The potential for growth for financial institutions is substantial, but fraud is also a risk. To accomplish their evil goals, cybercriminals want to utilize the sector. The banking sector must spend millions of dollars on KYC and AML customer due diligence to comply with the adherence. Experts must use modern digital solutions like client due diligence services and KYC verification to resolve the aforementioned problems. This is necessary to prevent instances of identity theft, money laundering, and terrorism financing.
Bank Secrecy Act of 1970 – An Overview
Through the strict enforcement of legislation, regulatory organizations seek to prevent financial crimes in the corporate sector. While the Vietnam War was still ongoing, US regulatory agencies introduced the Bank Secrecy Act of 1970. Deterring drug trafficking, instances of money laundering, and financing of terrorism were the main objectives.
Banks must report any questionable client activity that exceeds $10,000 in this circumstance. FinCEN, the Federal Financial Crimes Enforcement Network, must have the data. As they usually engage in money laundering, banks might use this to deter terrorism, drug trafficking, and other criminal activities.
The Banking Act 1970 established the Anti-Money Laundering Directives (AMLDs) regulatory regulations. Following the sad events of September 11, 2001, international regulatory bodies regarded CDD and KYC checks as essential for the financial sector.
Application of AML and KYC
Incorporating KYC and AML laws is necessary to prevent money laundering and identity theft. Financial institutions must verify the identity of new customers and adhere to CDD and KYC regulations. The following details emphasize the banking sector’s efforts to set up numerous ID verification systems:
- Following the Customer Identification Program (CIP) guidelines
- Comparing consumer identification information with global watchlists
- Track customer behavior and fraud risk associated with onboarding IDs using statistical data.
- Tracking all the suspicious consumers’ user transactional activities
Value of CDD in the Industry
Financial firms utilize this as a primary defense line against external threats. In reaction to the rise in fraud instances, international regulatory organizations continue to bring strictness to their regulations to stay ahead of hackers. After the Panama Papers were made public, it was abundantly evident that even trustworthy companies might assist criminals in their wicked plans to support terrorism and money laundering. At this time, leveraging business solutions knowledge and customer due diligence became crucial.
According to international regulatory norms, all financial institutions are required to conduct online KYC and client due diligence. The KYB Act also makes it simpler to track down the shell companies that regularly participate in cases of money laundering and terrorism financing. Businesses must therefore confirm the validity of the person possessing the necessary legal power. The European Union (EU) has also introduced anti-money laundering principles, specifically the 6AMLD, which increases the transparency of the due diligence process.
The compliance conditions may not be easy to follow if corporations do not pick the most recent digital systems. Sometimes, the problem worsens because some high-profile parties go unrecorded. Additionally, this makes it entirely inconceivable to recognise possible stakeholders in the corporate sector. As a result, businesses face several difficulties when customer due diligence processes and know your business checks are missing.
KYC Verification – A Tool for Fighting Fraud
Cutting-edge digital technologies greatly aid the implementation of the most recent international regulatory requirements. By implementing ID verification and customer due diligence, firms can control the risk related to client profiles. With this strategy, firms may attract devoted clients while excluding dishonest people.
In the modern world, businesses must always be one step ahead of criminals. Organizations can reduce risk and stop hostile actors from misusing the system by utilizing a risk-based approach. Therefore, in a technologically advanced society, it is important to use know-your-customer authentication.
Globe Newswire states that the identity verification sector will grow at a CAGR of 16% and reach a value of over $33 billion by the end of 2029. Statistics show its exponential boost from 2022 to 2030, which is the forecast timeframe.
Concluding Remarks
The risk associated with client profiles can be addressed by doing customer due diligence during the onboarding process. This method enables experts to expedite the document verification procedure. Further, CDD helps corporations in adhering to AML and know your customer laws.
By partnering with business experts and a reliable third-party source, businesses may do AML customer due diligence and help clients have a wonderful experience. As a result, exercising due diligence may ensure a fantastic customer experience and help firms achieve a competitive edge.
