Mobile Banking, AML and the Mobile Network Operator

There are two types of mobile banking systems. The type that front-ends an existing bank account and those that contain a self contained wallet to hold the funds. The majority of front-end systems allow users to transact off a credit card that they have preregistered onto the mobile banking application. Some of the systems allow users to transact off their savings, cheque or transmission accounts. In the front-end systems the bank that holds the funds is familiar with anti-money laundering (AML) and counter-terrorism financing (CTF).

But what about the wallet type systems. In both front-end and wallet type systems there is a drive to make the registration of new users as lightweight as possible and preferable entirely off their mobile device. Mobile operators prefer to deploy these wallet type systems since they then own the customer completely. But mobile operators do not necessarily understand the issues around anti-money laundering (AML) and counter-terrorism financing (CTF), because this is not something that they normally have to contend with. These regulations revolve around know-your-customer (KYC) and KYC prevents simple registration. As mobile operators start deploying and running these wallet type mobile banking systems then are going to be forced to adhere to banking regulations. So when users are signed up with insufficient KYC data there are a number of easy solutions to prevent or limit money laundering and terrorism financing. The simplist is to only allow funds to be loaded into the wallet and then enforce that these funds must be used to purchase goods or services. Another way would be to limit the size of transactions so that only small amounts can be unloaded to cash, or simply enforce that funds are loaded or unloaded from one specific banking account.

Unfortunately, not all producers of mobile banking systems have taken the moral high ground to ensure that their systems adhere to AML and CTF. In the short term the mobile operators purchasing these systems might get away with running them, but they will be forced to close them down or make expensive changes to them in the near future as global mobile banking regulations start being put in place.