MSB banking trends around the world influence each other and shape the global financial regulation landscape. China’s Fintech boom and AML crackdown, a renewed compliance effort by Australian banks, and bank branch closures in the UK are just a few of the trends affecting the global banking and payments system. This brief breakdown gives a high level overview of current MSB regulation and banking activity.
It is rare for a foreign financial transaction to bypass the US banking system entirely. With this in mind, jurisdictions across the globe are scrambling to comply with US AML & MSB compliance standards. Even if a business is technically outside the US, any transactions touching bank accounts held by US taxpayers put them under America’s regulatory umbrella. And the US is showing that it is willing to cross borders to fight alleged compliance violations and prevent financial crime.
Some foreign entities are growing frustrated with a perceived imbalance. They say that the US isn’t giving up nearly as much information as it is receiving. The ability of the US to reach across borders and prosecute non-American businesses and individuals is shaking up the status quo of international financial relationships. This is further bolstered by the fact that the US refuses to adopt the Common Reporting Standard (CRS). Over 100 jurisdictions are committed to the reciprocal exchange of tax and financial information. The US asserts that Foreign Account Tax Compliance Act (FATCA) gets the job done. Either way, the decision to abstain from the agreement is another decision putting the US on the “outs” with the global financial community.
Foreign banks operating on US soil are not immune either. Habib Bank Ltd, Pakistan’s biggest lender, currently operates one US branch. The New York State Department of Financial Services (DFS) is now seeking to fine Habib $630 million for serious AML compliance failures. If the penalty is imposed, it will be the largest ever levied against a Pakistani financial institution. The bank is vowing to fight the charges and denies the alleged links to terrorist financing, “wire stripping,” and illegal arms deals. The US will certainly continue to crack down on foreign and domestic compliance both at home and abroad.
In the United Kingdom, over 550 bank branches are being shut down this year. The lending institutions insist that they are simply reacting to the current shift to digital banking. Barclays alone expects to shut down close to 100 branches in 2017 alone. Critics of this trend point out the the public is losing access to vital financial services. As a result, small businesses suffer and the most vulnerable members of the population are put at a greater risk of fraud. When citizens are no longer traveling to city centers to conduct their banking business, nearby businesses lose foot traffic and dollars.
In addition to shutting down branches, high street banks are also shutting off MSB banking access for alternative financial services providers in the United Kingdom. The AML teams at big banks are deeming payments firms “too high a risk” to conduct business with going forward. This leaves MSBs, who depend on their bank accounts for access to the financial system, without a way to operate. Barclays is one of the few remaining banks in the UK that are willing to serve payments providers. Barclays is only willing to assume the presumed risk for high volume payments businesses, where the profits are high. Even providers who still have MSB bank accounts are starting to brace for impact and fervently searching for new options.
Banking officials in Australia are now warning banks that it’s time to play catch up when it comes to compliance. Australian banks allegedly put their pursuit of rapid growth in customer deposits ahead of their compliance efforts. Banks focused on cut throat competition with little effort spent on building compliance programs to match. As a result, AML and KYC systems now lag far behind their global counterparts. So far, Australian banks have avoided huge fines for noncompliance, but violations are coming if their programs don’t rise to meet international standards.
Commonwealth Bank of Australia is currently subject to a money laundering probe. At a time when its global peers are increasing their compliance spending, CBA cut compliance costs by 7% in the first six months of 2017. National Australia Bank’s AML compliance costs remained unchanged for the first half of the year. The chairman of the Australian Securities & Investment Commission, Greg Medcraft, notes that Australian banks are far too focused on legal ramifications and not concerned enough with other consequences like reputational damage.
No matter the reason for previous lapses, Australian banks are sure to start shoring up their compliance efforts in light of recent international fines. As they do, it’s important to keep an eye out for indiscriminate derisking and other trends that may affect MSB banking in the country.
China ranks in the top 20 countries in the world for their speed of Fintech adoption. For China, money transfer and payment services are the primary drivers of Fintech growth. 69% of consumers in the country indicate that they are using Fintech services, putting Chinese consumers 33 points ahead of the global average. As Fintech use continues to increase, China is starting to crack down on money laundering in order to meet international standards.
The first step in their renewed compliance efforts is to step up their reporting requirements for overseas transactions by Chinese bank customers. Regulators are now requiring Chinese banks to report domestic bank card withdrawals over 10,000 RMB (roughly $1,500 USD). This reporting will allow compliance programs to collect data for analysis. It’s been a decade since China internationalized their AML regulations and they are now working to enhance and enforce these requirements.
These strengthened AML efforts will help China combat ever-innovative financial criminals. In order to outsmart money launderers, financial institutions need to collect more data on every customer and transaction. Machine learning can be applied to these data sets to identify anomalies and patterns of criminal activity.
As banks close branches and countries recommit to AML compliance, your MSB needs a partner for weathering the storm. Two common threads in these global trends are 1) regulation is increasing and 2) banks are shutting down MSB bank accounts to stay compliant. In the face of derisking, the only safe bet for your MSB is to find a reliable bank account backed by the redundancy of multiple banking partners.
NCC provides just this through their network of MSB friendly banks. Every NCC client receives a real MSB bank account and peace of mind knowing that the account is backed by the network of reliable banking partners. If one bank decides to derisk, another can step in to secure your account.