Anti-money laundering regulations are crucial for fighting global financial crime. However, for the Forex industry, the process of AML screening is not simple.
The decentralized nature of the FX industry makes AML solutions important and difficult at the same time. However, the same reason also puts the entire pressure on individual businesses to be responsible in their AML compliance processes.
Understanding The FX Trading Industry
Forex trading refers to the exchange of global financial currencies in the absence of a central regulating authority.
In simple words, Forex or FX trading is the market through which individuals can buy or sell different currencies. There is no central body that governs the FX trading market, and rather, individual and separate government bodies have the right and responsibility to do so.
The Flow Of Laundered Money Within The FX Industry
The FX trading market is the largest financial asset market in the world. According to Reuters, this global market traded a record-breaking amount of USD 7.5 trillion a day in 2022. Such daily turnover, as well as a growing industry worth, makes the forex industry a major target of money laundering practices. Moreover, this is also thanks to the industry exchanging financial assets across countries and in different currencies.
The Importance Of AML Solutions For Forex
All trading entities within the FX industry participate in the trading process on their own, without having a regulating authority dictate them. This absence of stringent centralized regulations makes FX trading a hotspot for money laundering.
There is a huge growth opportunity for financial crime within the forex industry. This is why anti-money laundering or AML screening regulations for the industry are crucial.
While there is no central authority, AML compliance for FX trading can be regulated by individual countries themselves. This is why countries like the USA and England have started to implement essential and strong FX AML security laws to fix their industry.
The Regulations Making Up The Global AML Verification Systems
AML solutions and regulations vary based on the challenges that facilitate money laundering within the forex industry.
- The forex industry is susceptible to money laundering due to a lack of international financial FX authorities. This points towards the fact that trading international currencies can produce loopholes and, thus, create financial crime opportunities. Moreover, different countries have different regulations when it comes to financial crime. This can also create opportunities for crime. For this purpose, international AML screening systems that streamline international policies and laws can help fight forex crime.
- The forex industry is also particularly notorious for the anonymity that IT offers during financial trading as compared to other financial business models. Through CDD or Customer Due Diligence, as part of the total AML compliance regulations and process, we can ensure that financial trading is processed only after effective CDD.
- A lack of CDD is also a lack of KYC processes. When there is no regulation on where the money is coming from or who the person dealing with it is, anti-money laundering becomes all the more important.
Preventing Money Laundering Through AML Systems In The Forex Industry– Differences On A Case-To-Case Basis
The decentralized nature of the forex industry makes the process of AML monitoring tricky. Typically, international authoritative bodies are the ones responsible for the global regulation of AML solutions. These governing bodies act as a coalition between different governments and their AML policies. In this way, when there is a mismatch or a significant difference between the policies of two different countries, the central authority can help resolve it.
For the forex industry, however, that is not possible.
Thus, we must look at AML screening for the forex industry through a case-by-case and context-based lens. This means that each and every trading website or business is the one responsible for ensuring adequate anti-money laundering processes.
Understanding The Risks Inherent To A Particular Business
For a forex trading website, a crucial part of AML compliance is understanding the risks that are inherent to their specific business. This primarily means identifying the risk of crime associated with your business. For example, if a particular trading website is based in a region with a high risk of money laundering, then that particular business is also going to be a high-risk one. Similarly, a large-scale business dealing regularly with a large flow of transactions is also high risk.
Such businesses need to focus more on anti-money laundering methods that suit these particular risks.
AML Solutions Based On The Risks Particular To The Industry
As the forex industry is decentralized, there is no primary authority that a business can report suspicious activity. This means that forex trading businesses must be proactive in fighting money laundering. For example, such businesses can ensure strict KYC, CDD, and EDD processes during initial customer digital onboarding. In this way, the potential of money laundering can be greatly avoided.
AML Compliance For Forex businesses – Conclusion
The Forex industry is one of the largest global industries requiring immediate global reforms when it comes to money laundering. This is because the industry is also one of the greatest hubs of financial crime despite being carefully monitored by global economic institutions. Anti-money laundering or AML solutions are globally required and regulated for all financial businesses. For FX trading websites, however, the case is different.
While reforms may be farfetched, immediate AML screening processes by individual FX traders can help address the crimes associated with the FX industry.