1. AML and Fraud Concerns for FinTech Industry HKU SPACE
Jason Wong
Principal,
Risk Advisory Services
16 Aug 2016 1

2. Where are we in the FinTech World ?1 2 3 4 5
HK / SG
Development
Regulation
Europe US
China 2

3. P2P Lending Pure Platform model Basic & Safest model
Solicited on-line and off-line
Bidding
Contract between Peers
P2P company as a platform only
Revenue model
Commission income
Investment income 3

4. P2P Lending
Person to person lending through bidding and matching on internet platform
Ask
Bid
5.0%
5.9%
5.1%
5.8%
5.2%
5.7%
5.3%
5.6%
5.4%
match
5.5.% 4

5. P2P Lending Guarantor * Moderator model Use of Guarantor
Own Funds involved
Efficient
Locate borrower before lender
债权转让 (over Bidding)
No Contract & No Contacts between Peers
Management & related parties involved 5

6. P2P Lending Revenue model Commission income Investment income
Interest divergence 6

7. Risk Management framework & issues
Common Issues in P2P lending business
System breakdown & data leakage **
Non-sustaining business ******
Investment loss ***********
Money Laundering *****************
Fund misuse/misappropriation ********************* 7

8. Risk Management framework & issues
Under Licensing regime
Good Corporate Governance
Float Management
AML consideration
IT security 8

9. ML Typologies & AML Measures
Difficulties in AML
Non Face to Face *******
Remote & Virtual *******
Weakness in banking system *******
Disassociation with transaction monitoring ************
Not yet a regulated business under AML Ordinance ****************** 9

10. 10

11. ML Typologies & AML Measures
Effective AML measure over “Non Face to Face Risk”
Tied to bank account
Two Factor Authentication
Use of Facial recognition program 11

12. ML Typologies & AML Measures
Effective AML measure over “Controlling different accounts”
IP address testing at inception
IP address testing at response
(e.g. Reply to message) c 12

13. ML Typologies & AML Measures
Effective AML measure over “Cash deposit & Third Party Bank Account”
$1 deposit strategy at response
Disallowing cash deposits
One account one bank account policy c 13

14. ML Typologies & AML Measures
Effective AML measure over “Disassociation from transactions”
Setting transaction limits
Program testing on circulation c 14

15. Fraud Consideration Common forms of Fraud at P2P 1. Ponzi Scheme
High interest returns
High growth rate
Covering old fund with
new fundS
No actual business
Decreasing float
Reluctant to returns in later stage 15

16. Fraud Consideration Common forms of Fraud at P2P
2. Asset Misappropriation
Stealing
Investment loss
Default risks, particularly over Guarantor model 16

17. Fraud Consideration The real issues
Lack of proper regulator monitoring
Lack of proper corporate governance
Lack of proper banking arrangement c c 17

18. Fraud Consideration Solution Proper banking arrangement
Use of custodian account
Trust arrangement
Guarantee
Daily breakdown by P2P companies
Daily reconciliation by Custodian
Prudent investment policy c 18