• Fintech and Money Laundering Pain Points
• Why Fintech AML Compliance is Important
• AML in Fintech-Associated Risk and Challenges
• How to Select an Effective Fintech AML Solution

Anti-money laundering, AML in fintech has several risk mitigation requirements, and fintech AML compliance holds equal gravity as compliance in conventional financial institutions. Fintech is one of the fastest-growing industries that has been rising at a meteoric rate in terms of technology, usability, and revenues.

The word ‘fintech’ is extremely broad, and its scope is still unknown to many. Fintech chiefly includes mobile banking, digital banking, crypto trading platform, decentralized finance (DeFi), payment apps, mobile wallets, lending apps, crowdfunding, insurance, and trading apps.

Be it e-wallet, lending, trading, etc., all have one common feature, i.e., they deal with user onboarding and transaction processing in volumes. Hence, financial technology or fintech businesses have absolutely no escape from anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

AML in fintech is also essential as financial technology faces huge competition from traditional financial services, and there is constant pressure on fintech businesses to follow AML-CFT guidelines, overcoming all the challenges and frictions coming in the way of achieving optimum fintech AML compliance.

AML in fintech

Fintech and Money Laundering Pain Points

Modern-day financial miscreants always look for platforms with high transaction volumes and mass payment processing options. Hence, fintech is the most convenient platform for criminals, and more and more money launderers today prefer laundering illicitly gained money via transaction aggregation, also known as transaction laundering.

Fintech money laundering also involves channelizing money by misusing e-commerce platforms for fake payments. For instance, many fintech and money laundering methods are carried out by camouflaging banned products or services beneath a front site or a legitimate-looking site. Fintech and money laundering nuisances thus go hand in hand. At times, the process is extremely difficult for the authorities to capture to bring the perpetrators of the crime to justice.

Why Fintech AML Compliance is Important

Financial technology has achieved its new zenith with advancement and sophistication in technology, user experience, and global internet capacity. However, this comes alongside an ongoing risk of identity theft, financial fraud, and terrorism threat. The fact is that innumerable financial technologies are sprouting at unprecedented levels, and since fintech is mainly technology-based, they face much pressure to remain fraud-proof. AML in fintech is an emerging regulation, and regtech firms are offering special fintech AML solutions for those startups that find it challenging to cope with fintech money laundering.

AML in Fintech-Associated Risk and Challenges

The financial technology methods are extremely fast and huge in capacity, making money launderers exploit the fintech platforms while keeping pace with its technological advancement. For instance, fintech payments are fully remote over the internet. The financial miscreants leverage the virtual nature of the payments, take advantage of its anonymity, and conceal their identities to perform high-level frauds linked to identity thefts.

Secondly, speed has been directly linked to user experience in fintech. However, fraudsters often take advantage of this feature by exchanging large transactions across domestic and international accounts, even before the authorities can respond to the alerts and initiate an investigation. Experienced and sophisticated fraudsters get away with huge illicit money transfers in a jiffy, even before the risk team can determine whether they should file a suspicious report to the concerned state authority.

Third-party payment systems have spread sporadically in the form of apps across phones, tablets, and computers, paving the way to money muling, smurfing, and structuring illicit money to the point that it is untraceable. It is extremely important for the fintech AML compliance team to monitor and understand the crime pattern constantly and scrutinize the payment vulnerabilities to outpace the AML fintech financial crimes.

How to Select an Effective Fintech AML Solution

Fintech is fast growing and equally competitive; fintech payments are preferable to those users and merchants looking for speedy transactions and faster receivables. Fintech payment platforms, be it digital banking, crypto trading, payment app, or e-wallets – mainly all process user payments in batches to speed up the account settlements. Money launderers take advantage of this process and exploit the blindspots in fintech AML compliance, making the industry extremely vulnerable to aggregating batch transactions.

AML fintech noncompliance could cost businesses huge financial penalties or even bring them to the brink of permanent closure. IDMERIT offers IDMaml, a world-class fintech AML solution with end-to-end fintech AML compliance functionality. IDMaml extends individual and business identity verifications; sanctions, PEP, adverse media screening; and transaction monitoring all on one platform.

IDMERIT’s custom-made fintech and AML solution is an all-in-one payment risk mitigation platform for companies requiring bulk payment batch processing daily. For companies seeking an optimum fintech AML solution, contact IDMERIT AML fintech connoisseur and understand the complete nitty-gritty of fintech and money laundering risk mitigation procedures today.

The post AML in Fintech: A Guide to Fintech AML Compliance, Challenges, and Solutions appeared first on IDMERIT.

• Banks and Money Laundering
• Steps to Achieve AML in Financial Services
• Banking AML Compliance and SAR, STR filings
• How to Ensure Optimal AML in Finance Procedures

Anti-Money Laundering, AML in banking and finance, is a legal obligation that the industry must oblige to ascertain they do not knowingly or unknowingly support money laundering and terrorism financing activities. Banking is a major financial service, and AML in banking is almost synonymous with AML in finance.

Banks are obligated to perform all anti-money laundering checks on their customers, as the launderers most exploit the banks for placement, layering, and integration – the three stages of converting the illicitly gained money into financially acceptable form.

Unlike earlier methods of form filling for filing suspicious transaction reports (STRs) for cash deposits beyond the threshold levels, modern anti-money laundering or AML in finance follows advanced Artificial Intelligence (AI) and Machine Learning (ML) technologies. Simultaneously, many banks are adopting Blockchain technologies to fulfill their AML-KYC compliance needs.

Banks and Money Laundering

With increasing volumes of online payments and virtual banking operations in practice, new forms of money laundering in banking have become all the more sophisticated and not as easy to capture.

For instance, a rise in the number of card fraud, friendly fraud in payments, and a new form of e-commerce money laundering, called transaction laundering, all have come into play.

It makes the current situation challenging for banks and money laundering detecting authorities, adding complexity to the daunting task of bringing perpetrators of financial crimes to justice.

Steps to Achieve AML in Financial Services

To remain AML-CFT compliant, anti-money laundering or AML in banking has certain procedures. The first always remains to Know Your Customer (KYC) or Know Your Business (KYB) for identity verification of the customer and to ensure the person is the person they claim to be. However, AML in financial services is also about continuous due diligence and ongoing monitoring. Frequent ID document checks and upgrades also form an important part of the AML measures and are often linked to enhanced due diligence.

The next in the AML in financial service fraud mitigation measure is client screening against individual, organizational or national sanctions. Client screening against politically exposed persons (PEPs) and adverse media lists is next on the list, and also equally important to check if the customer holds any influential position or has gained negative publicity in the past.

Banking AML compliance procedures have one final important measure, i.e., transaction monitoring. Positive KYC identity verification and screening checks don’t mean the customer is risk-free. Hence, AML in banking calls for continuous monitoring of customer behaviors and activities. To abide by this important AML in banking obligation, the financial institution must use an effective AI-ML base transaction monitoring solution.

Banking AML Compliance and SAR, STR filings

Financial Action Task Force (FATF), an international AML-CFT policy-making body for financial and regulated institutions, ascertains the prominent role of the Financial Intelligence Unit (FIU) in combatting money laundering and terrorism financing nuisances. Each FATF member nation has one national FATF FIU body setup.

The banking risk team is subject to filing all Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) to the state FIU within the stipulated time for prompt investigations.

How to Ensure Optimal AML in Finance Procedures

Employee training and effective in-house risk mitigation technology are the two main factors that define the quality of AML in banking efficiently. Practical AML staff training, with regular tests and revisions, determines the proficiency levels of the staff. Alongside this, the banking AML compliance engine must be such that it can be easily integrated into the existing operating system without creating much friction.

State-of-the-art automation tools for anti-money laundering in banking can save the organization from financial penalties and help build a strong reputation that helps in customer retention and new client acquisitions.

If you are a financial service looking for AML-CFT implementation in your organization, IDMERIT offers hassle-free integration with single API AML automation. You may further read pertinent information on our website or book a free consultation and get in touch with our AML financial crime manager for your business.

The post Anti-Money Laundering (AML) in Banking and Finance: Best Practices appeared first on IDMERIT.

• Why is AML in the Payment Sector required?
• AML Transaction Screening
• AML Transaction Monitoring
• Challenges in AML Transaction Monitoring
• Selecting the Best AML Solution for Payments

Why is AML in the Payment Sector required?

AML in the Payment Sector has an inevitable role in mitigating the risk of transaction laundering, the online form of money laundering currently posing the most imminent cyber threat. Payment processors must exert due diligence during merchant onboarding and transaction processing and remain vigilant during the complete payment processing cycle. Payment gateways and payment processing businesses owe enhanced anti-money laundering measures to the banks and financial institutions they are linked to, as any negligence on the security part while aggregating the payments might lead to a financial and reputational loss of the payment entity as well as the financial institution.

Anti-money laundering, or AML, in the payment sector has a broad scope, and there are two core technological components for risk mitigation in this field. The first is AML Transaction Screening for verifying merchants against the global sanctions listing to determine the risk levels they brought to the payment business. The next is AML Transaction Monitoring, an AI-ML-based engine to monitor merchant behavior and activities and their transaction risk levels.

As payment aggregators process mass transactions, a due merchant onboarding process to ascertain the risk levels of the merchants is an important degree of AML-CFT execution. Drafting terms agreement with the merchant, a thorough examination of the business by the designated compliance officer, AML training for the onboarding division staff, and continuous merchant review as part of the due diligence are all important steps to achieve compliance for AML in the payment sector.

AML Transaction Screening

Screening merchants against the global sanctions database eliminate the risks of doing business with individual and entities detrimental to the AML-CFT standards. High-volume transaction merchants bring the maximum revenues to the payment gateways and processors, but this should not come at the cost of illicit money laundering activities many high-risk businesses might be involved in. Politically exposed persons (PEPs) and adverse media screening are the next two important screening phases to accomplish the requirement of AML in the payment sector.

A more advanced and comprehensive AML Transaction Screening has multiple security features for pre-screening, merchant KYC and identity verifications, background checks, and past transactional record proofs. Website content analysis and compliance security checks are the screening tools for underwriting the merchant credit risk.

AML Transaction Monitoring

Recently, the significance of live transaction vigilance has grown manifold, and even the international AML-CFT regulators, like the FATF and EU AMLD, have emphasized AML Transaction Monitoring. The regulators maintain that filing Suspicious Transaction Reports (STRs) and Suspicious Activity Reports (SARs) is the most substantial part of AML risk mitigation obligations.

The AI Machine Learning algorithms build a logic to relate the live data from transactions with the static customer data from CRM. In keeping with the pre-defined logic, the business transactions must match the thresholds set at the time of merchant onboarding. Different merchants have different payment thresholds depending on the transaction volumes, nature of the business, and country of operation.

This whole AML Transaction Monitoring automation is hence operated via a detection engine. The engine is built on a rule-based scenario model. It senses whether any merchant transaction or activity poses a risk to the AML-CFT security standards of the payment provider. The system sends an alarm as soon as a threat is determined, and the compliance team must review the alert. Any suspicious or threatening behavior or activity must be filed with the concerned authorities in the form of Suspicious Transaction Reports (STR) and Suspicious Activity Reports (SAR).

Challenges in AML Transaction Monitoring

False positives have been considered the biggest challenge. It is equally time-consuming and affects the business bottom line as genuine merchants often feel harassed and choose a different payment vendor instead because of excessive friction. However, the primary challenge that the payment providers find is to accomplish a frictionless integration of the AML Transaction Monitoring solutions in the existing organizational infrastructure. A comprehensive AML solution for payments with an easy cloud-based API solution doesn’t require additional hardware. It is much more scalable for integrating into the payment gateway and processing systems.

Thirdly, transaction laundering is a growing form of online money laundering and currently stands as the most significant challenge or threat to the payment industry. In transaction laundering, legitimate-looking merchants sell illegal goods or services via genuine-looking sites; the technique is highly sophisticated, and capturing it requires an advanced AML solution for payments.

Selecting the Best AML Solution for Payments

A cutting-edge solution for AML Transaction Monitoring comes with dual Know Your Merchant (KYM) and Know Your Payment (KYP) features. IDMERIT offers global payment providers its flagship IDMkyX AML-KYC and Identity Verification products.

IDMkyX is a complete one-stop solution to the requirement for AML in the payment sector. To learn more about AML Transaction Screening and AML Transaction Monitoring, please schedule an IDMkyX demo with our AML professional to learn more about our AML solutions for payments.

The post The Inevitable Role of AML in the Payment Sector and AML Transaction Monitoring Best Practices appeared first on IDMERIT.

Contents

• What is KYT – Know Your Transaction 
• KYT is the Future of KYC
• Why KYC isn’t Enough
• Which Industries Need KYT
• KYT and Transaction Laundering
• Know Your Transaction (KYT) in Cryptocurrency
• Important KYT Regulations
• IDMkyX: The X Factor

What is KYT – Know Your Transaction

Know Your Transaction (KYT) is a derivative of AML Transaction Monitoring and refers to examining both fiat and crypto financial transactions. KYT is considered the future of Know Your Customer (KYC) as merely identifying individuals and businesses isn’t enough today. There is a growing need to examine the onboarding clients’ transaction activities continuously. Transaction Monitoring or KYT is essential to determine money laundering, fraudulent activities, or suspicious behaviors, sometimes as serious as a mass proliferation of weapons or drug trafficking.

Certainly, the Transaction Monitoring method applies to both fiat and cryptocurrency; it cannot be denied that the KYT gained its prominence with the advent of cryptocurrencies, as because of the anonymous nature of crypto transactions, the investigative authorities have to follow the provenance of transactions to track fraud rather than following the identities behind it. Thus, it is indisputable that KYT has become the new KYC.

KYT is the Future of KYC

The fintech and international regulatory experts perceive that Know Your Transaction (KYT) is the future of KYC. The rising adoption of cryptocurrency has further amplified the scope of KYT as it gives institutions the aptitude to break down and structure crypto transactions for AML monitoring and risk mitigation. KYC is identifying and verifying the authenticity of individuals and businesses; performing due diligence based on the risk factors they bring to the institutions that offer services to them. While KYT is a step further, programmed to drill down the granular datasets of client transactions based on their risk profiles and detect bad or fraudulent transactions they perhaps perform.

What is KYT

Why KYC isn’t Enough

The identity world is constantly shifting, and institutions must keep up with continuous due diligence on their client base. At a global level, there is an ongoing deliberation wherein institutions are trying to realize why KYC isn’t enough to deter financial fraud and that they would now require KYT as part of AML measures. Businesses must understand that Know Your Customer (KYC) is one of the most vital of all AML procedures as it fulfills the onboarding procedure of verifying ID documents, proof of address, and beneficial ownership.

However, one may still argue that KYC isn’t enough as there must have ongoing due diligence in the process to ensure client risk levels in the long run. Altogether, all these AML activities must be achieved without compromising the customer experience. Hence, KYT Transaction Monitoring has probably been weighed as the most sought-after method, wherein individual and business activities are monitored in real-time without creating extra hassle for the clients. Clients are only approached when a transaction hits a red flag.

KYC and screening against PEP, Sanctions, and Adverse Media give fundamental profiling on the onboarding clients. Nevertheless, KYC is a static approach lacking an advanced investigation to monitor client transactions and estimate their risks. KYC and screening procedures rely heavily on publicly available data; the information could be outdated, manipulated, or completely made up. There are instances when institutions have even lost potential valuable clients due to false positives and inaccurate red flags.

At the same time, the Know Your Transaction (KYT) method leverages identifying transaction laundering activities that involve illegal, suspicious events. KYT Transaction Monitoring program reveals the true business activities of the clients; it brings data-driven conclusions by examining transactions in real time. Based on patterns and traits derived from the raw transaction data and relating the same with the nature of the business, red-flag indicators are derived on location, payment velocity, timing, originating bank, etc.

Which Industries Need KYT

Every industry today that deals with mass onboarding and bulk transaction processing of clients would require Know Your Transaction (KYT). It can be said that KYC and screening procedures provide identity insights. At the same time, KYT gives transaction insights on bits of information that could otherwise be difficult to follow without proper techniques. Thus, KYC and KYT offer a comprehensive AML risk mitigation solution, in which KYT programs are always custom-built per industry requirements. The customization is based on the transaction type, i.e., cash or card payments, SWIFT transactions, inward/outward remittance, payment using trade finance instruments, third-party payment processing, etc.

However, the term KYT has recently become more synonymous with crypto AML, as in blockchain and cryptocurrencies, the focus is more on the transaction than the identity. Here, the authenticity is attributed to the transaction history linked to patterns, not the blockchain clients. KYT has become more prominent in banks and financial institutions that serve digital assets or blockchain clients. With the introduction and adoption of the FATF Travel Rule, it’s now inevitable to complement KYC due diligence with the KYT efforts to complete the compliance measures related to crypto exchanges and VASPs.

KYT and Transaction Laundering

Transaction Laundering is an online form of money laundering. The mechanism is rather skillful as it involves shell website operations to disguise fraudulent activities from the AML regulators. Transaction Laundering involves a front legitimate-looking site with visibly clean advertising, but the website sells illegal/prohibited products or services via a camouflaged or shell website in the background. This type of money laundering method deceives the banks and credit card networks as they assume to be processing the payments for a legitimate site.  KYT Transaction Monitoring has tremendous potential to examine uncanny merchant activities and their behavioral patterns to unearth prohibited ecommerce websites disguising their products or services from the authorities via ingenious Transaction Laundering schemes.

Know Your Transaction (KYT) in Cryptocurrency

It is now apparent that Know Your Transaction (KYT) is an offshoot of KYC, and it’s only when the two work in conjunction that the customer risk mitigation process is complete. Particularly in the Blockchain industry, the KYT in Cryptocurrency checks suspicious wallet addresses, large buying or selling cryptos, anonymous crypto exchange activities, etc.

Since KYT is the KYC of Blockchain, the crypto AML process also comprises flagging sanctioned individuals or entities, filing irregular asset transfers crossing thresholds, continuously monitoring dark markets, and halting possible scamming activities and misusing of cryptocurrencies.

Important KYT Regulations

The Know Your Transaction (KYT) monitoring system aims to assist the national AML authorities and Financial Intelligence Units (FIUs) in timely actions against money launderers, miscreants, and lawbreakers. The KYT Transaction Monitoring programs are based on international AML standards, including payment reporting thresholds and red-flag indicators, as set by Financial Action Task Force (FATF) 40+9 AML-CFT Recommendations, EU Anti-Money Laundering Directives (especially the 5^thAMLD) and other such international organizations. The international AML standards are mainly integrated with fines and imprisonment set by national laws pertinent to money laundering and financial crimes.

The financial transactions are monitored in real-time, using predetermined programming algorithms to track suspicious behavioral patterns. It is on the part of the Money Laundering Reporting Officer (MLRO) of the regulated institutions to report the identified fraud and criminal transactions to the state FIUs which further investigates the data-driven reports and takes sufficient actions against those individuals or businesses accountable for such activities. The recent FATF Travel Rule suggests continuous tracking of transactions involving various cryptocurrencies for Virtual Assets Service Providers (VASPs). The FATF Trave Rule calls for appropriate KYC due diligence and risk scoring of crypto users and digital asset investors.

IDMkyX: The X Factor

Boost your KYC efforts with IDMkyX KYT from the brand of IDMerit. Understand the importance of KYT Transaction Monitoring on Blockchain and AI-based Machine Learning technologies.

Explore various vigilance possibilities for your business, and abide by the latest FATF, AMLD, and your national AML-CFT guidelines with IDMkyX. Book a free Know Your Transaction (KYT) consultation and clear your doubts about why your KYC capabilities are incomplete without an effective KYT Transaction Monitoring compliance program.

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