Statement of inspection in Flex Funding A / S (payment service and money laundering area)
In March 2018, the Danish FSA was on inspection in Flex Funding A / S. The inspection was an examination of the payment service and money laundering area as part of the ongoing supervision of the company.
The inspection included the company’s management and layout, capital conditions, control and security measures in the IT area and risk assessment, policies, procedures in the area of money laundering, including customer surveillance. In view of the time elapsed since the inspection was carried out, the Danish FSA is aware that the conditions in the company may have changed significantly.
Risk assessment and summary
The company offers loan-based crowdfunding in the form of a platform through which lenders can lend money directly to Danish companies. The company thus does not have the loans on its own balance sheet, but mediates contact and payments between the borrower and the lender. The company itself assesses the creditworthiness of the borrowers, which is done both manually and by algorithms.
The Danish FSA considers that the risk of the company being used for money laundering and terrorist financing is normal. In the assessment, the FSA has among other things Emphasis is placed on the fact that the company’s customer portfolio consists exclusively of distance customers, and that lending activities involve an increased risk of misuse in relation to terrorist financing, while the company’s business model is relatively simple and it is not possible to transfer money to other recipients from the company.
Overall, the Danish Financial Supervisory Authority noted that the company must be aware of the challenges associated with the organization and handling of transaction monitoring, especially if the company realizes the expected growth in the coming years.
Based on the inspection, there are three areas that give rise to supervisory reactions.
The FSA found that the company did not have a policy of diversity on the board. The company is therefore required to establish such a policy. The company has subsequently rectified this relationship.
The company is being sued for failing to comply with its capital requirements in the first half of 2017. The company had rectified this matter before the inspection took place.
The Danish Financial Supervisory Authority found that the company does not adequately identify and assess the inherent risk of the company being used for money laundering or terrorist financing. The company is therefore required to revise its risk assessment.
Finally, the company is required to revise its money laundering policy so that it more clearly sets out the company’s overall strategic objectives in the area of money laundering.