Money Laundering and FinTech: Risks and Realities – FFE White Paper

FINTRAIL is very excited to announce the release of a new white paper by the FinTech Financial Crime Exchange (FFE), a FinTech industry forum we co-founded in January with the Centre for Financial Crime and Security Studies (CFCS) at RUSI, a London-based defence and security think tank.

All too often, discussions about FinTech and money laundering risk are greatly oversimplified. Much of the discussion starts from a blanket assumption that new technologies will inevitably make life easier for money launderers, and that FinTech companies are therefore uniformly “high risk.”

One downside to this perception is that FinTechs have been subject to “derisking” – or losing access to vital banking services because the risks associated with FinTechs are perceived as very high.

As this new white paper shows, labelling the entire FinTech sector as “high risk” for money laundering purposes is unhelpful and oversimplifies the true picture.

After all, the FinTech sector is an incredibly diverse one. It features prepaid cards, peer-to-peer lenders, service aggregators, payment service providers, and a host of other products and services with very different features. The way money laundering risks appear from one FinTech to another is as diverse as the sector itself – and the picture is not always one of just “high risks.”

There’s certainly little reason to think that all FinTechs are necessarily higher risk than banks or other types of financial institutions when it comes to money laundering.

For example, while some FinTech products can be used for “money mule” or “smurfing” activity, they’re usually not very useful for high-end money laundering, or the laundering of the proceeds of crimes like major tax evasion or international corruption that feature in scandals such as the Panama Papers or the recent Laundromat cases.

It’s important that this nuance is understood, so that FinTechs aren’t all stigmatised as “high risk” where it isn’t warranted.

As the paper points out, because FinTechs often only see a limited piece of a much larger financial puzzle, establishing an intelligence picture of money laundering activity across the sector can be a huge challenge. Coming to a true understanding of the nature of risks across the sector requires further detailed study - and the FFE intends to do just that through its future meetings and research.

In addition to describing this overarching picture, the paper also provides recommendations for various stakeholders.

·      FinTechs should work to clarify the true picture of money laundering risk they face, and demonstrate that they are building resiliency against those risks.

·      Countries’ financial intelligence units and law enforcement agencies should share information with FinTechs on criminal typologies.

·      Regulators should provide detailed guidance that is relevant to sub-sectors of the FinTech community.

·      International organisations like the Financial Action Task Force can help build an understanding of the picture globally. 

To find out more about the FFE, contact