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Eurofinas believes that the provision of consumer credit fundamentally a low risk transaction for AML purposes. At national level, the spirit of these rules indicating that consumer credit is a low risk transaction has not always been followed. There is little evidence to support the theory that consumer credit transactions should be regarded as an activity needing enhanced customer due diligence (CDD).
Loan Repayments
One basic reason why consumer credit transactions show a low risk of money laundering is due to the payment methods used to repay a consumer credit loan. Generally speaking, loan repayments are debited from a current account at a financial institution subject to the provisions of the 3rd AML and its Implementing Measures.
This means that an applicant borrower has already been identified and CDD conducted on him/her by the financial institution holding their current account i) at the time the current account was opened, and ii) as part of the financial institution’s ongoing security checks. If these checks are to be repeated for a low risk consumer credit transaction, then this situation results in the repeated customer identification procedures, delays and inefficiencies.
CDD checks made by another financial institution, and conducted before any credit agreement has been made, ensure that when loan repayments are made in the future from a borrower’s (usually current) account via a direct debit or standing order, as is commonly the case, the ‘paper trail’ for the loan repayments cannot be concealed. The origin of these repayments can thus be traced back without difficulty.
Furthermore, as a customer is generally unlikely to have the option to repay the loan in ways other than direct debit/standing order, it is extremely unlikely, if not impossible, for a criminal to launder money by repayment through a large cash deposit in favour of the credit provider. This fact in itself acts as a deterrent to criminals wanting to launder money in consumer credit transactions. The status of consumer credit as a low risk transaction is evidenced by the low number of suspicious transaction reports.
Politically Exposed Persons
Any amendments to the existing politically exposed persons (PEPs) regulation should take into account the different levels of risk for money laundering and terrorist financing that exist between various financial products.
Regulation of PEPs should be minimised where the product in question is inherently low risk, such as consumer loans.