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AML and Fraud Concerns in FinTech Industry

Explore P2P lending models, revenue streams, risk management, AML measures, and fraud considerations in the dynamic FinTech landscape. Learn effective strategies to combat money laundering and safeguard against fraud.

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AML and Fraud Concerns in FinTech Industry

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  1. AML and Fraud Concerns for FinTech IndustryHKU SPACE Jason Wong Principal, Risk Advisory Services GRCHK@outlook.com 16 Aug 2016

  2. FinTech Where are we in the FinTech World ? 2

  3. P2P Lending Pure Platform model Basic & Safest model Solicited on-line and off-line Bidding Contract between Peers P2P company as a platform only Revenue model Commission income Investment income 3

  4. P2P Lending Person to person lending through bidding and matching on internet platform 4

  5. P2P Lending Guarantor * Moderator model Use of Guarantor Own Funds involved Efficient Locate borrower before lender 债权转让 (over Bidding) No Contract & No Contacts between Peers Management & related parties involved 5

  6. P2P Lending Revenue model Commission income Investment income Interest divergence 6

  7. Risk Management framework & issues Common Issues in P2P lending business System breakdown & data leakage ** Non-sustaining business ****** Investment loss *********** Money Laundering ***************** Fund misuse/misappropriation ********************* 7

  8. Risk Management framework & issues Under Licensing regime Good Corporate Governance Float Management AML consideration IT security 8

  9. ML Typologies & AML Measures Difficulties in AML Non Face to Face ******* Remote & Virtual ******* Weakness in banking system ******* Disassociation with transaction monitoring ************ Not yet a regulated business under AML Ordinance ****************** 9

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  11. ML Typologies & AML Measures Effective AML measure over “Non Face to Face Risk” Tied to bank account Two Factor Authentication Use of Facial recognition program 11

  12. ML Typologies & AML Measures Effective AML measure over “Controlling different accounts” IP address testing at inception IP address testing at response (e.g. Reply to message) c 12

  13. ML Typologies & AML Measures Effective AML measure over “Cash deposit & Third Party Bank Account” $1 deposit strategy at response Disallowing cash deposits One account one bank account policy c 13

  14. ML Typologies & AML Measures Effective AML measure over “Disassociation from transactions” Setting transaction limits Program testing on circulation c 14

  15. Fraud Consideration • Common forms of Fraud at P2P • 1. Ponzi Scheme • High interest returns • High growth rate • Covering old fund with • new fundS • No actual business • Decreasing float • Reluctant to returns in later stage 15

  16. Fraud Consideration • Common forms of Fraud at P2P • 2. Asset Misappropriation • Stealing • Investment loss • Default risks, particularly over Guarantor model 16

  17. Fraud Consideration c The real issues Lack of proper regulator monitoring Lack of proper corporate governance Lack of proper banking arrangement c c 17

  18. Fraud Consideration • Solution • Proper banking arrangement • Use of custodian account • Trust arrangement • Guarantee • Daily breakdown by P2P companies • Daily reconciliation by Custodian • Prudent investment policy c 18

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