2.1.7. Use of Agents and Affiliates

Effective from 1/8/2022

Payment Sector participants often interact in a dense web of agency and affiliate relationships, with each participant playing a defined role. A large number of entities involved in the NPPS, in particular when involving several countries, may increase the ML/FT risk.

For example, entities involved in the provision of SVF through a prepaid card scheme could include:⁵

	•	The issuer of the SVF, such as the issuer of prepaid cards, who is accountable to the customer for holding the funds they have loaded into the SVF (issuers are often banks that maintain program funds in a single program account);
	•	The merchant acquirer (or acquirers), who establishes a direct relationship with merchants, distributes and maintains the payment gateway, collect funds on their behalf, and distributes them to merchants;
	•	The program manager, who operates the network and provides services to the issuer (because all program funds are generally maintained in a single account, program managers often maintain the electronic records that track the “movement” of funds into and out of customer’s individual wallets);
	•	The retailer, who sells SVF devices like prepaid cards to customers;
	•	The network operator, who maintains the link between merchants’ point of sale devices, or other payment gateways, and the program manager; and
	•	Persons, who act as agents for the scheme, such as by accepting cash in exchange for topping up wallet balance.

Another example includes the provision of mobile payment services. The roles of Payment Sector participants depend largely on the business model of the mobile payment service. Furthermore, various roles may be carried out by a single entity or through agents. Entities involved in the provision of mobile payments may include the following:

	•	The network operator, who provides the platform to allow access to the funds through a mobile phone.
	•	The distributor (including retailer), who sells or arranges for the issuance of funds on behalf of the issuer to customers.
	•	The issuer of the SVF, or the electronic money issuer, who issues electronic money, which is defined here as a record of funds or value available to a customer stored on a payment device, such as a prepaid card or mobile phone.

This interplay between different entities can lead to risks resulting from intermediation as discussed above. But it can also give rise to risks when the participating entities have not assigned clear responsibility for compliance with AML/CFT requirements. The PPS risk’s exposure may then be dependent on multiple actors who may have a deficient understanding of AML/CFT obligations. For example, in the prepaid card scheme described above agents could facilitate money laundering by accepting large volumes of cash and breaking the value of the deposit up across several wallets, thus avoiding scrutiny related to large cash deposits. The entities acting as merchant acquirers could be aware that the merchants are providing illegal goods or services or are fraudulent, but conceal this knowledge in order to continue to receive fees related to transactions involving the merchants in its network.

The risks created by the use of agents and affiliates increase when agents and affiliates are responsible for sensitive steps in the system (customer or merchant onboarding, or cash acceptance) and when there are multiple agents or affiliates between the customer and the ultimate provider of payment services. For example in card schemes, merchant acquirers will frequently work with contractors who identify merchants and bring them to the acquirer in return for a fee. Depending on the relationships involved, the financial institution that maintains the merchant accounts may not have any actual direct contact with and have a limited visibility of the merchant, as the relationship is intermediated through the merchant acquirer and also the merchant acquirer’s contractor. Since contractors do not get paid unless the financial institution accepts the merchant as a customer, they may be incentivized to help the merchant conceal the true nature of its business.

⁵ Please note that one entity can hold various roles related to the provision of SVF (e.g., an issuer of the SVF can also be a program manager). The risk is extended where different agents are involved in the provisioning of a prepaid card.