Striking a Balance Between Profitability and Compliance in the Financial Landscape

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In the world of high risk merchant accounts and acquiring banks, a peculiar relationship unfolds – a balancing act of profits over prudence, where some the acquiring banks, donned in profit-driven capes, sometimes forget to tighten the bolts of compliance. It’s as if they attend the “Compliance 101” class but skip the practical exams. In this peculiar partnership, dodgy merchants and cyber criminals find comfort in acquiring banks that prioritise profits over stringent checks. It’s a bit like having a referee who’s more interested in the halftime snacks than blowing the whistle. These shady characters, armed with fake businesses and a penchant for mischief, have an unspoken pact with acquiring banks who wink at compliance from across the room. While the rest of us are left scratching our heads, wondering how these duos manage to tango without tripping over regulatory hurdles, one thing is clear – in this dance, compliance takes a backseat while profits take the lead. It’s like a bizarre ballroom where the music is “Money Talks,” and the compliance officer is left waiting for an invite. Perhaps it’s time for a regulatory intervention – after all, even the most enthralling dance should follow some rules!

High-risk merchants face unique challenges in the financial landscape. These businesses operate in industries deemed riskier by financial institutions due to factors such as a higher likelihood of chargebacks, regulatory scrutiny, and potential legal issues. As a result, acquiring a merchant account for high-risk businesses can be more challenging, and the associated fees and requirements are often higher than those for l

  1. Increased Risk of Chargebacks:
    • High-risk businesses are more prone to chargebacks, which occur when customers dispute transactions. This higher risk means that financial institutions may face increased financial exposure, leading to higher fees to compensate for potential losses.
  2. Regulatory Scrutiny:
    • Industries categorized as high risk often attract more regulatory attention due to concerns about fraud, money laundering, or ethical considerations. Financial institutions must implement stricter compliance measures, adding to the overall cost of servicing high-risk merchants.
  3. Legal and Reputational Risks:
    • High-risk businesses may be involved in industries with legal or reputational challenges. Financial institutions need to factor in the potential legal costs and risks associated with supporting these businesses, contributing to higher fees.
  4. Limited Options for Acquirers:
    • High-risk merchants have a more limited pool of acquiring banks willing to work with them. This reduced competition among financial institutions allows those willing to take on the higher risk to charge higher fees.

The Role of AML Checks for High-Risk Businesses:

Anti-Money Laundering (AML) checks are crucial for high-risk businesses, and financial institutions perform these checks to ensure compliance with regulations and mitigate the risk of being involved in illicit financial activities. Here are key reasons why proper AML checks are essential:

  1. Preventing Illegal Activities:
    • AML checks help identify and prevent high-risk merchants from engaging in illegal activities, such as money laundering or financing terrorism. By ensuring compliance with AML regulations, financial institutions contribute to maintaining the integrity of the financial system.
  2. Reducing Fraud and Chargebacks:
    • AML checks often include identity verification processes. Verifying the identity of high-risk merchants helps reduce the likelihood of fraudulent activities, ultimately minimizing the risk of chargebacks and financial losses for both merchants and financial institutions.
  3. Compliance with Regulatory Standards:
    • High-risk businesses operate in industries where compliance with regulatory standards is crucial. AML checks ensure that these businesses adhere to legal requirements, protecting financial institutions from regulatory penalties and reputational damage.
  4. Enhancing Financial Security:
    • AML checks contribute to overall financial security by identifying and mitigating risks associated with high-risk merchants. Financial institutions can establish a more secure environment for processing transactions, safeguarding their interests and those of their customers.

In conclusion, high-risk merchants face challenges in obtaining merchant accounts and often pay higher fees due to the inherent risks associated with their industries. Proper AML checks play a vital role in mitigating these risks, ensuring compliance with regulations, and maintaining the integrity and security of the financial system. For high-risk merchants seeking a reliable partner for payment processing, QuadraPay offers solutions tailored to their specific needs, with an emphasis on transparency, security, and regulatory compliance.

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Post-Brexit: data protection
Card processor sends sensitive data to wrong address
24 August 2022

Worldline SA subsidiary Payone GmbH has been accused of breaching data protection rules after it sent sensitive employee payroll information to the wrong address by accident. The Worldline Group holdS a 60% stake in the Frankfurt based company who have a small UK market presence.

In June 2021, one of Payone GmbH’s ex UK employees (the data subject) received a “potential data breach notification” from the firm advising him that his salary, National Insurance data, nationality (Special Category Data) was amongst various bits of information sent to an incorrect home address.

This included personal information such as the former employees name, age and address.  It also included details such as the date of birth and the amount of annual work bonus he received in his bank account amongst other identifiable data.

Payone GmbH confirmed that this document was sent out in error following an employee making a mistake when re-entering data processed by their third-party payroll provider.  The error arose when the employee was fulfilling an Article 15 GDPR request. The error was spotted by the data subject when he noticed in an email version of the document that the postal address was incorrect. An attempt to notify Payone GmbH of the error went in vain as the document was already irretrievably despatched.

The data subject was alarmed with the incident which exposed him to the possibility of fraudulent activity, amidst reasonable fears his data could end up on the dark web and used by criminals.  Habitually resident in the UK he complained to the Information Commissioner’s Office (ICO) in June 2021. He similarly raised the concern in Germany via The Hessian Commissioner for Data Protection and Freedom of Information (HBDI).

The ICO reprimanded Payone GmbH for the error in their final decision letter.
Similarly, the HBDI cited a violation of Article 5(f) of the General Data Protection Regulation (GDPR) relating to integrity and confidentiality.

The ICO stated in their July 2021 findings that Payone GmbH, “should take steps to ensure that all personal data records are accurate and up to date. Holding inaccurate information, such as addresses, does increase the risk of personal data breaches and poses risks to the security of information”.

The HBDI confirmed in their October 2021 findings that Payone GmbH had taken remedial action. They concluded that a monetary fine would not be imposed on Payone GmbH as they had taken technical and organisational steps in response to the data breach. Data subjects could now request their data in an autonomous portal.

The GDPR, which came into effect in 2018, gave the Information Commissioner’s Office greater powers to tackle data breaches. The new ‘UK GDPR’ charts its own course after Brexit whilst seeking to maintain EU GDPR adequacy.  In extreme scenarios, organisations face penalties of up to £20m or 4 per cent of their global worldwide turnover, whichever is more.

In the years prior to GDPR, the ICO fines were capped at £500,000.

The data subject said: “I am just glad I spotted it; they were going to resend the document again to another wrong address. Prior to Brexit the process would have been commenced via the ICO who in turn would liaise with the HBDI on the data subjects’ behalf; but I found myself communicating with both authorities separately which was an additional step but in the end was surprisingly
effective. Unfortunately, Payone GmbH again sent my incorrect address to the
Workers Pension Trust in January 2022, and documents yet again went to the wrong address. In my opinion they have not learned from the first time and my complaint is sitting with the ICO yet again”.

The former employee is pursuing a remedy under Article 82 UK GDPR via
the Court’s of England & Wales.

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