Fighting Money Laundering in Portugal

In the ever-evolving financial sector, the notion of future-proofing may seem paradoxical. Yet, at the heart of RegTech, which prevents dealings with unsavory agents, lies the avoidance of long-term reputational damage.

Image credit: Shutterstock / amnat30

With the world increasingly defined by the crossover of industry, finance, commerce, and public services, individuals and businesses alike have never been so vulnerable to digital abuse. And with smart cities the template for tomorrow’s world the race is on to ensure that they do not provide an address for hi-tech crime.

The key word here is regulation.

Regulatory technologies are the means by which fintech pursues compliance with regulatory frameworks and prevents the transaction of countries and Politically Exposed Persons (PEPs) on a banned list, say, subject to international sanctions.

The monitoring of financial processes scans for money laundering and other nefarious financial transactions and accounts.

Reputation, reputation, reputation

Unlike the uphill slog of building a corporate reputation, the loss of one is instantaneous, and occasionally irreversible. Yet, in the competitive commercial arena time is no friend of the decision-maker. Therefore, the challenge for financial institutions is two-fold.

First, to build a complete, accurate and up-to-date profile of actual and potential clients to avoid risking reputational damage from doing business with a compromised entity.

And secondly, to avoid untimely disruption to customer onboarding from over-lengthy compliance that can cost banks business.

Ultimately both bank and client are fighting the clock. The growth of regtech since 2015 attests to the sheer volume of regulations put in place worldwide that all legitimate financial agencies are subject to.

And with so much at stake for systemic reputation, infractions in AML compliance merit the full weight of the regulators’ authority. Sector data reveals that over the past decade alone around USD26 billion in financial penalties has been levied against financial institutions for anti-money laundering (AML), know your customer (KYC), and other violations in the US, Europe, Asia Pacific, and the Middle East.

A regulatory Swiss Army Knife

Regtech facilitates AML compliance in several ways. Operating as automated processes, regtech solutions increase and accelerate compa-nies’ ability to meet their AML obligations while expediting customer due diligence (CDD) and enhanced due diligence (EDD).

Through digital connection to diverse regulators and registries customer in-formation is swiftly and accurately checked. Meanwhile, automated database searches allow institutions to immediately collate Ultimate Beneficial Ownership (UBO) structures thereby improving accuracy and completeness.

Furthermore, RegTech allows an institution to monitor an entity’s risk exposure based upon data from reliable media sources.

How is this useful? Well, smart systems offer real time screening of changes in customer risk profile, whereby subsequent status changes do not mean irregularities falling through the cracks. Ultimately, what all this spells is a comprehensive audit trail of every step taken in the AML process.

Portugal keeping it clean

As an EU member since 1986 in the bloc’s third enlargement, Portugal’s financial market is subject to EU regulatory controls, as well its own legislation.

In Portugal the criminal offense of money laundering and its attendant penalties is provided for in Article 368-A of the Portuguese Criminal Code. Additionally, Law 83/2017 establishes preventive and repressive measures to combat money laundering and the funding of terrorism.

To these are added the central bank—Banco de Portugal—comprehensive regulatory standards. Among seven notices governing the behavior of banks may make note of Notice of Banco de Portugal No 1/2022 of June 6, 2022.

This governs enforcement conditions, procedures, instruments, mechanisms, enforcement measures, reporting obligations, and other aspects that ensure compliance with obligations for the prevention of money laundering and terrorist financing, within the activities of financial entities subject to the bank’s supervision, as well as the means and mechanisms necessary for such entities to comply with the duties stipulated in Law No 97/2017, and the measures that payment service providers must adopt to detect fund transfers with missing or incomplete information on the payer or payee.

Meanwhile, notice of Banco de Portugal No 7/2009 of September 16, 2009, prohibits the granting of credit to entities headquartered in an offshore jurisdiction considered non-cooperative, or whose ultimate beneficiary is unknown. And Instruction of Banco de Portugal No 5/2019 of January 30, 2019, stipulates the requirements for entities subject to the bank’s supervision to regularly report on their efforts to prevent money laundering and terrorist financing.

Today’s financial services sector is witnessing such rapid development as to be in perpetual “early days” in one area or another. As such, regtech provides essential body armor without damming up legitimate applications, transactions and financial flow. In short, the bigger the client the bigger the risk, and the larger the institution, the longer the drop for systemic reputation. The message truly is “compliance, compliance, compliance.”

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