• 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 Automated Identity Verification in Payments Important
• Merchant Underwriting and Merchant Identity Verification Checks
• Risk Automation in Payment Processing
• Merchant Due Diligence in the Payment Sector
• AML-KYC consultancy helps payments stay compliant

Payment sector ID verification automation is about balancing the risks and revenues, i.e., abiding by the AML-KYC regulations without merchant abandonment hurting the bottom line. Today, payment automation has invigorated the mass-merchant onboarding process, and the robotics techniques have been fast evolving to offer improved user experience to onboarding merchants per diem.

To avoid monetary fines and reputational loss, organizations are advised to opt for automated identity verification in payments which is vital to blocking bad merchants, with malicious intentions, from doing business.

Why is Automated Identity Verification in Payments Important

As per the international AML-CFT guidelines set up by FATF and other similar rule-setting bodies, all financial and regulated sectors, including payments, must obey the anti-money laundering and anti-terrorism regulations about Know Your Business (KYB) and Ultimate Beneficial Ownership (UBO) checks while carrying out business-to-business (B2B) operations.

The payment sector is a high-risk industry wherein high-risk merchant returns bring high-volume transaction processing. A few high-risk merchant segments include adult, travel, gambling, dating, CBD, subscription, brokerage, remittance, and collection agencies.

Robotics Processing Automation (RPA) in payments is core to speeding up merchant identity verification procedures. New technologies like Blockchain and Artificial Intelligence (AI) have brought automated KYC in payments. From performing KYC merchant onboarding to fulfilling merchant monitoring, mostly all due diligence techniques used today have been centralized, with single API integration. The development has drastically reduced the lengthy form-filling, allowing the payment risk department to seamlessly verify and monitor merchant activities.

Merchant Underwriting and Merchant Identity Verification Checks  

Recent upgrades in payment sector ID verification automation with pre-screening and compliance tools have made the merchant underwriting process more accurate and secure. Besides confirming business history and transaction volumes, certain business identity verification checks, such as validating operating nations, marketing channels, and product segments, are important pre-screening checks that can be achieved smoothly with AI-Machine Learning algorithms. Merchant identities are scanned against verified KYB database for Sanctions, Politically Exposed Persons (PEPs), and Adverse Media lists to ascertain the business is what it claims to be.

Thus, payment robotics helps the underwriting team set specific profile thresholds to segment the risk levels of the onboarding merchants. The consolidated risk level helps determine subsequent countermeasures and friction levels at the time of merchant onboarding.

Risk Automation in Payment Processing

The fact is that the onboarding and merchant underwriting processes can never be fully automated. There is always a certain level of manual AML verification procedures involved in payment processing. However, the risk staff can rely on a set of automation tools to gain an optimum level of accuracy while defining merchant risk profiles.

Identifying the operational model, analyzing the website, performing PCI-DSS compliance checks, merchant payment history checks, and underwriting credit risks are the core procedures in merchant payments that require human intervention in the process to a great extent. Fortunately, payment sector ID verification automation has succeeded hugely in merchant identity verification and KYC merchant onboarding procedures. Know Your Business (KYB), PEP risks, Sanctions, Adverse Media screening, and UBO checks are the main AML-KYC measures that can be performed with high-degree automation.

Merchant Due Diligence in the Payment Sector

Payment aggregators, payment service providers, and third-party payment processors all have one thing in common, i.e., they all deal with high-value transaction merchants. Hence, a holistic approach to automated identity verification in payments must go alongside other AML-CFT merchant due diligence practices in this sector.

Recently, third-party payment gateway and processor options have escalated money laundering to a new level, known as Transaction Laundering. To unearth the true identity of merchants, they must be continually monitored against their transaction patterns, business activities, and behaviors. Thus, payment sector ID verification automation must include monitoring transactions and filing Suspicious Activity Reports (SARs) to the state AML authorities for further examination.

AML-KYC consultancy helps payments stay compliant

Alongside PCI-DSS compliance, the payment processors, payment service providers, and payment gateways must inevitably follow AML-KYC compliance with automated identity verification in payments.

IDMERIT ensures world-class identity verification services to the payment sector. Learn more about automated KYC in payments and identity verification regulations in payments. We offer a free consultation with our IDMkyc compliance advisor for businesses processing large-volume merchant transactions.

The post Significance of Merchant Identity Verification Automation in the Payment Sector appeared first on IDMERIT.

• What is KYC
• Why KYC Identity Verification is Important
• Which Industries Require KYC Verification Services
• KYC from a Regulatory Perspective
• KYC Compliance in Various Countries
• KYC Checks and Customer-Standpoint
• KYC Measures – An Integral Part of AML Framework
• Steps to Complete KYC Procedures
• AML-KYC Compliance with IDMerit

What is KYC

According to the international AML-CFT guidelines, every transaction or service is subject to KYC identity verification. Therefore, businesses must maintain Know-Your-Customer (KYC) and Know-Your-Business (KYB) regulatory compliance regimes to combat the growing money laundering and terrorism financing threats. Today, each nation has its method of authenticating customer identity and legitimacy; and to overcome the identity fraud nuisance that has grown manifold in the wake of remote onboarding and digital payments.

Know-Your-Customer (KYC) is a standard measure applied on various fronts during customer onboarding and monitoring lifecycle. This blog will inform you more about KYC identity verification services and why KYC Compliance is an integral, inevitable norm for financial and regulated non-financial institutions to follow today.

Know your customer concept. Marketing team doing research, collecting client surveys, analyzing risks. Business group using laptops and documents near KYC huge letters

Why KYC Identity Verification is Important

The rising course of online businesses has led to increasing customer onboarding and screening protocols. Thus, organizations and businesses must follow standard identity verification methods to meet regulatory compliance, verify customers, and ensure they are who they claim to be.

It is vital to identify whether the person opting for a specific service or making a particular transaction is real with a genuine identity. Simple measures often help mitigate identity theft risk linked to money laundering and terrorism financing.

The KYC requirements are made compulsory during i. account opening (customer onboarding); ii. identifying Ultimate Beneficial Ownerships (UBOs); iii. for credit approval; iv. maintaining enhanced due diligence; v. finding suspicious activities and transaction alerts; vi. Sanctions, PEP, and Adverse Media screening; and vii. for almost any process that requires validation of individual identity.

Which Industries Require KYC Verification Services

Each nation has its laws on Know-Your-Customer (KYC), and its requisites vary from industry to industry. However, there is a general understanding of the importance of KYC verification among regulated institutions, businesses, and individuals. The users or account owners must heed the guidelines and provide basic ID proofs before opting for a regulated product or service—a government-issued ID such as a driver’s license, social security card, or passport. Along with ID document confirmation, checking the address on record, with utility bill verification, is also a significant aspect of any standard KYC procedure.

KYC compliance is a continuous process and part of ongoing Customer Due Diligence (CDD). Earlier, the term KYC was linked to banks and financial institutions. But, with mounting money laundering and terrorism crimes, KYC identity verifications now compulsorily apply to the non-financial sectors, including fintech, real estate, credit unions, lending, etc.

Along with conventional banks and neo-banks, regulated financial and lending organizations are subject to strict KYC compliance. Other major industries subject to compulsory KYC verification for their clients are fintech, insurance, cryptocurrency, gambling, real estate, retail & ecommerce (especially age-restricted), travel, health, telecom, online gaming, etc. Particularly, the upward trend in on-demand apps that require mass-onboarding feature fall under the scope of mandatory user KYC verifications to mitigate anonymous and fraud transaction risks linked to money laundering.

KYC from a Regulatory Perspective

All regulated financial and non-financial institutions must perform KYC checks seriously to build credibility and trust in their customers. Nowadays, there are automated KYC verification services offered by various RegTech companies. A robust digital KYC solution with a user-friendly interface means faster onboarding and turnover for businesses.

The Financial Action Task Force (FATF) first introduced KYC guidelines in its AML Recommendations based on mutual evaluation, peer review, money laundering typologies, and other technical assistance. However, FATF only provides the strategies, and it is completely onto the individual member nation to follow them. The KYC rules and laws may vary from nation to nation, but the underlying idea is to control money laundering and terrorist financing worldwide, as most such crimes are international.

KYC Compliance in Various Countries

Over 190 countries today strictly conform to AML-KYC regulations. Various nations have enacted KYC into law –

In the USA, the Bank Secrecy Act and the Patriot Act are regularly amended and implemented by the Financial Crimes Enforcement Network (FinCEN) under the supervision of the Department of Treasury. It is on the part of the FinCEN to regulate the KYC identity verifications for financial and non-financial institutions.

The Federal Law for the Prevention and Identification of Operations with Resources from Illicit Origin 2013 decides the KYC norms in Mexico. And in Brazil, the Conselho de Controle de Actividades Financieras (COAF) addresses the KYC guidelines with its government and the Brazilian Central Bank.

In Europe, AML-KYC laws are governed by Anti-Money Laundering Directives (AMLD). There are, in total, 6 AMLDs drafted to date from 1991 to 2021. The major KYC regulations are mentioned in 5AMLD, emphasizing video and biometric KYC authentication to confirm beneficial customer ownership. Besides, special attention has been given to newly tech-driven industries, including cryptocurrencies, digital finances, e-wallets, online gambling, and pre-paid cards.

Within Europe, electronic IDentification, Authentication, and Trust Services, the eIDAS, homogenizes digital KYC identification for remote customer acquisition with e-Sign and video verification. The eIDAS gained its prominence late in 2014 with the 5AMLD. While in the United Kingdom, 5AMLD and The Money Laundering Regulations 2017 direct the implementation of KYC guidelines.

Various laws in different nations govern KYC regulations. These are AUSTRAC 1989 in Australia, FINTRAC 2000 in Canada, BaFin 2002 in Germany, FINMA 2007 in Switzerland, PMLA 2002 in India, and FICA 2001 in South Africa.

KYC Checks and Customer-Standpoint

The digital KYC identification notion among onboarding customers has changed over time. Nowadays, customers look for meticulous KYC verification services and onboarding process that helps build trust in the authenticity of the business.

Certainly, online customers always seek a fast and easy product or service access, with the safety and security of their identity and payment information they share with the online platform. People are looking for a less cumbersome onboarding process with equal data security. Hence delay in the acquisition is a big hindrance to the customer-success process.

AI-driven automated KYC solutions have made remote onboarding an extremely friendly process. The APIs and SDKs are easy to integrate and customize as per the national industrial regulations. Moreover, digital KYC identification compliance eliminates penalties and a firm’s reputational loss; customers are indeed looking for such regulated institutions that follow rigorous and updated KYC methods.

KYC Measures – An Integral Part of AML Framework

Know Your Customer (KYC) is an important subset of Anti-Money Laundering (AML) procedures. AML measures are based on regulations to mitigate money laundering risks linked to fraud, corruption, and other financial crimes. KYC fulfils one of the AML requirements linked to customer identification, due diligence, and continuous monitoring with a risk-based approach.

Any offline or online onboarding KYC process is accomplished with two main KYC document verifications; the first is photo ID proof, and the second is proof of address.

Today, innumerable identity verification data giants offer IDs and address authentication services. Alongside, Artificial Intelligence (AI) driven automated KYC solutions are offered by various RegTech companies with security features like ID card format checks, rainbow print/hologram verification, photoshopped image recognition, etc. Furthermore, there are multi-level security checks like biometric face recognition, liveness detection, and face comparison technologies to verify one’s identity.

Steps to Complete KYC Procedures

AML-KYC compliance is an ongoing process. Onboarded customers are subject to lifetime scrutiny based on the risk levels they put on to that particular business as customers. The three AML-KYC compliance procedures are described as the three pillars of the KYC lifecycle and are mentioned below –

Customer Identity Verification Program (CIP) – CIP is the basic KYC ID document and proof of address verification procedure during customer onboarding.

Customer Due Diligence (CDD) – This model approaches customers based on their risk profiles – i.e., beneficial ownerships, PEPs, Sanctions, and Adverse Media. In the case of Enhanced Due Diligence (EDD), customer data is collected from various sources to build risk levels. Customers are thus distinct as high-risk, medium-risk, or low-risk based on their profiles.

Continuous or Ongoing Monitoring – The ongoing KYC approach maintains constant monitoring and reporting of suspicious activities on existing customers. Again, Sanctions, PEP, and Adverse Media have crucial roles to play while continuously monitoring customers to determine customer risk levels more effectively.

AML-KYC Compliance with IDMerit

IDMerit is the global pioneer in the KYC identity verification industry. IDMkyc is our flagship AML-KYC compliance product that offers the most accurate biometric, ID documents, and video verification services with advanced NFC and AI-driven automated KYC solutions based on advanced Machine Learning technologies.

Contact IDMerit KYC Customer Success Manager to get a live IDMkyc product demo. Follow us to learn more about our succeeding blogs on Know Your Business (KYB) and Know Your Transaction (KYT) solutions.

Keep reading our KYC, KYB, and KYT articles to learn more about global identity verification norms defined to fight the looming money laundering predicate crimes related to bribery, corruption, the proliferation of weapons of mass destruction, human trafficking, and many more.

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