Banks

A pair of entrepreneurs has developed a solution to help banks reduce the risks involved in remittances. Route Trading Ltd., launched by Musa Jammeh and Taimoor Iqbal, will introduce Money Router, a software solution, to London, U.K. banks to prevent illicit money transfers.

ROUTE TRADING

Money Router, to be introduced in September, is designed to improve the safety of global payments, enabling financial institutions to set parameters in accordance with anti-money laundering and anti-terrorism financing regulations.

Developed in London by a team led by a compliance officer employed at a major U.K. bank, and a tech entrepreneur with a background in money transfer, Money Router is designed for both banks and money service businesses (MSBs).

An Integrated Solution

Speaking to CCN, Musa Jammeh said:

Money Router is an integrated solution for banks and their customers (MSBs). It is an integration of the money transfer system used by MSBs for processing transactions and the MSB’s bank accounts used to collect the monies being transferred.

The banks need to monitor the money coming into their accounts from the MSBs customers. By integrating the bank accounts with the money transfer system, banks can manage the end-to-end anti-money laundering (AML) compliance of the money transfer transactions in one place. They can achieve this by using regularly updated and compressive AML databases and regulatory registers such as the FCA Payment Services and HMRC Money Services Business registers.

Overseas workers often transfer part of their earnings to families abroad. As migration has increased worldwide, the total value of these “home remittances” to emerging economies has doubled that of direct foreign aid. But since much of the sector is unregulated, it has been linked to money laundering and terrorism.

Banks Are Constrained

Banks, fearful of fines, have been missing out on significant revenues and contributing to financial exclusion by exiting the remittance sector for the following reasons:

1) Inadequate visibility over MSB activities of transferring money on behalf of their customers;
2) Lack of anti-money laundering (AML) monitoring systems to deal with MSB on-boarding and real-time transaction monitoring;
3) Increased regulatory emphasis on the risk-based approach to AML monitoring;
4) Lack of awareness among MSBs about money laundering regulations and techniques used by criminals to launder money in the remittance industry;
5) Terrorist attacks by returning Islamic State fighters.

Existing Software Insufficient

Speaking to CCN, Taimoor Iqbal said:

Existing bank and MSB software systems are not able to identify high risk money senders and receivers in a timely manner, because the banks’ and MSBs’ systems are not integrated. As a result, the identification of high risk money senders and receivers is done on a manual basis, by banks asking the MSBs for the identity and address documents of MSB customers and manually conducting searches to verify them. Often, by the time this manual process is completed, the money transfer transactions have already been processed by the MSBs, leaving the banks vulnerable to potential high-risk senders and receivers.

Some banks can identify high-risk customers for their direct customers (mostly through manual searches), Iqbal noted. “In the case of MSBs, banks are required to monitor the customers of their customers, i.e., the customers of the MSBs, and this is where the challenge is, because banks do not have information on the MSBs’ customers (i.e., the senders and receivers of the money transfer). The only way to get this information automatically in real time is to integrate the money transfer system with the MSB’s bank accounts as in Money Router.”

Money Router communicates with AML risk databases that hold the names and addresses of both individuals and companies, as well as sanctions, known criminal, terrorist, county court judgments, etc. “These databases are provided by our partners, are regularly updated and available online almost round the clock,” Jammeh said.

Jammeh added:

Once information about new MSBs, their owners, senior management, customers or transactions is entered in the system and saved, our proprietary algorithms are triggered immediately to conduct searches of these databases and then use the results returned to calculate a risk score which then classifies the MSB, individual or transaction as either high, medium or low risk based on set thresholds, which can be configured by the banks.“

Because these processes are run during the processing of the transaction or registration of the MSBs or their customers, we are able to instantly verify their information as soon as it is saved in Money Router and identify high-risk scenarios.

How Risks Are Identified

Customers are identified as high, medium or low risk based on a scoring system that takes several risk criteria into account, and then calculates a score which is compared with thresholds that define high, medium or low risk.

Iqbal said:

We have standard risk criteria, such as whether someone is on a sanctions lists, is a politically exposed person, is sending money to high-risk countries, etc., and banks are able to configure these standard criteria (which already covers all the key anti-money laundering risk indicators) to suit their own requirements.

Although the MSBs use the same system, they are not able to change these rules, and if their customers or transactions are not compliant with this regulation, Money Router automatically classifies them as high or medium risk as appropriate and blocks the transaction. This ability to identify a high-risk MSB customer or transaction in real-time (although it may be available to some banks for their direct customers) is not currently available to banks for their MSB customers, and this is where our niche system comes in handy, he said.

MSBs Under Siege

According to a World Bank study from 2015, over half of money transfer companies have had at least one bank account closed, and 28% of principals – the people who receive money – and 45% of handling agents – who pay out overseas – have no bank account. In the U.S. and the U.K., scores of MSB bank accounts have been closed by major banks in the past few years.

Helping Banks to Expand Overseas

Money Router is designed to provide financial institutions the opportunity to open new overseas accounts. The tool will also encourage money transfer companies who often find it difficult to open a new facility with high street banks.

Featuring real-time processing, Money Router issues a warning signal prior to the authorization of a transaction, reducing the chance for error and preventing fraudulent transactions.

The instant end-to-end, identity verification system checks both the individual and company involved in a money transfer against the most up-to-date compliance databases, enabling banks to approve only the transactions that meet the standards they set.

Also read: Vote sees Europe move toward AML-D for digital currency exchanges

System Has Been Field Tested

Money Router has been field tested for almost a year with real money transfer transaction by MSBs and their integrated bank accounts (through bank statement downloading application programming interfaces), Jammeh noted.

It does not require any changes to banks existing systems or to MSBs’ bank accounts, and the configurable compliance rules have been tested too. All a bank would need to do to use it is to configure these rules and get compliance staff to review the risk scoring and flagging results, within the dashboards and workflows, then approve or reject transactions and individuals identified as high risk by the rules.

Featured image from Shutterstock. Story image from Route Trading.

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