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How to nail your banking audition every time

How to nail your banking audition every time 36

By Emily Harris, Head of Compliance at Fiat Republic

How to nail your banking audition every time 37

Emily Harris, Head of Compliance at Fiat Republic

As Head of Compliance at Fiat Republic, I am responsible for onboarding a crypto platform and integrating them into our fiat-as-a-service solution. Delivering reliable access to fiat currency for crypto platforms is paramount. As is being a trusted provider, delivering reliable access to crypto flows for banks. So, it won’t surprise you to learn that we have a robust compliance-first approach and there are specific ways that crypto providers can take compliance more seriously and nail their banking auditions every time… 

Correctly conducting risk assessments

Firstly, I’d expect to see how a crypto platform identifies, assesses and understands its various financial crime risks. How does it determine the likelihood and impact of risks materialising from its customers, products and services. But also from its transactions, delivery channels or geographical areas of operation. Crypto transactions may be more transparent than traditional financial transactions, depending on the blockchain network used. At the same time, no financial product is too simple or too sophisticated to be used for financial crime. Newer players may not understand the full extent of their risk exposure, so they might not have the appropriate risk mitigation and monitoring in place. We want to help educate them on this.  Regulatory risk is also key, partly because it’s so diverse and fast-moving. In Europe, the Markets in Crypto-Assets (MiCA) regulation is on the horizon. More proactive European regulators are also creating their own regimes. I’m looking to assess whether the crypto platform understands the implications of operating in a regulated environment and dealing with regulators.

Implementing the right policies, procedures and controls 

The next step would be to review a crypto platform’s internal policies, procedures and controls. These should be clearly documented and should explain how it plans to undertake its responsibility to prevent money laundering, terrorist financing, fraud and financial crime generally.  Typically, I’d expect to see something around the firm’s risk appetite and how it evaluates various risks according to a risk-based approach. For example, how it undertakes customer due diligence, verifies customer identity, and understands the intended nature and purpose of customer relationships. But also how it establishes source of funds and wealth, scrutinises transactions and conducts ongoing monitoring. Having nicely documented policies is just the start. I’m looking to see that the policies are live within the business, regularly reviewed, audited and updated. I’m assessing whether the crypto platform can demonstrate that it has a good understanding of what its processes are. Does it have the systems and controls in place that it says? Are these being applied consistently and effectively? Crypto platforms may buy compliance tools or engage third-party vendors, for example to do ID verification or sanctions screening, and think it’s “job done”. Sadly, it’s not that simple. You can outsource completion of a task to a tool or a vendor, yet the responsibility remains with you. Crypto platforms must understand how their tools are configured and why. And whether they adequately address the risks their business is facing.   

Look to hire a Money Laundering Reporting Officer (MLRO)

Lastly, having an MLRO is a great way to be more accountable for compliance, and is a requirement for Fiat Republic’s crypto platform members. This person may have a different job title, depending on the jurisdiction, but there must be a person responsible for compliance. I need to know who the nominated person is, where they’re based, and how I can contact them when needed. In Europe, the Fifth Anti-Money Laundering Directive made cryptocurrency exchanges ‘obliged entities’ bound by the same AML/CFT requirements as financial institutions. So, the MLRO should be appropriately qualified, experienced and senior, with a clear reporting line into senior management and/or the board. In the past I recall onboarding a payments company hiring their first MLRO and offering a salary of around a quarter of the market rate. This didn’t give a good impression of how they valued the MLRO role, or how seriously they took compliance. The MLRO is the focal point internally for all AML/CFT activities, as well as the external contact with bank compliance departments and regulators. Having a credible person in the role is a must.

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