Wednesday, August 16, 2017

Emily Lee on Financial Inclusion, FinTech, RegTech & AML (J Business Law)

2017, Issue 6, published, pp 473-498
Abstract: This article evaluates the claim that FinTech—a portmanteau of finance and technology, including blockchain and automated suspicious transaction monitoring technology systems—has the ability to revolutionise financial inclusion, and examines whether regulatory technology (RegTech) can be used by regulators for tracking and monitoring AML/CFT compliance activities.
     Introduction: Financial inclusion denotes banks’ provision of basic financial services at affordable costs to those that need and qualify for them. Financial inclusion has strong social and economic implications. Access to basic financial services has been recognised as a basic civil right by the European Accessibility Act. The opposite is financial exclusion, which is when banks deny financial services to customers that they consider as posing high risks for money laundering and terrorist financing, giving rise to the term “de-risking”. 
     A litany of financial exclusion reports impelled the Hong Kong Money Authority (HKMA), the territory’s banking regulator, on 8 September 2016, to issue a circular to banks warning against the practice of de-risking, excluding customers from the financial system as the territory’s banks attempt to meet the anti-money laundering/countering the financing of terrorism (AML/CFT) requirements. Financial exclusion is driven by increasingly stringent documentary requirements and/or banks’ fear of regulatory reprisals if customers cannot prove the legality of their income or source of funds to their banks’ satisfaction. In over-compensating, banks have refused to approve account opening applications from some customer groups, with small and medium-sized enterprises (SMEs) and start-up companies (start-ups) being most affected... 
     This article addresses the following key issues: (1) the importance of financial inclusion since it has strong social and economic implications; (2) the claim that FinTech enables financial inclusion; (3) the problem of financial exclusion, which is linked to AML/CFT requirements; and consequently considers (4) whether the AML/CFT requirements are suitable to be put into a regulatory sandbox, a new regulatory approach whereby innovative FinTech products or services will be provided with regulatory flexibility for them to be introduced and tested in the market, and, if not, whether there is an alternative approach to grant regulatory flexibility so as to make financial services more accessible—the essence of financial inclusion...  Download the full paper here

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