Article
Understanding AML compliance: Why fintechs can't afford to ignore it
Jan. 27, 2025 · Authored by David Twomey, Lauryn Jobb
In the world of financial services, anti-money laundering (AML) compliance plays a crucial role in ensuring the integrity of financial transactions.
AML is a set of laws and regulations designed to detect and prevent financial crimes such as money laundering and terrorist financing. While traditionally associated with banks, as a part of the Bank Secrecy Act (BSA), these regulations are no longer limited to just traditional financial institutions. Financial technology companies (fintechs), as key players in today’s digital economy, are also under increasing scrutiny when it comes to AML compliance.
Naturally, many fintech leaders – who, as a group, are often focused on innovation, technology and scaling their businesses – are less familiar with the complexities of AML.
You may understand the basics: know your customer (KYC), reporting suspicious activity, and maintaining meticulous records. But beyond that, the nuances of an effective AML program can be overwhelming. It’s no surprise that many fintechs rely on basic Internet templates or even outdated, generic solutions. Unfortunately, this can be a costly oversight, especially now that regulators are ramping up enforcement actions in this space.
Why AML compliance is more crucial than ever
As you know, fintechs and banks share an important relationship. Fintechs facilitate the flow of financial transactions through innovative platforms, but they rely on banks to process and settle those transactions. In many ways, the success of fintechs is tied to the ability to establish and maintain solid partnerships with banks. However, this relationship is very much a two-way street, as banks have a responsibility to ensure that the businesses they partner with comply with regulatory requirements, including AML laws.
This means that in order for fintechs to expand and form partnerships with banks, they need to demonstrate that they have a robust AML compliance program in place. But here's the catch: Many fintechs think they’re compliant simply because they’ve put basic measures in place. However, fintech leaders are learning quickly that the bare minimum is no longer good enough. In the past, regulators may have overlooked these shortcomings, but that's no longer the case. The days of a "check-the-box" approach to AML are over, and regulators are now scrutinizing fintechs with much more precision.