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5 years ago

Meeting challenges of technology-driven financial products

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Technology-driven payment services have brought notable benefits in the form of offering smooth, speedy and cost-effective services-alongside promoting the government's key policy goal of financial and economic inclusion. It has completely changed the remittance transfer mechanism and role of banks as a key stakeholder in the process.

As in many economies of the globe, development of new payment services has caused concerns regarding money-laundering and terror financing for the policymakers of the country.  Though as a whole the sets of anti-money laundering (AML) rules followed in Bangladesh are in line with globally accepted standards, a lot are still evolving in the context of even developed countries. Regarding mobile money services, the country unveiled some instances of illegal or criminal activities or alleged money laundering efforts using digital platforms during 2016-2017 that was duly responded to by the central bank. In line with the potential vulnerabilities, it is time to adopt a forward looking and proactive approach to handling upcoming money laundering and financial crime potentials associated with the new payment system. Banks, technology service providers and other stakeholders' need to be more serious regarding legal compliance and identifying vulnerabilities to safeguard the system and optimise benefits.  Compliance is already a serious concern for the banks, and they should be ready for the cost implications of such developments. These developments point to the need to safeguard and restore public trust in preventing the abuse of payment platforms for fraudulent activities and money laundering in the country. 

'Digital Bangladesh' is one of the country's dreams, and so special emphasis is given on the application of digital technologies to realise Vision 2021. It came up as a development strategy to leverage ICT for financial and economic inclusion of the common people of the country. In line with the policy vision, Bangladesh is moving closer to being a 'cashless' society by introducing a number of new payment systems.  The uses of internet and mobile phone have been maintaining an upward growth in the last five years. The total number of internet and mobile subscribers has increased remarkably and this digital integration has already brought proven changes and development in the economic and social lives of the country.

The government has laid the foundation of an enabling environment for the new payment services with an actionable ICT Policy 2009, Right to Information Act 2009 and ICT Act 2009. Bangladesh Bank is the licensing authority of technology driven NPSs or services that have allowed a number of market players to offer new payment services. Established in 2012, Payment Systems Department of the BB works to establish modern and efficient inter-bank payments, clearing and settlement system. It looks after the enforcements of relevant laws, regulations and oversight of the payment systems. On the way to promote technology driven payment and fund transfer, certain remarkable initiatives include Bangladesh Automated Cheque Processing Systems (BACPS), Bangladesh Electronic Funds Transfer Network (BEFTN), National Payment Switch Bangladesh (NPSB) and Real Time Gross Settlement System (RTGS).

Bangladesh Bank allowed Mobile Financial Services (MFS) in 2011. Mobile banking has now become the most popular medium for monetary transactions in the country because of its ease and speed. MFS has brought under its fold a huge unbanked segment of the population, especially in rural Bangladesh within a span of seven years after its launching in 2011. Plastic money is another product under electronic banking for facilitating the new payment service. Use of plastic cards increased over time. Some banks have already come up with their own internet banking app to provide services like paying bills, cell phone top ups, or even transferring funds.

Agent banking is a relatively new but remarkable venture. Within just two years of its inception, agent banking has been able to attract a huge number of clients, encouraging most commercial banks to take up this alternative form of financial service in addition to branch-based banking.

Alongside remarkable benefits in the form of smooth and efficient payment services, cost-effective remittance services and financial inclusion, expansion of MFS in certain instances results in the abuse of the MFS platforms. It became particularly visible in 2016-17 in connection with remittance transfer. In some cases, people were even not aware whether these were legal or not, and several agents were found engaged in informal money transfer activities. Bangladesh Bank has undertaken several steps to address the problem. Some card frauds were unearthed and some suspicious cases of money laundering were also identified. Investigating several criminal cases in 2017, the Bangladesh Financial Intellengece Unit (BFIU) of the BB found that criminals mostly abused mobile accounts registered with fake identity. In certain cases, agents simple ignore minimum CDD (customer due diligence) as per the regulatory and service provider's requirements during the time of opening accounts.

 In the global context, certain initiatives have been undertaken to address several challenges associated with technology driven payment methods including money laundering and terror financing. As a broad framework, risk-based approach is being advocated worldwide which mean that countries, competent authorities and banks identify, assess and understand money laundering and terror financing risks associated with these payment systems, and take appropriate mitigation measures in accordance with the level of risk. It is also recognised that significant risks are still unknown as newer technology is evolving continuously and criminals are repeatedly modifying their techniques to stay ahead of law enforcing agencies. Undertaking periodic reviews and studies may effectively serve for supporting the right approach and initiatives of the policy makers.

Regarding the issue of addressing money laundering risks associated with technology-driven payment and services, several global bodies have already engaged themselves in intensive research. However, country perspectives are crucial for effective policy interventions. In this connection, the studies and initiatives taken up by BFIU on mobile money is praiseworthy that came up with several prescriptions in line with Financial Action Task Force (FATF) recommendations. In addressing key challenges, the issue of 'agent' is one of the most critical and difficult aspects of the regulation of mobile and agent banking. Selecting and monitoring right agents are critical for ensuring protection against abuse of the platforms. Awareness development and reduction of knowledge gap have no alternative.

The ever-expanding digital journey is unveiling new avenues for common people, businesses and also for criminals. However, technology is also the solution to the problem of financial crimes. Technology is contributing in hiding transactions by the tax evaders, and it is again the technology itself that may monitor transactions to identify the culprits. While regulating and supporting technology-driven payment systems and services in the context of Bangladesh, the benefit aspects must always be kept in mind. For the country, it is about optimising benefits of technology-driven payment system by identifying and handling efforts for misusing the platforms.

Dr. Shah Md. Ahsan Habib is Professor and Director (Training), Bangladesh Institute of Bank Management (BIBM).

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