Ensuring Financial Security: Understanding AML Checks for Neobanks

Chief Technical Officer

Aug 18, 2023
6 min

The world of online banking is evolving rapidly, and in this changing landscape, neobanks have emerged as a promising alternative to traditional banks. These innovative platforms offer convenient, digital-first banking experiences that cater to the needs of modern consumers. But here's the thing - even with their user-friendly interfaces, neobanks have to adhere to strict regulatory requirements, especially when it comes to Anti-Money Laundering (AML) checks. In this article, we'll take a closer look at how neobanks ensure financial security through AML checks while striving to minimize disruptions for their clients. Let's dive in!

What is an AML check?

An AML check is a thorough and organized process that financial institutions undertake to verify the legitimacy of financial transactions and the identities of their clients. The main goal is to detect and prevent any attempts to funnel illegal funds through the banking system, including money laundering. This safeguards the institution and its clients from getting unknowingly involved in unlawful financial activities.

Money laundering, which is the process of disguising the origins of illegally obtained money, is a huge threat to the global financial system. Criminals try to make their dirty money seem legit by mixing it with legal economic activities. That's where AML checks come in. They're designed to spot and stop these attempts, making sure the financial system stays reliable and secure for honest transactions. It may be applied to all the transactions, no matter the amount.

At Blackcatcard, we're proud to fully embrace our role as a regulated entity. We operate within the legal framework established by entities like the Malta Financial Services Authority (MFSA) and the EU Supervisory Authorities. This dedication to regulatory compliance means that every action we take follows the highest standards of financial integrity. Our top priority is to comply with European regulations, safeguard our clients' financial interests, and maintain trust in our services.

Balancing Security and User Experience

Neobanks have one goal: to offer seamless banking experiences. They want to minimize disruptions for their clients because they know that smooth interactions are crucial for keeping customers happy. But here's the thing: sometimes, they have to do AML checks because the law says so. It might mean asking clients for more information, but it's necessary for fighting financial crimes and keeping the banking system safe.

Neobanks understand the significance of a collaborative approach when it comes to AML compliance. They actively work together with their AML support teams, responding promptly to requests and providing all the necessary documentation. This not only helps speed up the verification process but also shows how dedicated neobanks are to financial transparency.

Proof of funds and proof of wealth

In the realm of finance, credibility and transparency are paramount. “Proof of wealth” and “proof of funds” are crucial concepts used by institutions like neobanks to verify the legitimacy of financial transactions. While often used interchangeably, they serve distinct purposes that contribute to a secure financial ecosystem. And that’s exactly what AML is checking when requesting additional documents.

Consider proof of wealth as a comprehensive portfolio that showcases an individual’s or entity’s financial prowess and capacity to undertake substantial financial commitments. This might encompass investments, real estate ventures, or business endeavors. It’s substantiated by a range of documents, including bank statements reflecting consistent significant funds, investment portfolios that demonstrate a diversified holdings strategy, tax returns providing insights into income levels, ownership certificates indicating valuable assets, and records of legal settlements or inheritances that further validate the financial standing. For example — when you bought crypto for 30 000€, our AML team would ask you, where these money came from. You could show a proof that you just won the lottery, for example — and we’ll be sure that these funds are legit.

On the other hand, proof of funds is more like a snapshot of current operations. There are various documents that can prove your transaction is transparent. For example, you received money from some organization, our AML system found it suspicious. But you are a freelancer, and this company hired you to do some work for them. You just show a contract or an invoice to our team — and it should be all right.

Potential Impact of AML Checks on Account Access

During the AML verification process, there might be instances where access to an account is temporarily limited. This is a precautionary measure taken to ensure the accuracy and completeness of the verification. This might cause a momentary inconvenience for those users who are certain in the transparency of their transactions. However, we have to monitor suspicious transactions. It underscores neobanks' dedication to maintaining a secure financial environment and continuing providing quality service to all the customers. 

Termination of Contract and Account Closure

If clients fail to provide the requested documents or don't pass the compliance verification, neobanks must terminate contracts and close accounts. This shows how seriously AML compliance is taken and its vital role in preventing illegal financial activities.

When neobanks detect transactions that raise concerns about AML or Know Your Customer (KYC) policies and fail necessary verifications, they simply reject them. By doing so, neobanks prevent the movement of funds tied to potentially suspicious activities. In these cases, neobanks prioritize the safety of their clients' funds by not letting the transactions proceed until compliance is confirmed.

If you're going through AML verification and the support team asked for the confirmation documents, or you are dealing with potential account closures, it's really important to keep an eye on your email. Neobanks understand the importance of clear communication when it comes to answering your questions and safeguarding your data. Sometimes, they may send you updates about your account status and security measures exclusively through email. So, stay vigilant and don't miss out on any important updates!

If the AML check was not successful, and customer couldn’t prove the legitimacy of the funds, the transaction will be recalled, and the account will be closed. If user has some funds that passed the security check — Blackcatcard will provide an option to transfer these funds to an account in another bank.

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