"The constant development of electronic banking and electronic money contribute to improving the efficiency of the banking and payment system. However, banks should adopt methods for identifying, asse
Bahrain, Kingdom of (Press Release) May 3, 2008 --
Abou-El-Fotouh was speaking at Remote Banking Fraud Management Forum in Bahrain under the title of "The fight against fraud crime and money laundering issues in electronic payments. He said that banks have used electronic channels for years to communicate and transact business. With the advent of the Internet, banks are increasingly using e-banking or Internet banking to deliver their products and services to their customers. The open and automated nature of the Internet means that neither geography nor time may create major barriers between banks and their e-banking customers. The common delivery channels include "closed" and "open" networks. "Closed networks" restrict access to participants bound by agreements on the terms of membership. "Open networks" have no such membership requirements. Currently, banks e-banking services through point of sale terminals, automatic teller machines, telephones, personal computers, smart cards and other devices.
Explaining the term electronic money, Abou-El-Fotouh said "Electronic money refers to "stored value" or prepaid payment methods for executing payments using point of sale terminals, direct transfers between two devices, or over the Internet. Stored value products include "hardware" or "card-based" mechanisms (also called "electronic purses"), and "software" or "network-based" mechanisms (also called "digital cash"). Banks may participate in electronic money schemes as issuers, or distributors of electronic money issued by other entities; redeeming the proceeds of electronic money transactions for merchants; handling the processing, clearing, and settlement of electronic money transactions; and maintaining records of transactions.
He further added "due to rapid changes in information technology, it is not possible to compile an exhaustive list of risks. However, there are specific risks facing banks engaged in electronic banking and electronic money activities. Among the different risk categories, operational risk, reputational risk, and legal risk may be the most important risk categories for most electronic banking and electronic money activities. Other risks include, reputational risk, security risk, cross border risks, credit risk, liquidity risk and money laundering risk.
Abou-El-Fotouh explained that e-banking is vulnerable to abuse by money launderers. He said "it is attractive to money launderers if the systems offer liberal balance and transaction limits or when there are limited or no audit trail. It would be difficult to apply traditional anti-money laundering rules for some e-payments due to factors such as relative lack of physical bulk; potential anonymity and payments can be conducted remotely".
In order to mitigate the risks, banks should design adequate risk management strategy which addresses the risks having regard factors such as e-products characteristics, channels, target customer, cross-border issues etc. The risk mitigations should include the following among many others:
For prepaid cards: adequate due diligence before accepting non face-to-face before accepting customer relationships ; limiting funding options; limiting card value and\or the number of cards that individual can purchase and\or value per transaction; limiting cross-border access to cash etc. Other factors for considerations include on-line interaction with card issuers or a central operators; monitoring and tracing individual transactions; maintenance of cumulative records in a central database; use of tamper-resistant devices incorporated into stored-value cards and merchant hardware; implementing multi-factor authentication and enhance web sites with Embed ‘Secure Socket Layer’ and Virtual Keyboards
Abou-El-Fotouh concluded by saying "we are becoming increasingly sophisticated in how we apply measures to combat international security threats of fraud in electronic banking. This new era requires that financial institutions and regulators search for threats to the financial system, and ensure such threats are effectively isolated. Through collaboration of key players, we can continue to build strong and relatively safe electronic banking markets".
About the author
First vice president and group head of corporate governance and compliance, ABC Bank, Egypt, he is a leading expert on money laundering and terrorist financing controls in the Middle East-North Africa region with extensive experience in AML compliance and training. Founder of the Middle East Compliance Officers' Forum, he has been honored for his work in promoting compliance awareness in Egypt and the MENA region. Previously, he held top compliance positions in multinational institutions, such as HSBC Bank Egypt, Banque Saudi Fransi, and Oman International Bank.
Explaining the term electronic money, Abou-El-Fotouh said "Electronic money refers to "stored value" or prepaid payment methods for executing payments using point of sale terminals, direct transfers between two devices, or over the Internet. Stored value products include "hardware" or "card-based" mechanisms (also called "electronic purses"), and "software" or "network-based" mechanisms (also called "digital cash"). Banks may participate in electronic money schemes as issuers, or distributors of electronic money issued by other entities; redeeming the proceeds of electronic money transactions for merchants; handling the processing, clearing, and settlement of electronic money transactions; and maintaining records of transactions.
He further added "due to rapid changes in information technology, it is not possible to compile an exhaustive list of risks. However, there are specific risks facing banks engaged in electronic banking and electronic money activities. Among the different risk categories, operational risk, reputational risk, and legal risk may be the most important risk categories for most electronic banking and electronic money activities. Other risks include, reputational risk, security risk, cross border risks, credit risk, liquidity risk and money laundering risk.
Abou-El-Fotouh explained that e-banking is vulnerable to abuse by money launderers. He said "it is attractive to money launderers if the systems offer liberal balance and transaction limits or when there are limited or no audit trail. It would be difficult to apply traditional anti-money laundering rules for some e-payments due to factors such as relative lack of physical bulk; potential anonymity and payments can be conducted remotely".
In order to mitigate the risks, banks should design adequate risk management strategy which addresses the risks having regard factors such as e-products characteristics, channels, target customer, cross-border issues etc. The risk mitigations should include the following among many others:
For prepaid cards: adequate due diligence before accepting non face-to-face before accepting customer relationships ; limiting funding options; limiting card value and\or the number of cards that individual can purchase and\or value per transaction; limiting cross-border access to cash etc. Other factors for considerations include on-line interaction with card issuers or a central operators; monitoring and tracing individual transactions; maintenance of cumulative records in a central database; use of tamper-resistant devices incorporated into stored-value cards and merchant hardware; implementing multi-factor authentication and enhance web sites with Embed ‘Secure Socket Layer’ and Virtual Keyboards
Abou-El-Fotouh concluded by saying "we are becoming increasingly sophisticated in how we apply measures to combat international security threats of fraud in electronic banking. This new era requires that financial institutions and regulators search for threats to the financial system, and ensure such threats are effectively isolated. Through collaboration of key players, we can continue to build strong and relatively safe electronic banking markets".
About the author
First vice president and group head of corporate governance and compliance, ABC Bank, Egypt, he is a leading expert on money laundering and terrorist financing controls in the Middle East-North Africa region with extensive experience in AML compliance and training. Founder of the Middle East Compliance Officers' Forum, he has been honored for his work in promoting compliance awareness in Egypt and the MENA region. Previously, he held top compliance positions in multinational institutions, such as HSBC Bank Egypt, Banque Saudi Fransi, and Oman International Bank.
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