Third-Party Reliance in the Financial Sector: Opportunities and Challenges in Mitigating Money Laundering Risks
Keywords:
Third-party reliance; AML/CFT; money laundering; financial sector; customer due diligenceAbstract
Background: Modern financial institutions offer integrated banking services than traditional financial institutions. Historically, the banking sector has relied on outsourced third parties’ services to offer banking services. Prior studies indicate a growing reliance on third parties to provide banking services in an integrated banking environment. However, contracting third parties brings associated benefits and risks. Objectives: This study examined the challenges and opportunities in mitigating money laundering risks by placing reliance on third parties as espoused by FATF recommendation 17. Approach: The study adopted a review of secondary sources which enabled deeper understanding of third parties role in financial sector. Results: The study identified opportunities which contribute to mitigating money laundering risks and contributing to sector’s integrity while challenges promote money laundering. Contributions: The results underscore the necessity for a balanced regulatory approach to outsourcing services in a digitally driven environment. Also, policymakers must customize Financial Action Task Force recommendations in support of global efforts of money laundering, thereby ensuring that third parties comply with related regulations. By synthesizing current knowledge, this review provides a foundation for future research and offers insights for regulators, financial institutions, and policymakers seeking to optimise third-party reliance while mitigating money laundering risks.
References
Balogun, A. Y., Olaniyi, O. O., & Alao, A. I. (2025). Shaping trust and tension: Strategic leaks and their impact on global cybersecurity norms. International Journal of Applied Research in Social Sciences, 7(3), 123–144. https://doi.org/10.51594/ijarss.v7i3.1823
Barnum, P. (2014). Target Data Breach (2014) - Technical, Financial, and Legal Analysis. Inedo.com. https://security.inedo.com/library/incidents/Target-2014
Black, J. (2024). The role of third parties in regulatory systems: Examples from financial services regulation. In The Regulator–Regulatee Relationship in High-Hazard Industry Sectors: New Actors and New Viewpoints in a Conservative Landscape (pp. 23-31). Springer Nature Switzerland.
Cele, N. N., & Kwenda, S. (2025): Do cybersecurity threats and risks have an impact on the adoption of digital banking? A systematic literature review. Journal of Financial Crime, 32, 31–48.
Cormack, A., & Leverett, É. (2023). Patchy incentives: using law to encourage effective vulnerability response. Journal of Cyber Policy, 8(1), 88–113. https://doi.org/10.1080/23738871.2023.2284233
EIOPA. (2023). Digital Operational Resilience Act (DORA). https://www.eiopa.europa.eu/digitaloperational-resilience-act-dora_en
Enriques, L., & Ringe, W.-G. (2020). Bank–fintech partnerships, outsourcing arrangements and the case for a mentorship regime. Capital Markets Law Journal, 15(4), 374–397.
European Commission. (2020). Digital Operational Resilience Act (Regulation (EU) 2022/2554. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020PC0595
FATF. (2025): FATF Country Mutual Evaluations Assessment Reports. https://www.fatf-gafi.org/en/publications/Mutualevaluations/Assessment-ratings.html
Feng, G. (2021). The influence of third-party payment on the intermediary business of commercial banks and countermeasures analysis. International Journal of Humanities and Social Science, 1(22), 43-50. http://www.acadpubl.com/Papers/Volume%201,%20IJHSS%202021.pdf#page=47
Gandawa, G. (2026): Regulating Digital Banking, FinTech, and Consumer Protection in African Financial Markets. Interdisciplinary Journal of Arts, Politics and Law (IJAPL), 1(2), 2002–2010.
Gaviyau, W., & Godi, J. (2025). Banking Sector Transformation: Disruptions, Challenges and Opportunities. FinTech, 4(3), 48. https://doi.org/10.3390/fintech4030048
George, A. S., Baskar, T., & Srikaanth, P. B. (2024). Cyber Threats to Critical Infrastructure: Assessing Vulnerabilities Across Key Sectors. Partners Universal International Innovation Journal, 2(1), 51–75.
Kabir, M., & Hosen, M. M. (2024). A Study of Financial Crimes in the Banking Sector of Bangladesh. International Journal of Law and Public Policy (IJLAPP), 6(2), 49-57.
Khan, S., Kabanov, I., Hua, Y., & Madnick, S. (2022). A Systematic Analysis of the Capital One Data Breach: Critical Lessons Learned. ACM Transactions on Privacy and Security, 26(1), 1–29. https://doi.org/10.1145/3546068
Kim, E., Kim, M., & Kyung, Y. (2022). A case study of digital transformation: focusing on the financial sector in South Korea and overseas. Asia Pacific Journal of Information Systems, 32(3), 537-563.
Kolo, F. H. O., Joseph, S. A., Ogunmolu, A. M., Ejiofor, V. O., & Oyekunle, S. M. (2025). Mitigating Cybersecurity Risks in Financial Institutions through Strategic Third- Party Risk Governance Frameworks. Journal of Engineering Research and Reports, 27(5), 173-93. https://doi.org/10.9734/jerr/2025/v27i51501
Konning, M., Westner, M., & Strahringer, S. (2019). A Systematic Review of Recent Developments in IT Outsourcing Research. Information Systems Management, 36(1), 78–96. https://doi.org/10.1080/10580530.2018.1553650
Marjosola, H. (2021): The problem of regulatory arbitrage: A transaction cost economics perspective. Regulations and Governance, 15(2), 388–407. https://doi.org/10.1111/rego.12287
Monetary Authority of Singapore. (2021). Technology Risk Management Guidelines 2021. GRC Library. https://grclibrary.com/item_display.php?id=ca69632b-4229-491d-9231-7220b118d9a3
Nyreröd, T., Andreadakis, S., & Spagnolo, G. (2023). Money laundering and sanctions enforcement: large rewards, leniency and witness protection for whistleblowers. Journal of Money Laundering Control, 26(5), 912-925.
Obioha-Val, O. A., Lawal, T. I., Olaniyi, O. O., Gbadebo, M. O., & Olisa, A. O. (2025). Investigating the Feasibility and Risks of Leveraging Artificial Intelligence and Open-Source Intelligence to Manage Predictive Cyber Threat Models. Journal of Engineering Research and Reports, 27(2), 10–28.
Olutimehin, A. T., Ajayi, A. J., Metibemu, O. C., Balogun, A. Y., Oladoyinbo, T. O., & Olaniyi, O. O. (2025). Adversarial Threats to AI-Driven Systems: Exploring the Attack Surface of Machine Learning Models and Countermeasures. Journal of Engineering Research and Reports, 27(2), 341–362. https://doi.org/10.9734/jerr/2025/v27i21413
Pierides, M., & Mulligan, J. (2025). Key themes of resiliency, outsourcing and third-party risk management regimes. Journal of Securities Operations & Custody, 17(2), 102. https://doi.org/10.69554/auiq5402
Reddy, B. J., & Reddy, B. S. (2025, December). The Silent Risks of Fin-Tech: Unveiling India’s Regulatory Blind Spots. In International Conference on Law and Technology (ICLT 2025) (pp. 309-324). Atlantis Press.
Restoy, F. (2021). Fintech regulation: How to achieve a level playing field. Financial Stability Institute Occasional Papers, 17, 1-27 https://www.bis.org/fsi/fsipapers17.htm
Rodrigues Pessoa, G. H. (2025): Parallel Banking Through Fintechs: Regulatory Blind Spots, Tax Evasion and Money Laundering in Emerging Markets. Preprints 2025, 2025120420. https://doi.org/10.20944/preprints202512.0420.v1
Sampat, B., Mogaji, E., & Nguyen, N. P. (2024). The dark side of FinTech in financial services: a qualitative enquiry into FinTech developers’ perspective. International Journal of Bank Marketing, 42(1), 38-65.
Sissodia, R., Rauthan, M. S., & Barthwal, V. (2024). Service Level Agreements (SLAs) and Their Role in Establishing Trust. IGI Global. https://www.igi-global.com/chapter/service-level-agreements-slas-and-their-role-in-establishing-trust/340597
Sultan, N., Mohamed, N., Chisunga, D., & Satar, A. (2025). The correlation of Financial Action Task Force recommendations: the perception of compliance officers concerning the deployment of third parties and Fintech for customer due diligence. Journal of Money Laundering Control, 28(2), 292–314. https://doi.org/10.1108/JMLC-08-2024-0135
Sungjin, L., & Junhyoung, O. (2025). Navigating Privacy: A Global Comparative Analysis of Data Protection Laws. IET Information Security. https://doi.org/10.1049/ise2/5536763
USAGov. (2024). Federal Financial Institutions Examination Council (FFIEC). https://www.ffiec.gov/sites/default/files/media/press-releases/2024/cat-sunset-statement-ffiec-letterhead.pdf
Vigren, O., & Eriksson, K. (2025). A multilayer network model for studying business ecosystems: insights from enterprise architectures in the real estate sector. Journal of European Real Estate Research. https://doi.org/10.1108/jerer-04-2024-0027
Downloads
Published
Issue
Section
License
Copyright (c) 2026 William Gaviyau
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
