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HandbookFinTechRegulations.How to balanceincreasing AMLrequirementswith CustomerExperience.

02H A N D B O O K F I N T E C H R E G U L AT I O N SFintech has emerged as one ofthe fastest-growing sectors in thefinancial services industry andhas radically disrupted traditionalbanking.Innovation is evolving rapidly – faster payments,open banking, distributed ledger technology, artificialintelligence, robotics, digital assets, and cloud computing.However, this unprecedented success also brings aboutmore and more regulatory requirements and challenges.In recent years, Fintechs have achieved incredible growthand flexibility: They are able to launch quickly, adaptfast and focus on scalability. They frequently operatein more than one country from an early stage. Thisrapid, global growth doesn’t come without challenges.Financial services are among the most heavilyregulated sectors in the world, so it’s not surprising thatregulation has emerged as the number-one concernamong governments as Fintech companies take off. Astechnology is integrated into financial services processes,regulatory problems for such companies have multiplied,but determining the regulatory obligations of anybusiness can be a mammoth task.Financial servicesare among the mostheavily regulatedsectors in the world,so it’s not surprisingthat regulation hasemerged as thenumber-one concernamong governmentsas Fintech companiestake off.

03H A N D B O O K F I N T E C H R E G U L AT I O N SThroughout Europe, compliance in the financial servicesindustry is distinct from country to country and fallswithin a range of jurisdictions. In most countries, until acouple of years ago Fintechs were unregulated and havebecome fertile ground for scams and frauds. Becauseof the diversity of Fintech offerings and the disparateindustries it impacts, it is difficult to formulate a singleand comprehensive approach to these problems. For themost part, governments have used existing regulationsand, in some cases, customized them to regulate Fintech.This is an ongoing process and many Fintech businessmodels are affected in more ways than one, specificallysince Fintechs operating in more than one country mustbe compliant in multiple jurisdictions.Because of thediversity of Fintechofferings and thedisparate industriesit impacts, it is difficultto formulate a singleand comprehensiveapproach tothese problems.Businesses that fail to comply with AML and KYC regulations risk majorregulatory fines and irreparable damage to customer relationshipswhen something goes wrong. Hence, it is crucial to address theregulations swiftly and find solutions that integrate seamlessly intoone’s own business and aim to embed automation into the processes.By implementing a strong KYC system from the start, entrepreneurscan concentrate on growing their businesses instead of worrying aboutpotentially running afoul of the law later. Doing so will prevent firmsfrom exposing themselves to regulatory and compliance risks and helpthem scale more easily.

04H A N D B O O K F I N T E C H R E G U L AT I O N SRegulatory ChallengesFintechs Must Face.Digitization within the financial sectorhas led to a competitive market offeringaccess to services, products, new paymentservices, loans and increased capital – allpossible in near real-time.Thriving innovations have also affected the rate of financial sectorcrime, namely a significant rise in money laundering and terroristfinancing. Financial crime is a serious threat, estimated by the UN at 800 billion to 2 trillion worldwide per year.The European Union’s 5th Anti-Money Laundering Directive (AMLD 5)came into force on January 10th of this year, with the aim of creatinggreater transparency to due diligence requirements and limitinganonymity in order to combat financial crime. 800bn - 2tn/yearFinancial crime estimated by the UN.The impact of AMLD 5 is meant to be more far-reaching andnow strengthens regulatory controls across new sectors, includingcryptocurrencies, custodian wallet providers, estate agents and rentalintermediaries, all gaming operators and art dealers.The Directive also places greater emphasis on transparency aroundbeneficial ownership in order to fight financial criminals who havehidden behind complex corporate structures.

05H A N D B O O K F I N T E C H R E G U L AT I O N SLastly, the 5th Directive ensures access to trusted data,giving the Member States the necessary framework toupdate their risk mitigation processes.For those industries that have not been subject to AMLlaw before or entities that require updates to internalrisk mitigation processes, compliance can be costly andcomplicated. The first requirement of risk mitigation, KYCcan identify fraudsters before they can commit furtherfinancial crime.The first requirementof risk mitigation,KYC can identifyfraudsters before theycan commit furtherfinancial crime.Relevant amendments to AMLD 5 will now impact data collection andprocessing, such as KYC requirements, controls, risk assessment andmitigation, as well as customer due diligence for new and obligedentities within various industry sectors and for each Member State.Amendments include:1Cryptocurrencies.All platforms that offer exchanges in virtual currencies orcryptocurrencies, including providers of electronic wallets forcryptocurrencies like Bitcoin, Ether or Ripple, will face stricter controls.Exchanges are now required to register with relevant competentauthorities, conduct customer due diligence (CDD), and preparesuspicious activity reports (SARs). Financial intelligence units (FIUs) arerequired to keep records with the name and addresses of any customerpurchasing virtual currencies.2Prepaid cards.New thresholds for prepaid cards have been set from 150 to 250 ,with a 50 online limit. Cards are allowed only within the EU, unlesssuch cards are issued by a country with equivalent AML standards.Payment recipients will be allowed to accept e-money if the paymentoriginates from countries that adhere to AML standards.3Beneficial ownership.Under AMLD 5, greater transparency around ultimate beneficial owners(UBOs) now requires Member States to maintain interconnected andpublicly available national UBO registries. National authorities will haveaccess to registries for bank accounts and trusts.

06H A N D B O O K F I N T E C H R E G U L AT I O N S4Politically exposed persons.Member States must create politically exposed person(PEP) lists that include information such as titles, functionand roles.5High-value goods.Storing and moving funds through high-value goodshas been a source of criminal activity. The Directiveextends the range of goods that are now subject toreporting requirements with new thresholds, includingart, oil, precious metals, tobacco, historical, cultural andarchaeological artifacts.Failure to adhere toregulations carriesthe risk of strictenforcement in theform of fines, namingand shaming, andpotentially the lossof operating licenses.6High-risk countries.The EU identifies those countries with sub-standard AML regulations.Companies that conduct business with such countries are required toperform enhanced due diligence, including further investigations into thesources of wealth.The 5th Directive demonstrates a renewed commitment to support EUintegration and tackles one of its biggest challenges: financial crime.Working at both a central level and with national supervisors, the EUestablishes a legal framework for all Member States, whereby eachnation is responsible for implementing and enforcing the Directive’sregulations as part of their own national AML laws.Stricter requirements are essentialto fighting financial sector crime.Failure to adhere to regulationscarries the risk of strict enforcementin the form of fines, naming andshaming, and potentially the lossof operating licenses. The stakesfor EU and UK financial institutionsare high. Designing a system that iseffective, addresses inefficiencies,and uniformly supports technologicalinnovations in anti-money laundering/ combatting finance of terrorism(AML/ CFT) is an ongoing effort.

07H A N D B O O K F I N T E C H R E G U L AT I O N SThe FintechEcosystem.Digital BanksPayments, MobileWallets & RemittancesBanking SoftwareProvidersRegTechsLending &MarketplacesPropTechsFintechEcosystemAccounting& FinanceAlternativeFinanceOpen Banking &API ServicesBig Data &AnalyticsInsurTechsDLT, Blockchain &CryptocurrenciesRobo Advisors,Personal Finance& WealthManagementCapital Markets& Trading

08H A N D B O O K F I N T E C H R E G U L AT I O N SAs you can see, the Fintech ecosystem contains various industries.Hence, Fintechs should always be on top of the developments in theregulatory landscape and re-evaluate the choice of their KYC provideron a regular basis. On top of regulatory compliance, ask yourselffrequently if your onboarding really offers a premium customerexperience compared to your competitors. Ultimately, it all comes downto the following questions: Are you AMLD 5 compliant in all markets you currently offeryour products and services? What is your current KYC solution? How is it integrated into yourproduct or systems? Does the solution provide high conversion rates and outstandingcustomer experience? Is it a solution that also helps your company’s goals in the long run? Does your KYC provider cover as many countries as possible?Not only recognizing all types of international IDs to serve a widerange of customers, but also being compliant in more than just yourhome market. Can your KYC provider be your partner in expandingto other markets?

09H A N D B O O K F I N T E C H R E G U L AT I O N SDo You Know YourCustomer?An increasing number of Fintechs challengethe classic banks – regardless of whethertheir use case focuses on payment, savingsor crypto transactions, KYC and simple,comfortable digital user onboarding arebecoming more and more crucial forbusiness success.Seamless onboarding.Today’s customers have wants and needs that areprompting a major rethink in all industries: They demandrapid responses and high-quality service. Against thisbackdrop, an integral part of any digital strategy must beenhanced customer experience. Millennials, in particular,expect financial service providers to understand theirimperatives and to offer personalized, tailor-madesolutions.Opening an account in person at a physical branch isregarded as an anachronism, while the ability to bankanywhere and anytime is a given. However, deliveringon this expectation is not always that simple. Thecorresponding digital processes must not only complywith legal requirements but also be intuitive, fast andconvenient for the user. Consequently, your servicesshould be available both online and on mobile devices.After all, nowadays transactions are increasingly finalizedusing mobile devices.The correspondingdigital processesmust not onlycomply with legalrequirements butalso be intuitive, fastand convenient forthe user.