e-money and financial crime: eu requirements and the uk’s risk-based approach hannah lynes,...
TRANSCRIPT
E-money and financial crime:EU requirements and the UK’s risk-based
approach
Hannah Lynes, Financial Crime Policy Unit, UK Financial Services Authority
Ankara, Turkey, 19-20 March 2007
Contents
• FSA – who we are
• What is e-money?
• EU and UK legal framework
• UK risk-based approach
• E-money and money laundering risk
• ID requirements for e-money
• Key messages
Financial Services Authority
• UK’s major financial regulator
• statutory objectives
– Market confidence
– Public awareness
– Protection of consumers
– Reduction of financial crime
Principles of Good Regulation
• Efficiency and economy
• Role of management
• Proportionality
• Innovation
• International character
• Competition
What is e-money?
“Monetary value, as represented by a claim on the issuer, which is:
a) stored on an electronic device;
b) issued on receipt of funds; and
c) accepted as a means of payment by persons other than the issuer.”
EU requirements
• Electronic Money Directives 2000– No 2000/46/EC– No 2000/28/EC
• Money Laundering Directive 2001
• Money Laundering Directive 2005
• Payments Regulation 2006
JMLSG Guidance
• Joint Money Laundering Steering Group
– 17 trade associations (financial services)
– Producing guidance since 1990
• Guidance approved by HM Treasury
• Courts and FSA take into account
The UK’s risk-based approach
• Legal framework – subject to EU parameters
• Proportionate supervision
• Principles-based regulation
• Senior management responsibility
Why be risk-based or principles-based?
Risk-based
• Proportionate use of resources
Principles-based
• Uses firms expertise
• Better for customers
• Harder for criminals
Is e-money high risk?
• Depends on:
– The product
– The firm’s systems and controls
– The level of regulation
What affects the risk level?
• Value and frequency of transactions
• Cross-border transactions
• What is purchased e.g. betting, gaming
• Funding of purses using cash
• No upfront ID
• Non face-to-face
• Outsourcing of AML controls
What affects the risk level? (continued)
• Size of customer base
• Size of acceptance network
• Ability of non-verified 3rd parties to use the product
• Multiple cards or accounts per consumer
• Cash refunds for purchases
Mitigating the risk
• Product design
• Systems and controls– ID checks– Transaction monitoring– Suspicious transaction reporting – Ability to freeze or close accounts– Money Laundering Reporting Officer– Senior management involvement– Staff training – Record keeping
Differentiating e-money issuers
• Electronic Money Directive 2000 -derogation for small e-money issuers
• UK
– Banks and building societies (FSA)
– Specialist e-money issuers (FSA)
– Small e-money issuers (HM Revenue and Customs)
ID requirements – 3rd ML Directive
• Check ID when
– Establishing a business relationship
– Single or linked transactions of 15000 euros or more
– Suspicion of Money Laundering/Terrorist Financing (ML/TF)
– Doubts about previously obtained customer ID data
E-money derogation
• ID not required if:– non-rechargeable device with purse size no more
than 150 Euros
– Rechargeable device with• annual cumulative transaction limit of 2500 Euros• Redemption limit of 1000 Euros
• Except where ML/TF suspected
• Ongoing monitoring is required
Payments Regulation 2006
• Transfers of funds to be accompanied by complete information on the payer
• Transfer of funds = through a payment service provider by electronic means
• E-money derogation for transactions up to 1000 Euros, where Member State applies 3MLD derogation.
UK ID requirements for e-money
• UK already allows e-money issuers not to check ID in certain conditions
• UK will use the e-money derogations
• But will expect firms to take a risk-based approach
• JMLSG Guidance describes good practice
Key messages
• Different e-money products present different levels of risk
• Risk can be reduced through:
– product design,
– firms’ systems and controls
– regulation
• Risk-based and principles-based regulation can be more effective and proportionate.
Further information
• European Commission– http://ec.europa.eu/internal_market/company/financial-crim
e/– http://ec.europa.eu/internal_market/payments/emoney/inde
x_en.htm
• HM Treasury– http://www.hm-treasury.gov.uk
• Financial Services Authority– http://www.fsa.gov.uk
• JMLSG– http://www.jmlsg.org.uk