Understanding Compliance in Cross-Border Payments: AML and CFT Measures

Neha Chowdhury

• 3 min read
Understanding Compliance in Cross-Border Payments: AML and CFT Measures
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In the ever-evolving landscape of cross-border payments, compliance with Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations is crucial. These regulatory frameworks are designed to prevent financial crimes, ensure transparency, and uphold the integrity of the global financial system. For Payment Service Providers (PSPs) like Glomo, understanding and implementing these compliance measures is essential for operational legitimacy and security.

What Are Cross-Border Payments?

Cross-border payments encompass both personal and business transactions conducted between entities in different countries. However, for the purposes of Glomo, we will focus on business transactions involving Correspondent Banks, payment providers, and financial institutions. These transactions play a significant role in global trade and economic growth but also pose a considerable risk of financial crime if not adequately regulated.

How Are AML and CFT Checks Performed?

To comply with international regulatory standards, financial institutions and PSPs must conduct stringent AML and CFT checks. These checks include:

Screening Against Sanctions Lists
Every financial institution must screen individuals and entities against national and international sanctions lists, such as those maintained by the Office of Foreign Assets Control (OFAC), the United Nations (UN), and the Financial Action Task Force (FATF). Screening helps identify and prevent transactions with sanctioned individuals, entities, or jurisdictions involved in illicit activities.

Due Diligence for High-Risk Customers
Certain customers pose a higher risk due to their business activities, geographic location, or financial behavior. Enhanced Due Diligence (EDD) measures involve gathering additional information about these customers, monitoring their transactions more closely, and ensuring that their financial activities align with their declared business operations.

KYC: Identification of Merchants
Know Your Customer (KYC) regulations require financial institutions to verify the identities of their customers. Under the KYC/AML/CFT guidelines issued by the International Financial Services Centres Authority (IFSCA), PSPs like Glomo must:

  • Collect and verify official identification documents
  • Assess the nature of the customer’s business
  • Understand the ownership structure of the entity
  • Perform background checks against global databases

Ongoing Transaction Monitoring
Compliance doesn’t end with initial due diligence. Continuous monitoring of transactions ensures that any suspicious activity is promptly identified and reported to the relevant authorities. Advanced data analytics and AI-driven tools help PSPs track transaction patterns and flag anomalies that could indicate fraudulent or illicit financial activities.

Key Components of Cross-Border Compliance in AML and CFT

Ensuring AML and CFT compliance in cross-border payments requires a structured approach, encompassing several critical components:

Governance
A strong compliance governance framework ensures that policies are implemented effectively. Organizations must designate compliance officers, establish oversight committees, and ensure that top-level management actively supports compliance initiatives.

Risk Identification, Assessment, and Mitigation
Financial institutions must conduct regular risk assessments to identify vulnerabilities in their payment processing systems. They must categorize risks based on factors such as geography, transaction volume, and customer profiles and implement mitigation strategies accordingly.

Continuous Monitoring
Regulatory bodies require ongoing surveillance of financial activities. By leveraging AI-powered monitoring tools and data analytics, PSPs can track suspicious activities and take corrective actions before any regulatory violations occur.

Policies and Frameworks
Comprehensive AML and CFT policies must be drafted, regularly updated, and effectively communicated across all levels of the organization. These policies should align with international regulations and industry best practices to ensure global compliance.

Internal and External Audits
Regular audits help organizations evaluate the effectiveness of their AML and CFT compliance programs. Internal audits provide an opportunity for self-assessment, while external audits conducted by regulatory bodies ensure adherence to global financial standards.

Why Are AML and CFT Checks Important?

Implementing AML and CFT compliance measures is not just about regulatory adherence—it plays a fundamental role in safeguarding financial systems from criminal exploitation. Here’s why these checks are crucial:

  • Prevention of Financial Crimes: AML and CFT checks prevent money laundering, terrorist financing, and fraudulent activities that could otherwise disrupt financial ecosystems.
  • Regulatory Compliance: PSPs that fail to comply with AML and CFT regulations risk severe penalties, legal action, and reputational damage.
  • Economic Stability: Financial crimes can destabilize economies by enabling illicit financial flows that fund terrorism, corruption, and other unlawful activities.
  • Trust and Credibility: Businesses and customers prefer working with payment providers that adhere to stringent compliance standards, ensuring secure and legitimate transactions.

Conclusion

For a Payment Service Provider like Glomo, compliance with AML and CFT regulations is non-negotiable. Cross-border payments involve significant risks, and robust compliance frameworks help mitigate these risks while ensuring seamless financial transactions. By investing in stringent screening processes, diligent monitoring systems, and proactive governance structures, PSPs can contribute to a safer and more transparent global financial system.