What are North and Latin American regulatory approaches to financial crime in the payments sector?

There are significant differences between the approaches taken within South America. Whilst some countries, such as Brazil, are known for encouraging innovation and actively moving the payments industry forward at a product and compliance level, others, such as Colombia, are more restrictive, concerned with the elevated financial crime risks within their jurisdictions.

The US is considered to be lagging behind most other regions in dealing with financial crime within payments. This may reflect the slower pace of payments innovation, with the US monetary system only aligning with the rest of world in 2023 in terms of near real-time payments, with the launch of the FedNow instant payments service in July 2023 . US regulations are focused on banking, and our respondents expressed a hope that more would be done to provide clarity.  

NALA supervisors are taking steps to combat such activity by ensuring payment providers systems and controls meet strict requirements in line with national and international AML regulations.  

Our guide sheds light on pivotal North America and Latin America (NALA) regulatory bodies and their payment and AML regulations: Financial Crimes Enforcement Network (FINCEN), The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Banco de Mexico and Banco Central do Brasil.  

• US - Bank Secrecy Act (BSA)  

• US - USA Patriot Act  

• US - Anti-Money Laundering Act of 2020 (AMLA)  

• Canada - Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

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The Financial Crimes Enforcement Network (FinCEN) is a bureau of the US Department of the Treasury that collects information about financial transactions to combat domestic and international money laundering and other financial crimes.  

In collaboration with the Federal Deposit Insurance Company (FDIC), FinCEN warned financial institutions about the elevated risks associated with payment service providers. They emphasised the need for robust AML, sanctions, and anti-fraud controls, including merchant due diligence, suspicious-activity monitoring, and risk assessments.

For money services businesses (MSBs), FinCEN issued a comprehensive guidance document outlining measures to prevent money laundering. Recommendations include:  

• Establishing a risk-based AML compliance program.  

• Recognizing suspicious activity red flags.  

• Ensuring timely and confidential filing of Suspicious Activity Reports (SARs).  

• Training staff on AML laws and suspicious activity reporting.  

The Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) is Canada’s financial intelligence agency and anti-money laundering supervisor.  

FinTRAC provided guidance for MSBs on indicators of money laundering and terrorist financing, suggesting their use in justifying Suspicious Transaction Reports (STRs).

The guidance highlighted red flags in KYC, transaction monitoring, and identified product/service specific risk factors that firms should account for.

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Central Bank of Brazil (Banco Central do Brasil) is Brazil’s central bank and the principal monetary authority for the country. It is the supervising entity for anti-money laundering and counter terrorist financing.  

A 2021 National Risk Assessment delved into firms' financial crime compliance (FCC) strategies, highlighting risks specific to payment institutions, especially around prepaid accounts and wire transfers.

The authority pioneered an instant payment ecosystem, Pix, embedding multiple AML/CFT features and provisions.  

Circular 3,978, issued in January 2020, empowers financial institutions to categorise their operations and clients based on risk levels, subsequently applying AML controls in proportion to these risks.

The circular requires that financial institutions keep detailed records of all transactions, and allows information sharing within financial groups for AML purposes - it was praised by industry stakeholders who appreciated the flexibility to employ intelligence-driven risk assessments and machine learning models.

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Banco de Mexico (BdeM), is Mexico’s central bank, its monetary authority, and the supervisor for anti-money laundering and counter-terrorist financing.  

In September 2019, the Central Bank rolled out CoDi, a real-time digital payment platform, which it oversees and regulates.

At the same time, cash payments are being limited and controlled under anti-money laundering and counterterrorism provisions.