Since it achieved a market value of $407.2 billion in early 2022, the Peer-to-Peer (P2P) industry is further forecasted to mark more revenue generation. However, growth does not come alone it brings certain fraud risks as well. The proliferation of illicit funds laundering, collusion, Ponzi, and other such schemes are driving legal as well as reputational repercussions for P2P firms.
P2P platforms are modern-day facilitators for businesses looking forward to less expensive lending options. They use online sites to raise investments and provide remote financial help to firms. As per regulations, P2P platforms should perform AML monitoring of both investors and borrowers. This blog entails Financial Conduct Authority (FCA)’s anti money laundering guidelines and how IDV serves as a countermeasure for financial troubles.
P2P Businesses and Flow of Illicit Funds – An Insight
P2P lending platforms are the favorite for criminals as they can easily conceal their illicit funds and flow them across financial systems. In return, the money comes out as legitimate and helps fraudsters escape AML compliance. Similarly, the use of shell companies for high-value investment scams is another threat to P2P lending platforms. In most cases, investors are also left with a loss of million due to their funding in paper-based startups. Lax AML verification checks further leave enough room for fraudsters to exploit P2P lending platforms.
Regulatory watchdogs are putting forth strict anti-money laundering guidelines for P2P lending platforms to identity fraudsters covering their unlawfully obtained money under cover of investments. Where criminals steer clear of AML compliance, they leave respective online fundraising sites in legal proceedings and hefty penalties. Hence, regulatory bodies are monitoring P2P lending platforms to ensure they implement guidelines given by Procced of Crime and 2017’s Money Laundering, Transfer of Funds, and Terrorist Financing acts.
As per the legal requirements, AML screening of borrowers as well as lenders including their due diligence, risk assessment, source of funds validation, and cross-verification against watchlists is a serious liability. P2P lending platforms are working in a digital sphere which means they offer anonymity to customers. While on one side it protects individuals’ privacy, hidden selves increase money laundering risks on the other.
P2P lending platforms need to integrate efficient AML solutions to validate the source of money, outline risk scores, and verify true identities. Hence, P2P lending platforms can put with legal requirements and ensure secure financial dealings.
AML Security Solutions – Highlighting Other Fraud Risks in P2P Lending
P2P businesses experience several criminal threats other than money laundering that drive regulatory scrutiny. In worse scenarios, they can face legal proceedings, hefty anti-money laundering non-compliance penalties, and end up on sanctions. As they work online, P2P lending platforms face more fraud risks during the digital onboarding of customers.
Criminals have advanced identity-concealing tools at their disposal, they easily camouflage their true selves, register under someone else’s name, and exploit investments. Further details regarding criminal threats P2P lending platforms undergo include:
Fraudsters commit synthetic identity fraud to escape anti-money laundering checks by manipulating information including ID cards, salary slips, passports, and others. To prevent this type of fraud, P2P lending platforms need to bring in robust KYC and anti-money laundering mechanisms.
Lending money to close friends, relatives, or peer groups is commonplace these days. However, this process experiences the most fraud due to inadequate KYC/AML security measures. Hence, P2P lending facilitators require anti-money laundering mechanisms to mitigate the flow of illicit funds.
Fraudulent P2P lending platforms hide the funds they raise and use them for their own growth rather than channeling them to borrowers. Fake investment players then rely on new entities to pay the older returns. However, with robust AML solutions in place, P2P platforms can actively counter this scam.
FCA’s Guidelines for P2P Platforms to Enhance AML Security
FCA put forth several amended anti-money laundering guidelines for P2P lending businesses to safeguard borrowers and lenders from scams. Following a rise in payment fraud, investment exploitation, and identity theft, this watchdog made amendments to its Financial Services and Markets Act 2000. These reforms came into force on December 9, 2019, with the following AML monitoring obligations:
- Enhanced evaluation of users’ identities and their financial knowledge.
- Integrating AML solutions for building efficient risk-management systems.
- Investors using over 10% of their share for lending are to be reviewed by respective officials.
In the End
For making their operations secure, easily accessible, and convenient, P2P businesses need to invest more in building anti-money laundering measures. By integrating efficient digital onboarding solutions, these lending platforms can identify high-risk entities at the time of registration and restrict their access. Furthermore, regulatory watchdogs such as FCA are toughening their stances on fraud prevention. Hence, P2P lending platforms should incorporate AML solutions to better address criminal risks.
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