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AML and Fraud Concerns for FinTech Industry HKU SPACE

AML and Fraud Concerns for FinTech Industry HKU SPACE. Jason Wong Principal, Risk Advisory Services GRCHK@outlook.com 16 Aug 2016. FinTech. Where are we in the FinTech World ?. 2. P2P Lending. Pure Platform model Basic & Safest model Solicited on-line and off-line Bidding

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AML and Fraud Concerns for FinTech Industry HKU SPACE

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  1. AML and Fraud Concerns for FinTech IndustryHKU SPACE Jason Wong Principal, Risk Advisory Services GRCHK@outlook.com 16 Aug 2016

  2. FinTech Where are we in the FinTech World ? 2

  3. P2P Lending Pure Platform model Basic & Safest model Solicited on-line and off-line Bidding Contract between Peers P2P company as a platform only Revenue model Commission income Investment income 3

  4. P2P Lending Person to person lending through bidding and matching on internet platform 4

  5. P2P Lending Guarantor * Moderator model Use of Guarantor Own Funds involved Efficient Locate borrower before lender 债权转让 (over Bidding) No Contract & No Contacts between Peers Management & related parties involved 5

  6. P2P Lending Revenue model Commission income Investment income Interest divergence 6

  7. Risk Management framework & issues Common Issues in P2P lending business System breakdown & data leakage ** Non-sustaining business ****** Investment loss *********** Money Laundering ***************** Fund misuse/misappropriation ********************* 7

  8. Risk Management framework & issues Under Licensing regime Good Corporate Governance Float Management AML consideration IT security 8

  9. ML Typologies & AML Measures Difficulties in AML Non Face to Face ******* Remote & Virtual ******* Weakness in banking system ******* Disassociation with transaction monitoring ************ Not yet a regulated business under AML Ordinance ****************** 9

  10. 10

  11. ML Typologies & AML Measures Effective AML measure over “Non Face to Face Risk” Tied to bank account Two Factor Authentication Use of Facial recognition program 11

  12. ML Typologies & AML Measures Effective AML measure over “Controlling different accounts” IP address testing at inception IP address testing at response (e.g. Reply to message) c 12

  13. ML Typologies & AML Measures Effective AML measure over “Cash deposit & Third Party Bank Account” $1 deposit strategy at response Disallowing cash deposits One account one bank account policy c 13

  14. ML Typologies & AML Measures Effective AML measure over “Disassociation from transactions” Setting transaction limits Program testing on circulation c 14

  15. Fraud Consideration • Common forms of Fraud at P2P • 1. Ponzi Scheme • High interest returns • High growth rate • Covering old fund with • new fundS • No actual business • Decreasing float • Reluctant to returns in later stage 15

  16. Fraud Consideration • Common forms of Fraud at P2P • 2. Asset Misappropriation • Stealing • Investment loss • Default risks, particularly over Guarantor model 16

  17. Fraud Consideration c The real issues Lack of proper regulator monitoring Lack of proper corporate governance Lack of proper banking arrangement c c 17

  18. Fraud Consideration • Solution • Proper banking arrangement • Use of custodian account • Trust arrangement • Guarantee • Daily breakdown by P2P companies • Daily reconciliation by Custodian • Prudent investment policy c 18

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