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Gone are the days when victims of online fraud have to wait for days to get justice. Technology that realized the dream of a digital platform also developed ways to combat illegal activities. With the help of identity verification software, organizations can ensure they only interact with legal individuals. Know Your Customer (KYC) can assist companies to verify their customers in real-time. Anti-money laundering laws detect any unusual activity that can lead to money laundering. So we can conveniently say that by employing AML-KYC regulations, the financial sector can identify their customers to reduce money laundering activities.     

 

Money Laundering

It is an illegal activity done by money launderers to clean funds obtained by illicit means. Money laundering is a prohibited activity around the globe considering its effects and for heinous activities, its finances are used. Illegal activities like terrorist financing, corruption, human trafficking, and drug smuggling stem from money laundering. The exponential increase in all these crimes required businesses to have stringent AML/CFT laws in their system. 

 

Know Your Customer Compliance 

KYC compliance is a set of regulations to ensure your customers are who they claim to be. Conventional ways of customer identity were simpler and did not fulfill the businesses’ need to authenticate their consumers appropriately. Older ways also required a human hand for carrying out the process that also incorporated the chances of error in verification methods. Customers had to visit the offices along with their documents and the whole procedure used to take days to complete. 

Big organizations verify their customers on their own while small businesses outsource their verification process to third parties. Regardless of whoever does verification, the process remains the same to fulfill its purpose.  

Advanced KYC solutions are helpful for both the merchants and their customers. The fact that the verification can be done digitally in real-time is convenient for businesses and their customers. The process of verifying customers is as easy as using the internet. There are various ways to get the verification of customers done. At the time of registration, customers can be identified by following processes:

 

  • Users are asked to show their official documents that can be an ID card, driving license, and passport.
  • Another method to identify consumers includes face verification processes. Facial recognition is an effective way to combat facial spoof attacks. 
  • Along with ID document verification and facial recognition, multi-factor authentication can also be used to fulfill Know Your Customer services.
  • Addresses can also be verified through ID cards, bank statements, and utility bills. 

 

Anti-money Laundering Compliance 

Apart from KYC, organizations also use customer due diligence to identify risks associated with the users. CDD can verify customers but when the consumers are high-risk, CDD does not remain sufficient. To verify Politically Exposed People (PEP), Enhanced Due Diligence (EDD) is required which is considered as a higher level of investigation. 

As important as knowing customers and risks associated with them in anti-money laundering compliance, we cannot neglect the transactions made by the customers as well. Transaction monitoring is the process that periodically monitors transactions made by the consumers. By constantly keeping a record of online transactions, anti-money laundering software can detect any suspicious activity and generates an alarm. When the system detects any activity that is not consistent with the regular transactions of the customer, an alarm is triggered which makes employees stop the process and investigate it. 

 

Why Is It Important For Businesses To Comply With AML Regulations?

It sometimes becomes difficult for companies to comply with AML regulations because of the constant update in the laws. To avoid penalties and fines, companies still try to become compliant with rules. Every industry incorporates a compliance department that checks the customers against sanction lists. A sanction scanner can be deployed by a sanction officer to screen consumers against sanction lists. 

KYC/ AML compliance is the need of the hour to reduce money laundering. Regulatory authorities heavily fine industries which fail to have regulations in place. Anti-money laundering also saves crimes that are a threat to humanity. 

 

Conclusion 

With the development of technology, financial crimes are constantly changing. Banks and financial institutes are adopting advent KYC and AML solutions to combat money laundering and terrorist financing. Firms that lack these regulations in their system, not only pay penalties but also become a source of breaking their customers’ trust.

Shabbir Ahmad

Shabbir Ahmad is a freelance enthusiastic blogger & SEO expert. He is the founder of Shifted Magazine & Shifted News. He contributes to many authority blogs including porch, hackernoon & techcrunch.

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