Banking News

FX providers traversing stormy AML waters

(26 November 2019 - Australia) The Australian Transaction Reports and Analysis Centre (AUSTRAC) bolstered regulatory approach is forcing Australian non-bank foreign exchange (FX) providers to pick up their know-your-customer (KYC) capability to achieve full compliance warns OFX CEO Skander Malcolm.

The OFX CEO believed that a scathing 2015 report on Australia’s anti-money laundering (AML) regime from the global regulator, the Financial Action Task Force, sparked AUSTRAC into action resulting in tougher enforcement and public recriminations such as those experienced by CBA and Westpac since 2017. The growing concern was top of the agenda for the global FX group previously named OzForex, keeping the CEO awake at night even before AUSTRAC launched its recent rounds of prosecution. OFX has also identified a broader risk to the fintech FX sector from the global crackdown on AML compliance, the fact that banks could withdraw essential wholesale banking and liquidity support to the FX companies themselves.

This could result in a reduction in the number of new entrants in the industry which has skyrocketed in recent years following in the footsteps of non-bank major Western Union who expanded through acquiring Travelex and Custom House almost a decade ago. Higher regulatory hurdles could make it harder for new entrants to join FX providers such as OFX, World First, Compass Global Markets, Currencies Direct, Global Reach and TransferWise in the market.

“The cost of survival just goes up. The whole cross-border payments model rests on you being good at AML and KYC. If you screw that up then your bankers won’t support you, the regulators will shut you down, not to mention your clients. And the bar is just rising on that” stated Mr Malcolm.

“We supported our customers make 547,900 transactions, moving A$11.5 billion, helping to connect families and unlock international business opportunities. Importantly, we maintained best-practice compliance records, keeping the safety of your funds as we move them across borders as our priority. In October, we launched a new industry leading transaction monitoring program in partnership with Quantexa to identify suspicious transactions. Combining this leading capability with a human touch is the OFX difference. With teams in seven locations around the world, we’re on hand ready to help 24/7” Mr Malcom quoted.

“You look at what’s going on with AML fines, they’ve hit the roof. So banks are sitting there saying: ‘I’m going to bank a service business that’s by nature high risk and therefore I should audit it more, I should get satisfied by management, I should get satisfied by the controls, AUSTRAC should give these folks a clean bill of health; and if I can’t do all that, well, I’m not a utility, so I don’t have to bank them” he said.

“Because of the manic increase in AML fines, the banks are saying,  ‘Some of the start-ups are tech disrupters, and if they don’t treat this stuff seriously then it’s our licence and our fine that gets done here’. So the banks are quietly off-boarding a lot of these companies.”

“You don’t get a tick as you come in and the door gets slammed behind you. It’s every quarter, and they audit you. And so entering will be much harder than it used to be. Now they’re looking at Afterpay, they’re looking at PayPal, they’re getting a lot more aggressive compared to other global regulators. If we mess up, the whole model really falls down” he added.