. These updates ensure that you are kept informed about the latest regulatory changes, therefore ensuring comprehensive compliance.
In addition, we provide sanctions-related consulting services, including legal opinions, transaction reviews, screenings and background checks on your clients and related individuals/entities/counterparties, to ensure your business operations remain fully compliant with all applicable sanctions, mitigating the risk of breaches.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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