22 April 2014 – Prepaid International Forum warns that abolishing current monetary thresholds for Simplified Customer Due Diligence will stifle innovation, reduce competition and limit consumer choice
International not-for-profit trade association, Prepaid International Forum (PIF) has published its view on the proposed Simplified Customer Due Diligence (SDD) provisions in the draft 4th Anti-Money Laundering Directive (4 AMLD) issued by the European Commission.
PIF, a body representing providers of prepaid and e-money products, is concerned that the lack of clear rules on SDD under 4 AMLD will threaten the continued commercial viability of issuers of low-value, low-risk prepaid payment instruments that are currently issued and used without full verification of the customer’s identity.
An initiative of the PIF AML Working Group, the paper sets out to show that the removal of the current clear-cut monetary SDD thresholds, below which electronic money (e-money) products can be issued without undertaking full customer due diligence, will create unintended negative consequences such as legal uncertainty for new providers and products, delays in technological innovation and financial exclusion for many who rely on SDD e-money products for access to supervised and regulated payment services.
The paper calls for a provision to be introduced into 4 AMLD that allows the application of SDD measures for e-money products provided that certain conditions are met. These include applying appropriately low monetary thresholds to purse and transaction limits for both reloadable and non-reloadable products, restricting the transfer of e-money to or from SDD products to situations where all payment instruments or accounts involved are issued by the same issuer and ensuring that adequate transaction monitoring mechanisms are in place.
To support its recommendations, the paper describes the controls that are used by the industry to mitigate risk and reduce the attractiveness of reloadable SDD products for Money Laundering and Terrorist Financing purposes.
Dr Hartwig Gerhartinger, Chairman of the AML Working Group said, “The industry has invested heavily in transaction monitoring systems to prevent e-money products from being abused for criminal purposes. Due to detailed transaction records, including time stamps, merchant details, and further usage data, these systems can be effectively applied even without fully identifying the end customer. In an industry typically characterised by narrow margins, the additional costs of carrying out full customer due diligence would in many cases jeopardise the business model of current SDD products and would thus be detrimental to consumer interests.”
The paper also highlights the fact that reloadable SDD products offer enhanced monitoring capabilities, as they are typically used over a longer period of time and for larger numbers of transactions, and that the use of purse limits for SDD products with additional limits for reloadable SDD products makes them much less likely to be used for unlawful purposes.
Commenting on the paper, PIF Chairman Craig James, said,” our view is that current limits for SDD on e-money products alongside effective transaction monitoring create a good balance between mitigating the risk of SDD products and ensuring a reasonable level of availability and functionality for legitimate purposes. The demand for safe and convenient alternative payment methods is accelerating and SDD is a valuable asset to our industry which allows responsible service providers to meet these demands quickly. Our position is that the SDD provisions in the draft Directive would do little to reduce financial crime but would harm the choice and security these products provide to consumers”.
Notes to Editors
PIF is a global not-for-profit trade association established in 2007 to represent providers of prepaid payment instruments. PIF acts as principal point of liaison between the industry and government agencies, regulators, consumer bodies and the media to promote the relevance and benefits of prepaid and e-money products. PIF is dedicated to the progression of the industry and acts as a catalyst for the development of sensible industry guidelines and codes of best practice. PIF members represent issuers of prepaid and e-money products, card schemes, payment processors and suppliers of services to the industry. To learn more visit www.prepaidforum.org
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Head of Member Relations
Prepaid International Forum (PIF)
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