Fintech companies need to invest in strong compliance departments

By TONY WATIMA More by this Author

A few weeks ago, the High Court ordered the freezing of 62 bank accounts belonging to Flutterwave over suspicions of money laundering and handling proceeds of card fraud.

Flutterwave is a start-up headquartered in the United States but operates cross-border payments across the African continent to diverse businesses, including multinationals like Uber and Booking.com.

The Asset Recovery Agency (ARA) says Flutterwave received billions of shillings, which was deposited in different accounts in an attempt to conceal the nature, source, location, disposition or movement of the money.

ARA also alleges there were no supporting documents provided to support the transactions, making it suspect the money was illicit and that it should therefore be forfeited to government.

Last week, the Central Bank of Kenya (CBK) joined in, saying Flutterwave together with Chipper Cash are not allowed to operate remittance businesses or offer payment services to merchants in Kenya because they don't have the required licence.

Flutterwave denied financial impropriety in a press statement, saying the accusations are false.

Elsewhere, the CEO of Flutterwave was quoted saying that the accusations are politically motivated and that Kenya has been targeting Nigerian companies to push them out of their market.

Without going into the merits of the court case, the dispute exposes a major compliance problem fintech start-ups may be struggling with and maybe getting away with it because they are a start-up after all.

Unfortunately, it stands to catch up with them later down the line.

Fintechs are largely underregulated in many jurisdictions and in Kenya, many payment service providers operated freely without acquiring a licence from the CBK until 2021 when most of them regularised their operations.

This was still an oversight on their part because there was no lacuna in law. The National Payment Act 2011 brings all payment service providers under the direct oversight of the CBK, and therefore they have to seek a license from the regulator.

This means fintechs are not taking regulatory compliance seriously or they are not investing in professionals who would guide them on regulatory compliance and protection.

If Flutterwave, for example, had secured an operating licence, it would have invested in a protection and compliance department to advise it to strictly comply with all financial regulations required.

Court filings state that Flutterwave failed to explain or even provide supporting documents to the many suspicious transactions it was making.

For a payment service provider that is valued at around Sh300 billion, it is beyond risky to be operating without a licence and security checks on customer verification and transactions support.