The introduction of new technology into the financial services field has created a new type of industry called Financial Technology or “Fintech.”  Fintech has drastically changed the way in which people are managing their finances and the industry is rapidly growing with time.  In 2014, various venture capital firms invested approximately $12.2 billion in fintech startup companies, which is nearly three times more than in the previous year.  However, as the fintech industry continues to boom there are a great number of challenges that these companies face, mainly those relating to compliance with Anti-Money Laundering Regulations.

Fintech transactions typically occur through smartphone applications or company websites.  The most common types of fintech services include digital wallets (such as Apple Pay), peer-to-peer money transfers, mobile payment systems (such as Venmo), and peer-to-peer lending.  Consumers and small businesses prefer to use fintech services because of their anonymity and speed.  It is also for these reasons that the United States government and enforcement agencies are greatly concerned about the growth of the fintech industry.

The United States government is apprehensive of the speed and anonymity of fintech services because they believe that this will increase the risk that terrorists and criminals will exploit fintech services to support illicit activities.  For example, a $28,500 loan was acquired by one of the shooters involved in the shootings in San Bernardino, California in December of 2015 using the peer-to-peer lender Prosper.  It is probable that this loan may have been used to acquire ammunition and pipe bomb components.  As a result, regulators will likely closely monitor fintech companies to ensure that they are in compliance with anti-money laundering laws, which are intended to prevent unlawful transactions.

Due to their financial nature, many fintech services are subject to the same anti-money laundering regulations as other financial institutions.  Digital wallets such as Apple Pay and mobile payment systems such as Venmo are considered money service businesses and are therefore subject to the reporting and compliance requirements of the Bank Secrecy Act.  Specifically, money service businesses are required to register with the Treasury Department, develop an operative anti-money laundering program, file Currency Transaction Reports for transactions that exceed $10,000, and file Suspicious Activity Reports when the company knows, suspects, or has reason to suspect that a transaction may involve money laundering or other unlawful activity.

Regulators need to closely monitor the anti-money laundering acts that occur frequently with the use of fintech services.  While fintech services have increased the speed and efficiency of consumer financial transactions, they have also created a way in which money may be transferred for unlawful or illicit purposes.  It would be in everyone’s best interest if regulators were to put into place an anti-money laundering compliance program for fintech companies.  Implementing this type of regulator scheme will prevent the loss of investor and consumer confidence in the fintech industry.


Bio: Laura is a current Staff Member of the Journal of High Technology Law. She is a 2L at Suffolk University Law School with a concentration in Business Law and Financial Services. Laura holds a B.A. in Economics from Roanoke College.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.

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