As the industry for payment processors grows, so do some of its concerns surrounding Anti-Money Laundering (AML) requirements, namely with the risks of transaction laundering.

However, there are ways you can protect your company from shady practices like money laundering, fraud, and other financial crimes.

Transaction laundering, for example, proves that even a legitimate merchant can unknowingly process illicitly intended payments on behalf of a third party.

So, to better understand what should be done, let’s start off with the basics.

Payment Processors Explained and How They Work?

Payment processors, in essence, are a crucial element in what concerns the safety and handling of payment data between the merchants who use them and their respective financial institutions.

Payment gateways will transmit data on the user’s debit or credit card information to the payment processor, which will, in turn, crosscheck it within the banking or card networks for authorization.

If said authorization is granted, the payment processor will subsequently inform the user’s institution and green light the wiring of the funds to the merchant’s account.

Obviously, there are countless payment services and payment gateways, so regulations are bound to vary depending on which services are used.

As such, it becomes crucial that businesses check the rules regarding payment services to ensure proper compliance with their payment procedures and their licensing.

What Are US AML Requirements for Payment Processors?

The Federal Financial Institutions Examination Council (FFIEC) mentions that payment processors are posing a greater fraud and money laundering risk if they don’t effectively verify their merchant client’s identities and their respective business practices.

However, with that in mind, there are still no AML requirements for processors coming from the BSA (Bank Secrecy Act).

Nonetheless, the heightened risk is very much real for payment processors which end up neglecting their AML requirements and doing the necessary due diligence, something which translates into banks becoming increasingly unwilling to do business with them.

There is a rising regulatory focus coming from US financial institutions, which translates into payment service providers' (PSPs) shift towards a sustainable operating model that tackles fraud.

PSPs are fully expected to implement efficient control mechanisms to prevent financial crime, which in turn means that their business model and internal operations will certainly be affected.

Lastly, the ENABLERS Act is pushing payment processors which operate in the US towards mirroring the compliance best practices of regulated financial entities.

What Are EU AML Requirements for Payment Processors?

The European Union simplifies compliance as it enforces two straightforward AML Directives that payment services operate under:

· The 6th AML directive (commonly referred to as 6AMLD), which advances what the 5AMLD had previously proposed.

· Payment Services Directive 2 (or PSD2) pushes for stronger customer authentication and adds the possibility of using two distinct payment services (Account Information Services (AIS) and Payment Initiation Services (PIS)).

What Are Canada AML Requirements for Payment Processors?

In Canada, FINTRAC (The Financial Transactions and Reports Analysis Center of Canada) regulates payment processors as foreign money services or money services businesses.

This means that PSPs need to comply with the country’s electronic fund-transferring obligations.

How Businesses Implement Robust AML Practices?

There are many ways businesses can improve their Anti Money Laundering practices. Here are 3 of the most important ones.

Top 3 AML Practices

1. Have designated compliance officers, promote AML training, and automate when necessary.

2. Adhere to a constant review mindset: whether it’s screening for sanctions, looking for suspicious account activity, assessing merchant risk, or transaction monitoring, your business should always be on the lookout. Many of these processes can now have fully automated workflows.

3. Have written policies: improve customer onboarding processes and adhere to KYC best practices. AML compliance practices don’t limit themselves to preventing illicit activities, rather, they can help your onboarding and even control costs. Achieving equilibrium between your onboarding process and maintaining security is certainly possible.

Wrapping Up: What do AML Practices Accomplish?

Achieving the best AML compliance practices will help your business in the long run as it adds stability to your daily operations while correlating with audit-friendly processes for your business partners and regulators.

Moreover, they scale and protect your organization by preventing losses.

As such, everything goes smoother, and with the payment processing solutions industry primed for massive annual growth rates, compliance with AML has become quintessential.