Block Inc, the parent company of digital wallet provider Cash App, agreed in January to pay a fine of $80 million to a group of federal and state regulators for failure to comply with anti-money laundering (ALM) rules. Regulators found that the company’s processes for investigating and resolving disputes concerning unauthorized transactions were woefully inadequate. The settlement also included the appointment of an independent consultant to review and enhance the company’s ALM compliance program.
In a separate incident, the Consumer Financial Protection Bureau (CFPB) reached another settlement with Block Inc concerning a total of up to $120 million in compensation to Cash App customers and a further $55 million in fines to the CFPB. As a result, Cash App’s compliance failures have cost them a total of up to $255. While this only marks a small dent in the company’s near-$15 billion revenue, the reputational damage could end up costing significantly more.
The future of ALM enforcement
While the second presidency of Donald Trump is expected to see a reversal in Biden-era regulations, thus granting a more favorable environment to financial services and fintech companies, the same can’t be said in other major economies, such as the EU or Canada.
While US-based fintechs might be tempted to act opportunistically, going above and beyond existing – and probable future regulations – should remain a top priority. After all, the reputational damage of failing to adhere to industry standards, whether mandated or not, can be much costlier than fines and other legal sanctions themselves. With consumer trust in banking and financial services continuously fluctuating, it’s clear that transactional security and brand reputation are top of mind for consumers and business clients alike.
Moreover, regardless of federal regulations, US-based financial services firms and fintechs must also adhere to state-level regulations, which are often fragmented across the country. Thus, it makes sense from an operational perspective, to align internal policies with the most stringent regulations in the industry. As such, rather than seeing the possibility of a more favorable regulatory landscape at the federal level as an opportunity to do less, they should focus on going above and beyond what regulations demand. Doing so remains as vital as ever, especially for any fintech or financial services company thinking of doing business in other jurisdictions.
When it comes to managing business risk, customers tend to care more about brand reputation and the safety of their money, rather than the specifics of legal mandates – which tend to be unpredictable and ever-changing from one administration to the next. As technology companies, fintechs now have a golden opportunity to adopt advanced compliance and auditing technologies to establish a stronger competitive edge in an industry where trust is everything.