Prevention Of Money Laundering Through Kyc And Aml Guidelines

Prevention Of Money Laundering Through KYC and AML Guidelines

The increased digitization of the banking sector has facilitated perpetrators to commit financial crimes. Money laundering and terrorist financing top the list of crimes banks have to face these days. KYC AML compliance provides a chance for retailers to identify customers. Verifying customers can abate chances of fraud threats to a minimum. 

There is no doubt in the fact that KYC and AML legislations vary from region to region but the core compliance requirements are almost uniform across international business environments under Financial Action Task Force (FATF) recommendations. Therefore, it lessens the worth of excuses merchants hide behind to conceal their carelessness towards KYC and AML compliance. 

Banks and financial institutes are held responsible for protecting the funds of customers. Any negligence in fulfilling the goal leads businesses to face massive penalties and render the customers unsatisfied. 

The Problem With Current KYC and AML Laws 

In the initial stage when know your customer and anti-money laundering was a new thing, regulatory bodies did not specify the rules for business. It was done for a purpose i.e. to let the companies think for themselves and thus pushing the boundaries of customer verification. 

But the financial institutes did not act as expected of them. They used the laws according to their will and the fruit of the as the increased number of frauds that too money laundering and terrorist financing top the list. This made the policymakers design a standardized KYC and AML compliance for all the businesses regardless of their type. The consistent execution of these regulations on an international scale is the solution for getting rid of money laundering and terrorist financing. 

Considering the importance of KYC and AML compliance in reducing financial crimes, let’s study them one by one.

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What Is KYC In Banks 

KYC or know your customer is the process of verifying the identity of your customers. Another way of communicating KYC is to differentiate between favorable and unfavorable clients. Unfavorable addresses for the ones with a criminal or political background. 

Individuals with high risk for the company can be extremely damaging for the integrity of the businesses and may cause a dent in the reputation of the brand. Staying stick to the KYC and AML regulations can secure enterprises from experiencing these unfortunate events. KYC money laundering assists banks in verifying their customers so that they would not become a reason for carrying out the laundering of money. 

As stated earlier, meeting the KYC requirements is not easy for businesses but at least companies are generally required to identify their customers’ business type, source of their funds, and the purpose of a specific transaction, and the levels and nature of transactions. 

There is 4 major objective while undergoing KYC:

  • Identify the user 
  • Verify the customers’ true identity  
  • Keeping an eye on clients’ activities and their sources of funding 
  • Ongoing monitoring of customers’ activities 

Customer due diligence for banks ensures that the customers are who they say they are. It is the process that reflects that the customers are not a potential threat to the company and are not included in any kind of prohibited lists.  

What Are AML Checks In Financial Institutes 

AML or anti-money laundering is the set of regulations that is beneficial for financial bodies to combat money laundering and terrorist financing. AML compliance is more comprehensive and includes KYC as one of its requirements. 

Businesses need to be vigilant because there exists a constant change in the AML regulations. In order to follow the updated KYC and AML laws, vendors are required to follow international trends.

AML customer due diligence and enhanced due diligence are carried out if the users are high-risk individuals. 

How To Get Successful KYC and AML Compliance

Achieving the right balance between KYC and AML regulations can result in an enhanced user experience and the prevention of fraud. Thus, we can say that it is a win-win strategy for everyone except for the customers of course. 

Strong KYC compliance must be employed digitally. Automated identity verification facilitates safeguarding customers’ information during the onboarding process that can not be fulfilled through manual checks. 

KYC and AML Regulation for Banks 

Banks are the most vulnerable industry considering the prevalence of fraud. Following are some ways to get KYC and AML right:

  • Asking clients to use multiple IDs for KYC and AML checks 
  • Placing a higher risk score for anyone who is identified as a politically exposed person 
  • Regular monitoring of customers’ activities

Summing It Up 

Whether you run a business or you are a customer, complying with KYC and AML laws is necessary for you. Financial institutes and banks are liable to have excellent verification measures at their end to minimize financial fraud. Know your customer and anti-money laundering are effective in combating money laundering and terrorist financing.

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