AML and counter-terrorist finance: How could the payments industry collaborate?

Abstract

Anti-money laundering (AML) and counter terrorist finance (CTF) are now recognised as ongoing and possibly endless endeavours, especially in the banking industry, as they provide an entrance to the formal financial world. It is one of those areas where regulation is global, and regulatory harmonisation is evident, while enforcement is local in nature. While ultimate responsibility for AML compliance rests with each institution (eg banks) that has a relationship with the customer, collaboration in various areas can be sought for the sake of effectiveness, industry-wide cost saving and a better basis for customer services. A typical constraint that a bank would have is the fact that, in principle, banks only know what their customers do with them. When a payment is received from another bank, the receiving bank does not know whether the originator information is true or whether it is a string of alphanumeric characters that resemble a customer identity. By going through an example of an attempt to monitor payments at a Japanese domestic low value (high-volume) payment system, this paper brings to light the various issues that international as well as domestic payment service providers are facing. It also indicates potential solutions for cross-border as well as cross-industry payment monitoring. It is the first time that such propositions have been put forward in a large-volume environment, and can be made possible only because business, technical, operational and regulatory requirements are converging throughout the world.