AML Compliance for Payment Firms and Money Services Businesses

Payment firms and MSBs need compliance programs with appointed officers, risk assessments, training, and effectiveness reviews. Banks conduct extensive due diligence before providing correspondent relationships. We provide compliance officer coverage and payment-specific AML frameworks.

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Canada as the compliance program model

Canada’s FINTRAC provides a clear example of what payment compliance programs must include. FINTRAC expects reporting entities to have compliance programs covering five key elements.

First, an appointed compliance officer who is responsible for implementing the program. This person must have sufficient authority and access to information to carry out their duties effectively.

Second, written policies and procedures that document the entity’s approach to compliance, including risk assessment methodology, customer due diligence requirements, record keeping standards, and reporting procedures.

Third, an ongoing compliance training program covering all relevant staff, with documentation of training delivery and assessment of whether staff understand their obligations.

Fourth, effectiveness reviews conducted at least every two years to assess whether the compliance program is working as designed and identify necessary improvements.

Fifth, risk assessments covering the entity’s inherent risks from products, customers, delivery channels, and geographies, with explanations of how controls address identified risks.

While requirements differ across jurisdictions, these core elements represent international expectations for payment sector compliance programs. Banks and partners ask for the same evidence regardless of where you operate.

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What banks and correspondents require

Payment firms and MSBs depend on banking relationships to operate. Banks provide accounts for holding customer funds, enable wire transfers and ACH processing, and facilitate settlement with other financial institutions.

Banks view MSBs as high risk. They’ve paid significant fines for inadequate due diligence on MSB clients and now apply strict approval standards. To obtain and maintain banking relationships, you must demonstrate:

Qualified compliance officer - Named individual with appropriate experience, documented authority, and regular reporting to senior management
Comprehensive AML program - Complete policies and procedures covering your payment products, customer types, and transaction flows
Current risk assessment - Updated assessment of your inherent risks and control effectiveness, typically required annually
Transaction monitoring evidence - Documented monitoring approach, alert investigation logs, and proof that you detect suspicious activity
Customer due diligence procedures - Risk-based onboarding requirements, enhanced due diligence for high-risk customers, and ongoing monitoring triggers
Training and testing - Evidence that staff understand AML obligations and execute procedures correctly
Regulatory good standing - Current registration or license status, confirmation of no outstanding regulatory issues, and evidence of cooperation with supervisors

Banks often require monthly or quarterly compliance reporting and conduct periodic reviews of your program. Evidence production is ongoing, not one-time.

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Payment-specific controls

Transaction monitoring across payment types

Payment monitoring must address the specific typologies relevant to your business model. Money transfer businesses see different patterns than prepaid card issuers, merchant acquirers face different risks than remittance providers.

Your monitoring scenarios should cover velocity indicators appropriate to your products, amount thresholds based on typical customer behavior, geographic risk patterns reflecting your customer base, structuring signals specific to your payment types, and counterparty concentration patterns that might indicate layering.

Generic transaction monitoring designed for banks won’t catch payment-specific typologies. You need monitoring calibrated to how customers actually use your services.

Customer risk segmentation for payment users

Not all payment customers pose the same risk. Risk segmentation must consider factors like customer type (consumer, merchant, business), transaction volumes and frequencies, payment corridors served, customer verification level achieved, and historical account behavior.

High-risk customers require enhanced due diligence, more frequent monitoring, and lower thresholds for suspicious activity reviews. Your segmentation approach must be documented, consistently applied, and updated when customer risk profiles change.

Enhanced due diligence frameworks

Payment firms serve diverse customer types with varying risk levels. Enhanced due diligence procedures must address specific high-risk categories relevant to your business.

This includes cash-intensive businesses using your payment services, high-volume merchants with unclear business models, customers making frequent international transfers to high-risk jurisdictions, business clients with opaque ownership structures, and customers whose transaction patterns don’t match stated business purpose.

Your EDD procedures should specify what additional information you collect, how you verify it, what ongoing monitoring you conduct, and when elevated risk becomes unacceptable.

Partner and agent risk management

Many payment firms use agents, retailers, or other third parties to distribute services or acquire customers. These partnerships introduce risk. The partner may not apply adequate due diligence, may serve high-risk markets, or may facilitate transactions for customers who couldn’t pass direct onboarding.

You need due diligence on partners before establishing relationships, ongoing monitoring of transaction patterns from partner locations, audit or testing of partner AML controls, and procedures for terminating relationships when risk becomes unacceptable.

Cross-border payment controls

International payment flows create elevated AML risk. Controls must address correspondent banking relationships, foreign exchange transactions, remittance corridors to high-risk countries, sanctions screening for both originators and beneficiaries, and identification of transactions matching money laundering typologies.

Your procedures should define how you assess geographic risk, what enhanced due diligence applies to high-risk corridors, when you decline transactions based on destination country, and how you coordinate with correspondent banks on suspicious activity.

Registration and licensing compliance

Payment firms face varying regulatory requirements across jurisdictions. In some countries, you must register as an MSB and maintain ongoing compliance with reporting obligations. In others, you need a full payment institution license with strict capital, governance, and operational requirements.

Regardless of the specific regime, regulatory compliance includes several common elements:

Appointed compliance officer

Identified to the regulator with documented qualifications and responsibilities

Approved AML program

Policies and procedures that meet regulatory expectations and address your specific business model

Regular reporting

Suspicious activity reports, large transaction reports, or other filings as required by your jurisdiction

Examinations and audits

Periodic regulatory reviews of your program, with ability to provide requested documentation

Corrective actions

Timely response to examination findings, with documented remediation of identified deficiencies

Maintaining regulatory good standing is critical for banking relationships. Banks monitor your regulatory status and may close accounts if you fall out of compliance.

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