Can Anti-Money Laundering And KYC Regulations Stop Financial Frauds?

KYC Regulations

Most of the soldiers in the olden days wore armors to protect themselves and from fatal injuries. As you guessed, soldiers who did not wear them faced dire consequences; some of them even got killed in the war.

Financial institutions and banks should frame and follow strict AML (Anti-Money Laundering) and KYC (Know Your Customers) policies that can protect their customers from fraudsters like impenetrable armors.

What Is Money Laundering And Anti-Money Laundering

Money laundering is a way in which fraudsters or terrorists convert money earned through illegal means into white money. Criminals make multiple bank transfers that are complex, to make it look legit. They conceal the origins of the funds sometimes even run some fake companies to achieve this goal.

Anti-money laundering is the process that banks or financial institutions follow to prevent money laundering. Financial institutions are obligated to report all the suspicious activities to the government. They should have stringent policies and advanced systems in place that assist their employees to identify unusual transactions.

KYC Or Know Your Customers

KYC or Know Your Customers is fairly common in many firms and financial organizations. Customers are to submit a few valid documents to confirm their identity. Apart from verifying the identity of a person, it helps organizations to ensure that the person is not involved in corruption, money laundering, terrorist financing or bribery.

Companies and institutions use simple KYC procedures to collate relevant data or information about an individual. Information such as name, SSN, address and birthday is good enough to find if a person is involved in a financial crime before.

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Banks use all the information that is in hand to assess a person and then rank the risk involved. They will continuously monitor the account based on the risk rank.

How To Improve The KYC And AML Process

Making a few simple amendments can help you have a better KYC and AML process and policy in place. You can use automated ID verification or utilize powerful technologies to make things better or in streamlining the process. Here are some golden tips or guidelines that can assist you:

Banks and financial institutions may choose to use one of these methods to upheld KYC or AML regulations. It is crucial for banks to understand the fact that non-compliance to these two regulations can put their organization at significant risk.

• Verify the customer’s identity by asking them to share multiple documents (At least three). It is vital to ask them for this information randomly.
• If a person is a PEP or politically exposed person, it is wise to score him/her high on risk when you are on boarding the customer
• Continue to do random checks on a customer’s account. You should plan on doing it seamlessly so that there is no inconvenience to the clients.
• Implement an automated, API-led KYC solution that conducts a thorough check at a few clicks.

These are some things companies and financial institutions should plan on doing if they want to comply with the KYC or AML process. Criminals are becoming smart and are using various means to cheat. Having a strong KYC and AML processes in place is your key to destroying their plans.

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A Word Of Caution

In the year 2018, September 4, there was a fine of $900 million that a bank in the Netherlands called ING received. The reason they got this fine is that they were not compliant with the Dutch AML policies. Netherlands Public Prosecution Service was responsible for carrying out the investigation.

They found that the bank was not executing adequate policies to avoid or curtail financial or economic crimes. The Dutch branch of ING did not adhere to the due diligence standards that are in place. They were negligent when it came to reporting suspicious transactions that got registered into the system and they had to pay the price.

Companies should keep in mind that not adhering to KYC and AML can cause a lot of problems in their operations. Scams can rock the foundation of an institution. Integrity and the reputation of the organization are gone for a toss when you take these things lightly.

Author Bio :

Muhammed Akheel is working as a Marketing Analyst at Melissa, a data quality solutions company. He likes to share his technical insights on different technological aspects on KYC, AML, and AI.