Integrity in Mobile Financial Services

Transcription

1 Integrity in Mobile Financial Services Workshop on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Bangkok, Thailand June 24-26, Raul Hernandez -Coss Financial Sector Specialist Financial Market Integrity

2 Contents World Bank s Research on Mobile Financial Service New Framework for Analysis ML-TF risks associated to m-fs Observed Control Measures Lessons Learned Policy Recommendations

3 -finfo Overlapping Domains and Issues Prudential Telco regulation AML-CFT E commerce -FS Competition Payments systems Consumer protection Source: Bankable Frontiers Associates

4 World Bank s Research on M-FS WB s contribution to policymakers discussions on the development of mobile financial services in a safe and sound AML/CFT environment The Mobile Financial Services (m-fs) and the perceived ML/FT risks Proposed Paradigm for ML/TF Risk Analysis for m-fs Managing Risks of the Different Uses of Mobile Phones for Financial Services Conclusions on perception, actual and mitigation for ML/FT risks Policy Recommendations to policy makers, TelCos, financial institutions and regulators South Africa, The Philippines, Brazil, Hong Kong, Malaysia, Macau and South Korea

5 1. New Framework for Analysis From a ML/TF risk analysis all business models could be grouped into 4 types of services: Anchored by a bank or securities account -BSA -Payments No interaction with costumer -finfo Increasing distance from traditional financial service and conventional controls Bank or Non-bank services (not anchored by a bank account) -Money Offers alternative settlement systems -finfo -BSA -Payments -Money Mobile Financial Information Mobile Banking and Securities Accounts Mobile Payments Mobile Money

6 -finfo Gives access to view personal financial information Client TelCo FIs Services Received Account Balance Credit Limit Alerts Confirmation of Transaction Security Quotes and Positions Exchange Quotes and Positions

7 -BSA Permits user to make transactions without a bank account CCC CCC : Credit Card Company FI : Financial Institution Client TelCo FIs Services Received Account transfers Bill payments Settling balances Security quotes and positions Exchange quotes and positions Access to credit lines 3 rd Party 3 rd Party: Any other individual or other financial entity. Dotted line indicates entity which provides the transaction

8 -Payments Allows access to bank/securities account for transactions TelCo CCC 3 rd Party Client FIs Dotted line indicates entity which provides the transaction Services Received Merchant payments Settling balances Non-bank account transfers Security quotes and positions Exchange quotes and positions Access to credit lines

9 -Money Empowers user to work in electronic money through mobile phone FIs 3 rd Party Client CCC Services Received Allows access to all services available through other m-fs. Electronic storage of value (i.e. e-wallet) Remittances (domestic and international) TelCo Dotted line indicates entity which provides the transaction

10 2. Risks associated to m-fs Not knowing a customer s actual identity Ability to disguise mobile transactions Speed with which illegal activities can occur Institutional Capacity

11 Inherent & External Risks Factors Inherent Risk Factors External Risk Factors Anonymity Elusiveness Rapidity Poor Oversight m-finfo % % % Low Medium High m-bsa m- Payments m-money Allocation of risk factors according to characteristics of business models Assessment of oversight capacity and AML and CFT regime

12 Inherent & External Risks Factors Example of Application in Jurisdiction X Anonymity Elusiveness Rapidity Poor-Oversight m-finfo 0 % 0 % 0 % Low m-bsa 40 % 40 % 20 % Low m- Payments 50 % 40 % 10 % Medium m-money 20 % 50 % 30 % High

13 3. Observed Control Measures Type of Risk Anonymity Lack of traceability Possible ML/TF Risks Off-the-branch or nonface-to-face customer origination Unauthorized use of mobile phones for financial transactions Use of mobile phone at the layering stage of the ML process Use of multiple m-fs accounts Cross-border mobile-tomobile remittances Innovative KYC and identity verification procedures MTN Banking SA Advanced identification mechanisms Bradesco Brazil First National SA Limits on transactions Korea FSS Customer profiling Bank of China Macau Reporting Korea FIU In-field service risk assessment Hong Kong FIU Key Control Measures Identification of sender Maxis Malaysia

14 3. Observed Control Measures Type of Risk Rapidity Poor oversight Possible ML/TF Risks Lack of capacity to monitor/freeze real-time messaging and settlement Oversight loopholes for m-bsa providers Lack of regulation, supervision of new providers M-FS Shell companies Key Control Measures Integrated system of internal controls Bank Itau - Brazil Managing risk of 3rd party service providers Wizzit South Africa Guidelines on m-bsa and risk management Philippines, Korea Regulator-provider collaboration (Philipinnes, Malaysia) New e-finance laws and guidelines to m-fs providers (Korea) Clear licensing of non-bank m-fs (Malaysia, Korea) IT & AML supervision capacity (Philippines) AML/CFT training (South Africa)

15 4. Lessons Learned FATF standards Address m-fs vulnerabilities No need for new standards Regulations do not Address full spectrum of entities (Telco, Credit Card Company) Provide clarity on the licensing process TelCos providing financial services are not explicitly subjected to AML/CFT regulations Although many m-fs providers are already applying measures consistent with AML/CFT, their purposes are commercial and not targeted to prevent ML/TF.

16 5. Policy Recommendations Policy Makers -All m-fs providers should be subject to AML regulations in accordance with risk-based approach. -Conduct risk assessment prior to legislating controls. FIU/Law Enforcement Develop clear rules and guidelines for m-fs transaction providers. Consider requiring STR to include data on the type of channel used

17 5. Policy Recommendations Sector Regulators Set clear licensing criteria and monitoring procedures that are commensurate with services and risks. Define transaction limits giving each m-fs providers flexibility to take advantage of market opportunities Supervisors Include the associated risks into the scope of their on and off-site duties Private Sector Consult with regulators on the development of new services Introduce robust internal controls and risk management practices

18 Thank you for your attention Raul Hernandez-Coss Financial Sector Specialist World Bank