According to the National Crime Agency (NCA), peer-to-peer lenders are the number two target for money laundering, second only to payment service providers. The news has been widely reported by the media and it is well known that P2P lending platforms with their small profit margins and focus retail clients are perceived to underspend on compliance and perform inadequate due-diligence which makes the industry an easy target for organised crime.
The market has become a thriving, multi-billion-dollar industry that brings borrowers and lenders together through sophisticated technology platforms that allow two parties to meet their specific financial needs. With the size and number of available P2P platforms, AML fraudsters can easily get the money into the system, wash it through and then take advantage of the proceeds of crime. Crooks looking to source funds can access ‘borrowing’ by using illegitimate companies leaving the P2P lending platform exposed to financial crime.
Often the P2P lenders do not have the necessary infrastructure, or processes, in place to detect the criminal activity. This may be due to lack of investment resource, or poor manual processes that require additional internal headcount. Operating on small margins or diverting budget from compliance to the marketing costs to onboard customers, are no longer reasonable excuses.
Even the not-so-savvy criminal will see the holes in the compliance processes and take advantage.
The predictions for a greater demand for P2P lending over the next few years, is fuelled by short-term cash flow issues, some of which can be attributed to the global pandemic, and the introduction of a greater number of government business loans. So, it goes without saying that the risk to the P2P lenders also increases and leaves them exposed to a greater threat to their own business, both in terms of financial outcomes as well as reputational damage.
Using digital solutions to meet compliance
As a reasonably new market, P2P lenders are not generally constricted by legacy systems when it comes to delivering their solutions. But in order to survive, the same level of technology must be implemented to deliver robust due diligence to minimise their exposure to risk.
With the use of API’s and ‘Software as a Service’ (SaaS) solutions, vast amounts of data can be brought into a single cloud based platform to deliver faster and more efficient ways to meet the Know Your Customer due diligence required to remain in business. By consolidating Know Your Business data sources for business onboarding data into one central platform, businesses can ‘run verification’ tasks or rules against customer data, to receive information on whether they should proceed to do business or not.
Distinguishing between citizens and residents; verification to establish Beneficial Ownership/Ultimate Beneficial Ownership; and verifying company directors for business onboarding, becomes far easier when using an automated solution. Decisions are made in real-time, regardless of where the P2P is allowed to operate, and allows for greater security as well as an improved customer experience by making it as frictionless as possible.
Automated digital solutions remove the pain of compliance by reducing the volume of manual workload on already overstretched internal resources, resulting in both efficiency and expenditure gains, as well as increased levels of compliance to reduce risk exposure.
The entire lifecycle is made easier with the option of defining the rule to match the appetite for risk. Ongoing monitoring and remediation becomes instantaneous, with both investor and borrower status being subject to change during the relationship. Remediating out-of-date information on both individuals and companies is particularly relevant as we approach the repayment dates for the various government Covid loan schemes. The last thing a P2P platform needs is to provide lending to companies that no longer exist or who do not have the ability to repay the loan – instead they need to be able to identify the bad actors and prevent them from borrowing more.
Additional benefits of using digital technology solutions include improved audit trails and improved security with safe, secure and compliant cloud solutions to prevent data leaks and GDPR breaches.
The more advanced client onboarding compliance solutions will offer dashboards, with flags and alerts, providing the opportunity for a proactive approach to compliance rather than a reactive, under-resourced team using manual processes.
With the emphasis placed on only investigating the bad actors, the quicker a business can identify this minority of cases the better. At NorthRow we use the term ‘Amber Management’. We enable businesses to identify the cases that are amber and require further case work. If the case is green a business can go ahead and transact. A definite red will be a bad actor. It is the ‘ambers’ that need to be flagged – and the best way to identify the ambers is to use a digital solution to expedite the process.