Money Laundering 2020: How Open Banking Prepares You for the New Legal Requirements

3. February 2020 / in Trends

In May 2019, the Federal Ministry of Finance presented a draft for the implementation of the 5th Money Laundering Directive. The law came into force on 10th January 2020. The 5th Money Laundering Directive introduces a number of changes and expands the range of obligated parties with numerous new additions.

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This now includes not only financial institutions, but also real estate agents, tax consultants, auditors, wallet providers, stock exchanges for cryptocurrencies, lawyers and gambling providers. In this blog post, we explain how you can implement the legal requirements and use Open Banking to combat money laundering and terrorist financing.

What the Fifth Money Laundering Directive Means for the Fight Against Money Laundering

The German Money Laundering Act (GWG) regulates how financial transactions are controlled. The extension of the Money Laundering Act serves to transpose EU Directive 2018/843 into national law. In particular, it imposes obligations on actors who are at the control points where money is moved. Upon request, they must be able to prove to financial and supervisory authorities that they have verified the origin of the funds.

In this context, the Money Laundering Act not only prescribes the monitoring of transactions; it also defines organisational and due diligence obligations. Suspicious cases must be actively reported and the threat of penalties should not be underestimated. Money laundering officers and their representatives are personally liable and negligence is duly punished.

Do you know where money laundering actually got its name? It probably all started with AI Capone. The legendary mafia boss opened laundrettes with money he had earned from alcohol, drugs and illegal trade. He did so in order to “launder” his money.

Today, money laundering is no longer found in American laundrettes; it is a highly complex global phenomenon. In fact, the status quo is sobering. According to a UN study, losses due to money laundering account for 2-5% of global GDP. Only 2% of all cases are ever detected and a mere 0.2% of the money is recovered!

Money Laundering Checks 2019: Expensive, Paper-Based and Error-Prone

The fight against money laundering eats up a lot of money and time. Money laundering officers currently have to deal with several challenges at once:

  • The processes for determining the source of funds are manual and time-consuming.
  • The information they receive from users is unstructured, not tamper-proof and only partially digitalised.
  • In many companies, there are also other manual processes involved in data processing and the resulting media disruptions.

A practical example of this is researching the source of funds. The Money Laundering Act requires obligated parties to provide tamper-proof evidence that comes from a “credible and independent source”. To this end, money laundering officers conduct their own research, print out the results, combine them with the documents the customer has submitted – only to scan them back in again in order to obtain a complete result.

This mix of digital and analogue data means that information is not correctly overlaid, creating a potentially false image of the customer. Put simply, the Directive’s requirements are not met. The customer relationship suffers because the advisor/consultant often has to contact the customer to obtain further documentation. What’s more, the verification process becomes unnecessarily lengthy.

Source of Funds in Real Time

Anti-Money Laundering 2020: Innovative, Legally Compliant and Digital Thanks to Open Banking

Open Banking offers innovative methods to support the fight against money laundering and terrorist financing. Thanks to intelligent data analysis, the Source of Funds Check provides you with tamper-proof evidence from a credible and independent source. This source of funds enables you to identify possible fraud patterns more quickly in the event of discrepancies and generates greater data transparency.

At the same time, Access to Account (XS2A), the PSD2-compliant access to customer online banking data, provides you with exactly the information that is relevant to you. On the basis of this Open Banking data, the Source of Funds Check offers usable proof of income, exact matching and contextual understanding of the data.

The Source of Funds Check is real-time digital proof of income and therefore serves as a reliable document to prove the origin of your customers’ funds. It is based on the Digital Account Check, which uses Access to Account (XS2A) and is already successfully used to perform credit checks.

With digital data from your customers’ online banking, you avoid the risk of manipulated, manually submitted account statements and also comply with all legal requirements. A complicated process with high manual effort also carries an increased risk of losing the customer. With the Digital Account Check, you save them the laborious and costly task of compiling and scanning documents and the subsequent lengthy verification process.

The Source of Funds Check is fully digital proof of your users’ income - in real time! Find out more about our solution for real estate agents, tax consultants, auditors, wallet providers and stock exchanges for cryptocurrencies, lawyers, gambling providers and all other obligated parties. Get in touch with us!

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Schlagworte: Trends

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