The pace of innovation in payments has grown astronomically in recent years, veering outside of the traditional fintech sectors to serve even those industries that were traditionally reliant on banks. Such a pace also drives an increase in complexity within payment chains as the end user diversifies away from traditional banking services. The increase in complexity and needs of the payment sector naturally attracts additional risks focused more and more on the reliance of correspondent banks on their PSP client base. This is an area Banking Circle has been actively prioritising within its AML function from day one, pre-empting the challenges and risks that both itself and its underlying client base face with the desire to manage these risks through collaboration and intelligence sharing with its client base.
As risks grow, cost and resource requirements tend to follow. Banking Circle has been actively exploring, and utilising, AI for financial crime prevention in a controlled environment for the past 5 years, maintaining a focus on future proofing anti-fincrime efforts by equipping analysts with tools to increase efficiency, reduce the manual burden. This allows them to focus on analysis and investigations instead.
Through strong collaboration between our data science and AML teams, Banking Circle has been at the forefront of implementing AI in a controlled environment to identify potential financial crime risks through its in-house built Transaction Monitoring and Sanction Screening tools. The importance of integrating AI into financial crime prevention through a controlled approach is essential, ensuring that decisions are not made by AI, rather the utilisation of AI to point towards changes in behavior and increasing risk which ultimately allows our monitoring teams to prioritise and address cases based on risk.
The use of AI within Banking Circle goes hand in hand with our approach towards dynamic risk, enabling our financial crime monitoring tools and teams to constantly feed into, and benefit from, intelligence, constantly learning from flows and indicators which were indeed higher risk vs. those which were plausible. This level of innovation and intelligence-led approach has extended into emerging threats to innovative solutions such as vIBAN screening and fraud prevention enabling Banking Circle to collaborate with its partners, regulators and law enforcement alike as an integral tool in the fight against emerging financial crime typologies and trends which impact the world on a financial and social level increasingly each year.
What are vIBANs?
vIBANs (Virtual IBANs) have emerged as a powerful tool for businesses seeking streamlined cross-border payments, enhanced financial flexibility, and improved cash management. Unlike traditional IBANs, which are tied to physical bank accounts, vIBANs act as unique identifiers that route payments to a central account, enabling businesses to manage multiple currencies, subsidiaries, or clients under a single banking relationship. This innovation has been particularly transformative for fintech companies, e-commerce platforms, and multinational corporations operating in a globalised economy. It helps them expand and scale their businesses without needing a physical local presence.
However, as the adoption of vIBANs has surged, so too have concerns about their potential misuse. In recent years, regulatory bodies, financial institutions, and law enforcement agencies have raised alarms about the risks associated with these digital tools. From money laundering and fraud to sanctions evasion and tax avoidance, vIBANs have come under intense scrutiny for their role in facilitating illicit financial activities. The lack of transparency in some vIBAN systems, coupled with the difficulty in tracing transactions, has made them an attractive option for bad actors seeking to exploit gaps in the financial system.
Patrick Green, Head of Business AML & UK MLRO at Banking Circle shares the common reservations held by payment service providers (PSPs) and some considerations to ensure they are protected.
What are the main reservations PSPs have about offering vIBANs, and how can these be addressed to increase confidence in their use?
Whilst vIBANs have a variety of positive use cases, challenges exist in the form of limited monitoring of the end user, alignment with the PSP’s own risk appetite and the lack of consistent framework in place to mitigate financial crime and regulatory risks. A common set of standards would help bring consistency and confidence to the subject. These standards could include the mandating of key information associated with the business and ultimate beneficial owner (UBO), as is currently practised in Germany, allowing the PSP holding the direct relationship to verify it. Through the inclusion of key structured data, PSPs would be in a better position to monitor and mitigate financial crime risks associated with the vIBAN(s) issued. Policy makers must ensure, however, that additional standards are not overburdensome; excessive data requirements or restrictions would limit the use of vIBANs and eliminate the many benefits they offer businesses.
How do industry experts foresee the role of vIBANs evolving, and what sentiment exists about their long-term viability in the payments ecosystem?
vIBANs bring financial inclusion and innovation to various sectors, not only those associated with high payment volumes. The cost reduction and efficiency gains through not requiring physical bank accounts has long been a desired outcome for industries with large customer bases susceptible to reconciliation challenges. vIBANs have been key in combatting IBAN discrimination and are a lifeline to small businesses looking to scale their sales internationally. Through the delivery of a common set of standards across jurisdictions and regulators alike, vIBANs could continue to drive efficiency within businesses and speed up payments. The additional data a vIBAN offers would also aid regulators, PSPs and financial intelligence units (FIU)s in intelligence sharing.
What are the most common gaps in transaction monitoring for vIBANs, and how can PSPs address them to ensure activities at both the master account and vIBAN levels are tracked comprehensively?
Transaction monitoring tools tend to vary in their ability to monitor the flow linked to the underlying vIBAN holder. PSPs can enhance transaction monitoring tools to dynamically analyse the changing profile of the underlying customer base and location(s) whilst also reviewing changing transaction patterns using the likes of AI and Analytics to identify key risk indicators. A rules-based approach, consisting of proportionate thresholds, would then allow the PSP to actively freeze / block vIBANs and associated flow which are showing signs of unexpected activity. This collaborative approach and use of AI will further aid intelligence communities to mitigate and pre-empt financial crime risks.
Patrick was invited to contribute on a recent thought leadership piece by the Payments Association. Read more here.