Are Cross-Border Payments Safe and Regulated?26 min read

Are Cross-Border Payments Safe and Regulated?26 min read

International trade and commerce have made cross-border payments a common financial activity today.

The cross-border payment market is no small industry. For both private individuals and businesses, globalization and e-commerce have made cross-border money transfers common. 

You might be an expat who wants to send money abroad to family back home, or an international company that pays suppliers in other countries.

Moving money across borders is a practical reality of life in the digital age. However, the borderless money movement also presents some obvious questions and concerns around its safety, security, and regulation. 

In this article, we’ll demystify cross-border payments, and explain how they work, are regulated, and what measures are in place to keep your money secure during international transfers.

Whether you are a small business owner who needs to pay your suppliers overseas, a freelancer who wants to receive payments from clients abroad or an individual who is looking to transfer money to your family in another country, the need to move funds from one country to another is ever growing.

But are you sure your cross-border payments are properly regulated and protected? 

Find out how The Kingdom Bank and other cross-border payment providers make sure your transactions are safe, compliant and encrypted in this article.

Are Cross-Border Payments Safe for Individuals and Businesses?

Yes, when made through legitimate financial institutions and platforms. A regulated digital bank like The Kingdom Bank follows strict compliance standards, implements top-notch security technology, and abides by all applicable laws and regulations, so customer funds can be trusted to be safe during every step of the transfer process.

For individual cross-border payment needs, online money transfer services enable you to easily and cost-effectively send funds to loved ones around the world with confidence. 

Rather than risking cash couriers or informal value transfer systems, regulated digital platforms provide audit trails and exchange rate transparency.

Businesses also stand to benefit from safe and reliable cross-border payments solutions. Paying international suppliers, collecting revenue from overseas customers, or even facilitating global payroll can now be done with controlled visibility and streamlined workflows for business payments, business bank accounts, and corporate banking accounts.

Digital cross-border payments platforms offer simple and secure methods to replace risky paper checks and untraceable wire transfers.

But cybercrime is also an unfortunately very real threat that even the most diligent financial institutions have to combat on a daily basis.

However, by partnering with a regulated provider like The Kingdom Bank that invests heavily in its technology, processes, and people, you can be confident your cross-border transfers are in the hands of professionals who are both capable and compliant, with your protection top of mind. 

The risks around international payments have diminished significantly from older methods.

How are Cross-Border Payments Regulated Internationally?

To establish an aligned regulatory framework around global cross-border payment flows, international coordination is key.

The highest level of cooperation in the financial industry is the Bank for International Settlements (BIS), a global institution that works to “improve the safety and efficiency of payment systems, help ensure financial inclusion, and support monetary and financial stability.”

Via its purview over various committees and working groups, the BIS actively coordinates on a range of payment-related topics that help align different regions’ regulatory standards, such as the Committee on Payments and Market Infrastructures.

This group, for example, oversees policy developments and international central bank coordination on everything from the payment aspects of financial inclusion and cross-border payments to cyber resilience and more.

In the European Union, the euro cross-border payments market is largely governed by the Single Euro Payments Area (SEPA). This scheme standardizes cross-border euro payments, transfers, and direct debits between member states, establishing basic rules that apply regardless of your location or your recipients in Europe. 

Initiatives such as SEPA promote fair competition and lower costs for consumers and businesses.

Financial institutions are then directly supervised by regulatory bodies at the national level. In the case of The Kingdom Bank, its banking license and regulation by the Financial Services Unit of Dominica ensures strict adherence to global AML standards and KYC norms, with regular audits and on-site examinations providing another layer of customer protection.

A multi-faceted approach to regulation involving international standard-setting bodies, regional bodies such as the EU, and domestic financial watchdogs collaborate to create a coherent global framework for the banks and fintech companies that provide cross-border payments.

What Security Measures Protect Cross-Border Payments?

Cybercrime and fraud are an unfortunately constant arms race between financial institutions and criminals, and banks must continuously invest in top-tier security technology and strategies. 

Here are some of the security measures The Kingdom Bank has in place to protect your funds and data during cross-border transactions:

• Encryption: The Kingdom Bank uses bank-grade TLS 1.3 protocols to ensure all user communication with the platform is encrypted and protected, so sensitive information like account and login details, as well as payment contents, cannot be intercepted.
• Multi-Factor Authentication: Independent credentials like a one-time passcode from an SMS, in addition to a password are used to verify user identities, blocking unauthorized access even if one verification method is compromised.
• Fraud Monitoring: AI models track payment behaviors and patterns in real time, and identify any anomalies that could indicate suspicious activity for further investigation and risk mitigation.
• ISO Certification: The Kingdom Bank follows the ISO 27001 international information security management standard, to ensure information security controls, processes, and organizational structure align with global best practices.
• Regular Audits: The Kingdom Bank also conducts internal and external security audits, to test for vulnerabilities, ensure compliance and validate security controls work as intended 24/7.

With security deeply embedded into its DNA through rigorous defense in depth strategy, The Kingdom Bank customers can trust that their international transfers are safely processed by a digital bank that prioritizes cybersecurity and safe international transactions.

Are Cross-Border Payments Monitored by Financial Authorities?

Indeed, as described, the whole cross-border payment ecosystem falls under the remit of regulators globally, regionally, and domestically. Financial authorities monitor flows for compliance reasons, but also to ensure financial integrity, clamp down on illicit activities, and even gather data for policy decisions.

Authorities track transactions in real-time or near real-time through their respective systems where licensable financial institutions are located. 

For example, this would include SWIFT cross-border payments which move through the secure SWIFT network, on which most international transfers between banks are heavily reliant.

Regulated non-bank payment firms, integrating cross-border payment platforms, are also under the regulatory lens. Transactions using popular borderless payment apps, for example, may traverse domestic and international payment gateways that are supervised and report to authorities.

Suspicious transactions are reported for further investigation, while payment flow analyses can help understand capital movements.

Authorities also monitor the exchange rates they offer to consumers, to ensure transparency and fair pricing. 

Overall, the level of oversight provides transparency to authorities, to act quickly or provide assistance if issues arise.

With that being said, of course, all this surveillance is balanced with customer privacy. But with regulated traceable parties like The Kingdom Bank, you can be assured that cross-border flows are being monitored – while also ensuring data protection – to maintain financial security, integrity and confidence in the overall system.

How Do Banks Ensure the Safety of Cross-Border Payments?

For banks that provide international money transfer services, maintaining the highest standards of security is table stakes. 

Here are some of the core ways reputable financial institutions like The Kingdom Bank protect customer funds during cross-border money movements:

• Due Diligence on Partners: Banks and service providers that act as correspondent banks in other countries are closely vetted for their own compliance, technical capabilities, security standards, and financial soundness, before partnerships are established. This due diligence also extends to any intermediaries that may be involved in the payment chain.
• Monitoring Networks: Real-time monitoring tools provide visibility into cross-border payment flows across domestic and international networks like SWIFT, to help detect anomalies or failures that could impact customers, so problems can be proactively addressed.
• Strong Authentication: The identity of senders and beneficiaries must be firmly established before funds are released in compliance with strict KYC laws. Multi-factor authentication is an additional layer of identity verification.
• Insurance Coverage: Funds in transit are insured by global insurance companies against operational risks such as accidental credit errors or cyber theft to provide another level of customer protection.
• Segregation of Duties: Sensitive payment activities are separated and require multiple approvers to prevent fraud and errors. Technology also enforces controls, to prevent single person access or unilateral changes.

Need to send or receive a payment internationally? Contact the friendly team at The Kingdom Bank today to learn more about its secure and reliable cross-border payment services tailored for both individual and corporate customers.

You’ll be glad you found a partner that makes international transfers easy and secure, and provides a straightforward, convenient user experience that is second to none.

What Compliance Rules Apply to Cross-Border Payments?

Cross border payment systems must comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations enforced by global financial regulators.

As a digital banking platform licensed in the British overseas territory of Dominica by the Financial Services Unit, The Kingdom Bank is regulated by oversight authorities like the Financial Action Task Force (FATF) and must adhere to its recommendations and standards.

This includes “know your customer” (KYC) verification of all customers and accounts, monitoring transactions for suspicious activity and reporting large or otherwise unusual payments.

Complying with these kinds of regulations helps protect the financial system from exploitation by criminals while also giving customers the reassurance that their cross-border payments are being processed legally and ethically.

As a customer, you can feel secure using The Kingdom Bank knowing that it has been licensed under the Offshore Banking Act of Dominica and is operating under the necessary compliance controls.

Are Cross-Border Payments Subject to Anti-Money Laundering (AML) Regulations?

Yes, anti-money laundering (AML) rules apply to all financial transactions which involve the transfer money across international borders. The Financial Action Task Force (FATF) has developed an extensive set of standards which require countries to put in place proper monitoring and reporting measures.

This helps in the detection and prevention of money laundering from criminal activities such as drug trafficking, corruption, tax evasion and more.

As part of initiating a cross-border payment through The Kingdom Bank, customers will need to complete identity verification by submitting documents like a passport or driver’s license. 

The “know your customer” or KYC process creates a profile for each user that the system can reference whenever a transaction occurs.

Transaction monitoring then helps to flag suspicious activity that deviates from a user’s expected pattern of account usage and legitimate sources of income on file. 

Currency exchanges that are larger in size are also subject to screening against sanctions lists to block prohibited funds.

Ensuring all cross-border payments are in line with strict AML protocols help The Kingdom Bank and other reputable payment providers safeguard the financial ecosystem and protect customers against inadvertently facilitating illegal cross-border money laundering schemes. Providers make sure to stay compliant with these regulations at all times.

How Do Different Countries Regulate Cross-Border Payments?

The way different jurisdictions regulate cross-border payments varies to a certain extent, but below is a general summary of some of the major economies:

• European Union – EU countries have harmonized regulations on electronic transfers as a block through the Payment Services Directive (PSD). This harmonization created rules on licensing cross border payment gateways as well as consumer protection. The European Central Bank (ECB) also runs TARGET2 for large-value euro transfers between each national central bank.
• United States – Cross-border payments made in US dollars are overseen by regulators like FinCEN, OFAC, and the Federal Reserve. These commercial banks must then follow set reporting thresholds, screen names against sanctions lists, as well as verify the origin and purpose of the funds. Wire transfers also have to include details of both the originator and beneficiary.
• United Kingdom – As a former EU member, UK regulations were harmonized under the PSD as well. But post-Brexit, the Bank of England now oversees CHAPS for same-day domestic transfers and SWIFT for international transfers. Commercial banks are directly regulated by the Financial Conduct Authority.
• Canada – The Bank of Canada facilitates cross-border payments via its Large Value Transfer System, while the Canadian Payments Association also oversees smaller transactions. Commercial banks are also regulated by the Office of the Superintendent of Financial Institutions for AML/CTF compliance on cross-border transactions.

The Kingdom Bank makes sure it has obtained the appropriate licensing in Dominica which helps ensure its cross-border payment services remain compliant irrespective of where customers initiate transfers to or from internationally. 

They will also have to ensure local regulations are followed to keep transactions legal and secure.

Are Cross-Border Payments Encrypted for Added Security?

Protection of sensitive financial data in transit is of the utmost importance in today’s digital world, and rightly so with financial cross-border payments. That is why reputable cross-border payment providers like The Kingdom Bank make use of bank-grade encryption for all electronic fund transfers between international borders.

In particular, Transport Layer Security (TLS) protocols are used to encrypt communication between a user’s device or a bank’s website and its servers.

This secures log-in information, payment details, and personally identifiable data from potential hackers. TLS versions 1.2 and above are considered safe according to industry standards.

An additional layer of data protection is provided at the database and system level within data centers. 

Sensitive customer payment records and profiles are encrypted at rest, using robust algorithms like AES-256 to prevent unauthorized access even if someone gained direct physical access.

Multi-factor authentication is also widely adopted which requires something you know (password), have (device), and are (biometrics) when accessing customer accounts. This makes it extremely difficult for cybercriminals to intercept or divert cross border mobile payments when processed by reputable providers.

As a customer, you can feel confident your financial transactions and personal details are being kept private and secure when using online banking platforms to initiate cross-border transfers. 

The combination of these technologies helps ensure only the intended recipients are getting access to the funds.

How Do Fintech Companies Keep Cross-Border Payments Safe?

Fintech innovations are driving more modern approaches to cross-border payments, with security remaining as top priority. 

Here are some of the other ways emerging cross-border payment providers like The Kingdom Bank are making sure that international transfers are safe:

• Secure networks – Using dedicated private networks to isolate banking infrastructure instead of public internet space, while advanced firewalls ward off external threats.
• Automated monitoring – Sophisticated algorithms are constantly analyzing network traffic for anomalies which could indicate compromised accounts or fraudulent activity.
• Sandbox testing – New services are put through rigorous testing in isolated environments to identify weaknesses before live usage, ensuring resilience against unforeseen risks.
• Data tokenization – Sensitive financial details are replaced with unique references, known as tokens, to prevent exposure should databases be breached, limiting potential impact.
• Multi-layer authentication – As above, combining biometrics with passwords and devices to create a security “defense in depth” against account takeovers.
• Insurance policies – Coverage provides financial protection to customers in the event of a breach should their funds be stolen by hackers, giving peace of mind for cross-border transfers.

If you are in the market for a convenient and trusted partner to handle your international financial transactions, then you might want to consider opening a business or personal account with The Kingdom Bank.

Get in touch with our customer support team today to learn more about our wide variety of global payment solutions tailored to the modern global citizen. 

The Kingdom Bank ensures secure international transactions so you can dedicate your energy to more important tasks.