Voice of the Industry

What does increasing regulatory scrutiny mean for payment providers?

Thursday 25 January 2024 10:39 CET | Editor: Irina Ionescu | Voice of the industry

As the global payments threat landscape becomes increasingly complex, and technology advances at an unprecedented rate, regulatory initiatives follow. Maya Shabi, Senior Threat Detection and Product Strategist at EverC, discusses how this will impact payment providers.

Acquiring banks and financial institutions are no stranger to the global and domestic regulatory landscape. These entities have entire departments devoted to figuring out financial regulations: how to interpret them, how to comply, and how to prove compliance.

Increasing accountability for payment providers

Until now, payment providers may not have realised the need for such extensive resources to maintain compliance. This is because some payment providers (e.g., payment facilitators and fintechs serving financial institutions) have operated under their banking partner’s license, relinquishing much of the compliance burden to the latter. 

To partner effectively with banks, payment providers need to show their ability to operate in a highly regulated environment. But this cannot come at the expense of cutting-edge technology and top-rated user experience for their business to remain competitive in the market.

Payment providers were not exempt from scrutiny or enforcement action, as card brands regularly issue guidelines to players in their network, and non-compliance can result in fines or termination. To avoid these penalties, many payment providers work to align their Acceptable Use Policies (AUP) with card scheme rules.

Global threats prompt an uptick in regulation and enforcement

As the global payments landscape increases in complexity and technology advances at an unprecedented rate, regulatory initiatives always follow. These combined circumstances will continue to impact payment providers in the following years. 

Emerging trends and threats, development of a consistent regulatory framework across the globe, increased enforcement scope and penalties, and expanded accountability will impact everyone in the payments ecosystem. 

A prime example of intensified regulation and enforcement is the economic sanctions imposed against Russia, prompted by the war in Ukraine. The scale of the sanctions campaign continues to expose the myriad of entities connected to the Russian elite – as well as the loopholes they use to circumvent AML/CTF regulations. 

To that end, the International Consortium of Independent Journalists (ICIJ) investigated one such method of evading sanctions, called the ‘Cyprus model’. This brought to light a web of offshore networks and professionals managing finances through the Cypriot financial system on behalf of those linked to the Russian regime. Investigations such as these not only highlight the difficulty of tracking cross-border transactions as they move in and out of jurisdictions, but often trigger a reassessment of AML/CTF regimes worldwide. 

Moreover, as AML/CTF laws expand to include a wider range of enablers and scenarios, the responsibility of ensuring that evolving due diligence requirements are fulfilled will fall squarely on the shoulders of the financial industry.

Regulatory response is moving at unprecedented speed

While the Western world quickly implemented sanctions against Russia shortly after its military incursion in Ukraine, a more recent development showcased the swiftness of regulators in response to terrorists exploiting our complex payments ecosystem to fund an unprecedented attack.

On 7 October 2023, foreign-designated terrorist group Hamas launched a brutal attack against Israeli civilians. In this new threat landscape, the group’s savagery covered terrain in both the geographical and the virtual world. Violent acts were livestreamed using victims’ social media accounts. Cyber-attacks targeted critical infrastructure, notifying Israeli civilians of a rocket barrage. And it became clear that the extremist organisation took advantage of alternative payments options (such as cryptocurrency), online channels, and illegal methods of fundraising and obscuring funds. The group’s subsequent online disinformation campaigns only strengthened their efforts and padded their wallets. 

Within ten days, the US Department of Treasury announced a government-wide response that included expanding OFAC sanctions targeting Hamas operatives and financing sources, as well as a FinCEN alert urging financial institutions to identify and report potential connections to terror financing. Again, illicit activity took place across channels, and the financial industry was called upon to play a role in stopping it.


How the payments industry can prepare for increased accountability

  • Increase collaboration among industry stakeholders. Criminals are working together, and a coordinated onslaught demands a coordinated response. Even among competitors, we must find ways to share information and tactics to fight what threatens our entire industry.

  • Emphasise education. Learning about the latest trends in the industry is essential. Teams should take advantage of learning opportunities through associations, read relevant content such as news stories and regulatory reports, and share these learnings to create a company-wide culture of compliance. 

  • Understand the purpose behind regulations. Regulators do not want to be seen as the enemy. Their job is to protect the consumer and the financial system, and it behoves us to align with that goal, focusing on business growth while ensuring safer ecommerce.

  • Put compliance solutions in place or upgrade existing systems and processes. Regulatory scrutiny will continue to intensify so, if you are relying on manual processes, you will be overrun by the juggernaut of regulatory and industry demands. Your team must receive the necessary tools and technology to keep up. 

Emerging trends and threats, development of a consistent regulatory framework across the globe, increased enforcement scope and penalties, and expanded accountability will impact everyone in the payments ecosystem. 


About Maya Shabi 

Drawing on her expertise in counterterrorism, risk assessment, and mitigation analysis in the intelligence sector, Maya Shabi tracks emerging threats to drive thought leadership and product development with the goal of leveraging technology to beat bad actors at their own game. Maya is deeply fascinated by the evolution of society's engagement with technology, and passionate about standing up for vulnerable and marginalized communities that are most impacted by global threats.


About EverC

EverC is focused on powering growth for the ecommerce ecosystem. Our automated AI-driven, cross-channel risk management solution rapidly detects high-risk merchants, transaction laundering, and illicit products, and provides ongoing monitoring to uncover evolving risks. Our team comprises domain experts in risk intelligence, open-source, deep, and dark web, and online fraud detection. Learn more at www.everc.com

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Keywords: online payments, payments , AML, regulation, financial institutions, financial sanctions, terrorism, cybercrime, funding, compliance
Categories: Payments & Commerce
Companies: EverC
Countries: World
This article is part of category

Payments & Commerce


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