Regulatory changes, particularly those in Europe, are making it an interesting time for companies to be in the forex and money exchange businesses. “They’re dealing with the need to comply with things like GDPR,” Global Data Consortium (GDC) Co-founder Charles Gaddy told PYMNTS in an interview, adding they can’t take information out of a certain location and only use it for particular purposes. But these firms may need data – such as information covered by GDPR – in order to verify someone’s identity.
FinTech organizations like GDC, however, seek to provide a distributed network that allows these checks to be completed in near real-time – and the data stays local, so companies don’t have to deal with GDPR issues. Their efforts come as many online sites and services offer the ability to move money across borders. When one starts to make money move in such ways, however, Gaddy said it’s important to be on top of regulatory requirements.
The fourth money laundering directive that came out of the European Union, for instance, requires the verification of individuals on either side of a transaction. (In other words, “is that person who they say there are?”) With the directive, customer due diligence became more stringent, and the threshold of having to do it was no longer $10,000: In certain cases, Gaddy said, it was lower than that. And, with these different drivers, organizations that maybe didn’t have to worry about these kinds of checks were more obligated to do them.
For a case study on the snowball of additional regulations that came out of the directive, Gaddy turns to the Cypriots’ directives around how enhanced customer due diligence is to be done, as “it’s a real-world scenario.” While that particular directive is specific to Cyprus – as opposed to all of Europe – Gaddy said the directive has a “broad impact.” Many forex companies are based in Cyprus, Gaddy said, just as a lot of gaming firms are based in Malta, and countries like Australia and Canada.
According to Gaddy, those are variations on the theme that one needs to know who either party in a transaction is, and what they are doing. All of these regulations are heading in the direction of what’s coming up soon, starting in Europe with the fifth money laundering directive, according to Gaddy. In that case, universal beneficial ownership (UBO) and mutual beneficial ownership (MBO) come into play. According to Gaddy, “that is that next level above what has to happen with enhanced customer due diligence.”
While these kinds of checks are mostly done manually now, that might not be the case in the future. As FinTech platforms like the Global Data Consortium evolve, Gaddy said those requests are going to be more and more part of an application programming interface (API) call. That is, FinTech firms will go beyond know your customer (KYC) and enhanced customer due diligence elements of transactions with their systems, as users will see if a particular person is involved in the business as well.