Bangladesh is playing a flagship role in leveraging mobile financial services to provide access to formal financial services to vulnerable segments of the society such as the rural poor, women and Forcibly Displaced Persons (FDPs). As of June 2018, there are more than 800,000 agents, with 6.5 million daily transactions in volume and USD 131 million in daily value.

However, like many other countries, Bangladesh is also experiencing misuse of Mobile Financial Services (MFS) for criminal purposes that can deter broader financial inclusion. Early detection of potential risks and vulnerabilities are essential for timely intervention.

As a result, the Bangladesh Financial Intelligence Unit[1] (BFIU) formed a focus group with participation from regulators, government agencies and service providers. This focus group developed the study paper, AML/CFT Regulations for Mobile Money: Policy Options for Bangladesh that identifies Money Laundering (ML)/Terrorist Financing (TF) risks in Bangladesh, and suggests policy recommendations to promote an effective and sustainable supervisory regime for MFS.                 

Risk assessment for mobile money or m-money in Bangladesh was conducted based on the risk matrix developed by the Financial Action Task Force (FATF). Several high-risk elements were identified such as weak customer due diligence (CDD), predominance of cash-in, cash-out and person-to-person (P2P) transactions, illegal channeling of remittance (digital ‘hundi’) and money laundering via hawala transactions.

Recent typologies of misuse of MFS in Bangladesh have also been analyzed as part of the risk assessment. Factors that contribute to the misuse of m-money in Bangladesh include the following:

• Agents acquire and register multiple SIM cards to conduct anonymous transactions without the consent of consumers.
• Lack of unique identification documents for all citizens and ID verification tools for the MFS providers
• Inadequate monitoring mechanism for agents
• Consumers with low financial literacy experience difficulty in conducting transactions from the mobile menu, often only available in English.

The study paper proposed Progressive Know-Your-Customer (KYC) for personal accounts based on identification information provided by consumers. Daily, monthly transaction limit and other facilities should be determined by Bangladesh Bank based on Progressive KYC. If the MFS account is linked with an existing bank account of the same customer, additional KYC should not be required.

Transaction of higher value in merchant or institutional accounts would require additional KYC information, and should be linked with a bank account of the organization. Physical verification of the consumer’s business premise along with a transaction profile should be collected. However, the MFSP should implement a Risk Based Approach (RBA) and take additional measures as appropriate to monitor transaction in such accounts.

In addition, the study paper recommends that MFS providers collect the national ID and trade license for opening agent or distributor accounts. A visit should be paid to the business premise of the agent or distributor in advance, and information and documents should be verified. A central depository for rogue consumers or agents should be developed and shared with service providers; names that are blacklisted should not be appointed as an agent or distributor. Risk assessment procedures as well as on-site and off-site monitoring, and mystery shopping methodologies should be developed for agents and distributors.  

Service providers should also develop an automated system-based monitoring mechanism to analyze transactions and identify suspicious transactions. Risk Based Approach (RBA) should also be developed for monitoring transactions. While conducting risk assessment, factors such as geographical locations, nature of customers and agents, quality of KYC information and previous records of MFS misuse need to be taken into consideration along with any indicators informed by the Financial Intelligence Unit (FIU). Based on the risk assessment, appropriate transaction monitoring tools and procedures need to be developed.

The presence of the consumer at agent point during cash-in and cash-out is key to preventing anonymous transactions as well as some other types of misuse in m-money. Implementation of biometric identification and authentication (as part of e-KYC) during cash-in and cash-out transactions is an effective tool to mitigate risks of anonymous transactions.

The study paper also proposes that service providers consider a toll-free AML/CFT related hotline for agents and distributors, and provide incentives to encourage them for submission of STR/SAR. Staff, agents and distributors should be adequately trained on ML/TF issues. The study paper outlines a clear direction to service providers regarding regulatory expectations on AML/CFT risk management; the information, analysis and recommendations proposed are beneficial to policymakers, service providers, risk managers and researchers globally.