KYC Money Laundering Prevention Measures & Avoiding Cyber-attacks

In the era of modern technology, criminals have sophisticated ways to steal identities and use them for financial crime. According to research, a staggering 47 percent of the population in the US were victims of financial crime in 2020.

In situations like these, businesses cannot flourish as people will always fear losing their money. The lack of security measures is the reason why fraudsters can get away with their illicit activities. Now, KYC money laundering prevention measures can help financial institutions in deterring identity fraud and the subsequent crimes relating to it.

Risks To The Financial Sector

Criminal activists usually manipulate the accounts of employees in digital platforms of legitimate businesses. The affected institutions include banks, fintech, and the insurance sector. The motive is to avail services that actually belong to someone else, and also to create ways for making their illegally obtained funds legal. 

There is also the risk involved with the onboarding of new customers. Businesses often shy away from incorporating security measures for customer verification because these solutions are assumed to be time-taking and costly. Perpetrators use this to their advantage and convince the company to pretend to be legitimate customers.

It’s crucial that companies know their customers, and for this reason, the GDPR has encouraged businesses to comply with KYC anti-money laundering guidelines. These guidelines help businesses establish a secure platform where only the real users are onboarded.

What is KYC?

KYC (know your customer) is a concept that has been used since 2001 and refers to the process of identification and verification of the potential customers of businesses. 

KYC anti-money laundering is the way businesses secure their digital platforms through a sequence of procedures to verify their customers. The process checks the authenticity of documents and runs background checks to know the transactions made. The customer verification process in KYC money laundering consists of the following steps:

1. Collecting information

This is a fairly simple process where the user is required to enter required information just like signing up for an account. The account registration process takes place simultaneously.

2. Identity proof

The user is then asked to upload image(s) of their identity documents as proof of the information they previously entered.

3. Verification of provided information

The KYC solution then verifies the information by matching it with the document, and there are checks for the authenticity of the document as well. In some cases, the documents can tamper, but KYC solutions have template matching processes to reject such documents automatically.

The validated data is then extracted using OCR technology. Data extraction used to be a time taking process which involved manually reading and entering data into specific fields. But as part of KYC, OCR technology makes this an automated process. 

OCR (optical character recognition) automatically captures the required information from the identity documents, and the authenticity can then be checked by matching the information entered by the customer.

The Process of Customer Identification

It’s important to identify customers in order to know that the person who will be performing financial transactions is not a criminal. This is how KYC money laundering prevention measures reduce the financial crime rate.

Financial institutions collect the customers’ information including their name, address, date of birth, and ID card number. Once the information is collected, biometrics verify the facial characteristics of the person, and details from the documents are also verified using OCR as mentioned previously.

Customer due diligence

AML Customer Due Diligence is a process that screens the customers’ information to check their records and then they are given a risk rating. AML screening results show the records of transactions and how credible the person is. 

CDD calculates the risk involved by searching records for suspicious activities such as sudden spikes in transaction amounts and changes in locations of bank accounts. High-risk cases, which include PEPs (politically exposed persons) and those who are linked to terrorist financing activities, are handled in the process of EDD (enhanced due diligence).

AML Screening

KYC anti-money laundering is a procedure to prevent money laundering in financial institutions. Once the customers’ records and the risk associated with them are checked, it does not mean that they can’t bring risks later on. Therefore, the process of identity screening continues and even the authorized entities are constantly monitored. The ongoing transactions and previous transactions are kept track of, and inconsistencies in the transactions can be determined.

Final Thoughts

To sum it up, cyber-attacks are inevitable in a world where business is done through digital platforms. But KYC money laundering prevention is a solution for companies to improve their security and become smarter than the fraudsters.

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