Significance of AML Compliance in Money Services Business

  • Richard Marley
  • October 14, 2019
  • 6 minutes read
  • 9624

The financial sector landscape is evolving with the advent of the FinTech industry. Many revolutionary services and products are introduced by this sector and Money Services Businesses (MSBs) are one good example of such businesses. These revolutionary innovations increased ease for the masses. But lack of KYC and AML regulatory compliance specific to this sector left loopholes for the criminals. Also, most of the money transfer businesses are showing a lack of concern towards AML compliance, which increased the fraud rate in this sector. 

Sensing the urgency, some countries including Australia, Canada,etc. are taking steps to prevent financial crime in money services businesses. Before we explore the regulatory and preventive measures taken by these countries let’s dig deeper into MSBs as defined by the regulatory authorities. 

If we look at the definitions provided by FinCEN, AUSTRAC, FATF, and

FINTRAC, broadly an MSB business includes any individual, business or organization that performs the following operations as a :

  • Currency dealer or exchange
  • Issuer or seller of traveler’s checks, money orders, etc
  • Money transmitters 
  • Check casher
  • Remittance service provider

If a person or a business conducts these operations worth $1000 or more on a daily basis than it is liable for compliance with KYC and AML regulations. 

The MSBs are regulated in several regimes but lack of implementation and scrutiny led to an increased exploitation of this sector. Regulations are developed for AML compliance in MSB but lack of implementation is the issue. Regulatory authorities like FATF, AUSTRAC, and FINTRAC adopted a risk-based approach in MSBs’ AML regulation. 

Primary actions required for KYC and AML compliance by MSB are as follows:

  • Complete KYC of customers (identity verification)
  • AML screening of customers
  • Getting registered with the regulatory bodies

Why MSBs Need KYC/AML Compliance?


MSBs are some of the most common victim of money launderers. Often the MSBs do not perform KYC and AML screening on their customers, and this loophole in security is utilized by fraudsters. Money launderers and terrorist financiers cannot go to banks because they often run KYC/AML screening on people before serving them. That is why criminals use MSBs. 

They transfer the funds without being traced. Later, if a transaction is labeled as illegal the criminal will be untraceable because they use fake identities. Ultimately the service provider MSB will be deemed liable for fine.  

So, the MSBs need to practice in-depth KYC and AML screening on their customers before onboarding them. KYC and AML compliance helps MSBs in gaining credibility and customer trust. Research found that people feel more confident with online platforms that have some sort of visible security measures like real-time identity verification, 2-factor authentication, face verification, etc.  

Regulatory Authorities Tightening Reins on MSBs


The need for improved compliance culture is identified by global regulatory institutions. Financial watchdogs are all set to eliminate money laundering from all the business sectors. This compliance culture could be achieved only if the businesses will also understand their responsibility towards eliminating financial crime from their spaces. 

AUSTRAC Targeting Money Transfer Businesses for AML Scrutiny


AUSTRAC (Australian Transaction Report and Analysis Center) is targeting the money transfer businesses for thorough implementation of KYC and AML laws in that sector. 

In August 2019, Austrac launched the campaign against illegal money transfer businesses. This campaign requires the money transfer businesses to register with AUSTRAC and to practice KYC/AML compliance. The objective of this campaign is to reduce the exploitation of these unregistered businesses by criminals. 

Money transfer businesses that will not register with AUSTRAC will be liable for a fine of $420,000, seven years jail or both. 

The money transfer businesses are required to submit their International Funds Transfer Instruction (IFTI) to AUSTRAC on time. Those who fail to do so are fined for non-compliance. 

In September 2019, the regulatory authority fined $252,000 to Compas global holdings Pty Ltd. the company was unable to report the international fund transfer between 2018-2019. 

Not only that AUSTAC also ordered PayPal Australia to hire an external auditor at their cost to report on the fund transfer of the company to and from Australia. This order was generated after the self-reporting of PayPal on the findings of its internal report. 

AUSTRAC is aiming at eliminating the crimes associated with money laundering through strict scrutiny of the businesses involved in high-risk fund transfers. “Money laundering enables criminal activity that causes real harm to Australians, such as human trafficking, child exploitation, illegal firearm sales, and drug trafficking.”  AUSTRAC Chief Executive Nicole Rose said in a statement. 

Canada Increasing Pressure on MSBs (Money Services Businesses)


Canada also increased pressure on MSBs and introduced some rigid KYC and AML laws for this sector. The government of Canada amended the regulations of Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA). FINTRAC (Financial Transactions and Report Analysis Center) will be responsible for the implementation of these laws. 

The new laws for MSBs have the following key points:


  1. The MSBs (local or international) should be registered with FINTRAC and it will have the right to charge penalties in case of non-compliance. 
  2. The financial institutions are not allowed to conduct business with unregistered MSBs. 
  3. The MSBs are entered into the reporting entities list of FINTRAC. 
  4. The AML screening, recording and reporting regulations that were previously imposed on fiat businesses are now imposed on the MSBs as well. It means that the MSBs operating in Canada will have to conduct in-depth KYC and AML screening of their customers before onboarding them. Also, they will have to maintain a record of the compliance process and should report any suspicious transactions above the predetermined threshold. 

How Online KYC/AML Screening Will Help? 


Online KYC and AML screening can be the companion of a hard time for the MSBs. The customers of these businesses are from every corner of the world so manual verification is not possible. Developing in-house verification software requires exhaustive resources and bears huge costs, so it is not a feasible solution. 

Online KYC and AML screening solution is a cost-effective and easy solution that delivers results with high precision within a minute. It is high time the Money Services Businesses should invest in KYC and AML compliance because the regulatory authorities have identified the risk lurking in this business sector and are all set to give a hard time to non-compliant businesses.