European financial institutions are having to spend yet more time on due diligence and reporting because of new terrorist-financing measures after a spate of attacks on the continent. France, above all, is renewing efforts in anti-money laundering, which national regulators in the banking union still oversee. French authorities issued yet another list late last year setting out what firms should be doing to keep track of clients.
“It’s clear that these types of event are a strong incentive to be very effective in this area,” says Robert Ophèle, second deputy governor at the Banque de France and the designated chairman of banking regulator ACPR.
Ophèle says ACPR has stepped up its onsite visits. From September, the financial investigations unit also has to know about all cash deposits of more than €10,000 a month. It will be able to inform bankers of money laundering or terrorism risks, so firms can do more checks.
The ACPR’s main focus, according to Ophèle, is the payments industry – after pre-paid cards were found in an apartment used by the alleged perpetrators of attacks in Paris – and other anonymous ways of buying goods and transferring money.
“The banking system is just part of the story,” says Ophèle. “It’s banks, but also new payment institutions, or electronic money institutions.”
French finance minister Michel Sapin has issued a bill to restrict the load capacity of pre-paid cards and to require identity checks on all pre-paid card customers (the existing limit is €250 for disposable cards and €2,500 a year for rechargeable cards). The European Commission is also preparing potential new rules on pre-paid cards and virtual currencies.
Robert Ophèle, ACPR |
Asked if more onsite visits will mean more burdens on the private financial sector, Ophèle answers carefully: “We have to keep the right balance between doing too much, which at the end of the day is not efficient, and not doing enough, which is sometimes the case. I do think that right now the banking system is fully aware of what is at stake.”
However, some worry that authorities are not making enough of a distinction with services that already carry out identity checks. One London-based lawyer specializing in payments thinks the terror backlash could make life unnecessarily difficult for small payment firms, including those operating across European borders, with few if any people physically present outside their home office.
After the November attacks, Sapin underlined his ministry’s anti-terrorist financing actions and alluded specifically to one of the most successful French banking start-ups, Compte-Nickel. Sapin said no-frills deposit and payment account services like Compte-Nickel would henceforth be included in the national account register, Ficoba, to which police are also to have direct access from this year.
Compte-Nickel already checks customers’ identity with machines it provides to distributors, says Hugues Le Bret, co-founder. “We are better at checking identities than traditional banks.”
He adds that the authorities asked Compte-Nickel to prepare to join Ficoba in late 2014, before the Charlie Hebdo attacks. Submitting data to Ficoba adds no cost to the business, he says; it just needed an engineer to develop a system to send the material the company already collected.
Compte-Nickel, however, is not the only French fintech player under threat. Romain Mazeries is CEO of MangoPay, which white-labels payment services to European crowdfunding and e-commerce websites using the Luxembourg e-money issuer Leetchi. French cooperative Crédit Mutuel Arkéa bought Leetchi late last year.
Mazeries worries France will lower the limits above which users of MangoPay’s marketplaces need to prove their identity, perhaps to zero. He says only around a quarter of its ultimate users need to send proof today. “Our work could get a lot harder,” he says.
For loans and big purchases, asking for documentation is fine, he says – but not for purchases, such as shoes or bicycles. “In some businesses it could be terrible for the user’s experience.”
Other measures
Meanwhile, other measures include a European Commission and ECB review, urged by France, into getting rid of the €500 note. The announcement of the review in February coincided with the publication of a study into criminal uses of high-denomination notes by former Standard Chartered CEO Peter Sands, now at Harvard University.
“There has been a definite change after the Paris attacks in November,” says Sands. “There is acute political momentum to take decisive action related to terrorist finance, and France has definitely been pushing the discussions.”
Sands hopes the timing of his paper’s release will help broaden the debate to the €200 and €100 notes, and perhaps the $100 bill and £50 note (used more by organized crime than terrorists, he argues).
For Sands, the sometimes questionable effectiveness of the ever-rising anti-money laundering compliance burden on banks makes doing away with high-denomination notes even more important.
“The whole world of cash is something that banks don’t see,” he says. “The harder it gets to conduct illegal transactions through the banks, the more attractive it becomes to do it outside the banking system.”
