All recent anti-money laundering (AML) compliance mandates have always landed squarely on the shoulders of the finance industry. Know Your Customer (KYC) and due diligence are a big part of this. Not complying with KYC in Fintech and other financial firms can have dire consequences. The primary objective of worldwide KYC solutions administration is to simplify client onboarding, safety, and AML compliance.
Importance of KYC in the finance industry
With the exception of stiff penalties and not complying with AML, KYC checks are critical in banks, financial firms, and fintech firms because they are the heart of every nation’s economy. With globalization, a security breach or the hiring of a shady character in either of those financial institutions has the ability to halt the global economy. It’s odd to learn that Appropriate ID and document validation could be the only thing standing in the middle of your money and being utilized to fund illicit practices.
Because of this, KYC checks in Fintech are becoming strict by the day. With the evergrowing pressure from the clients, outer regulating bodies, and a large ascend in cyberattacks, the importance of automated KYC solutions is appreciated by financial companies. It provides next-level due diligence and allows a very effortless experience for customer onboarding. Based on the circumstances we live in, we are all financially unprotected and KYC verification in baking and financial companies was traditionally used just for customer onboarding experience and dealt with essential consumer needs should now be used for employee onboarding and monitoring as well. Where there is an apprehensive check and balance on B2B client onboarding and normalizing the advanced due diligence.
Enhanced KYC in fintech
Fintech companies are already familiar with the increasing dangers and are ready to spend money on enhanced KYC solutions. Citizens and business organizations show negligence toward dire KYC solutions.
According to the new AML compliance initiatives, during the implementation of customer due diligence and KYC validation, there must be a united worldwide front across all sectors. This may be the only way to ensure total protection for all. Aside from global ID verification and UBO ID validation, the next critical step in your KYC validation has to be a strong emphasis on ongoing behavior monitoring and risk evaluation.
You should focus on these factors to reduce risks:
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- Address: Where does the client reside and how long they’ve been residing there? Does his business has any ties with fraudulent areas.
- Occupation: What kind of a job do they have? Do they hold secure or permanent employment? Do they have health insurance? In accordance with research, individuals defined as ‘honest’ have more probability of participating in illicit activities because of bad financial situations.
- Documents: Is there a chance that the documents can be forged? Are the documents presented by the client authentic? Who are the originators of the provided documents? Document validation has the same importance as ID validation.
- Transaction: Out of the ordinary transactions or transboundary activity. No identity was provided from the receiver’s end.
- Payment method: Look for out-of-the-blue transactions, currency conversions, large sums of payments coming and going through the account, and deposits made through cryptocurrency.
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- Changes in behavior: Are they going through a rough patch or is it a major permanent change in the living style of the client? According to a case study, changes in behavior lead to illicit practices.
- Watchlist: Does the client has a dark past and or was he a law offender in the past like practicing fraudulent activities?
Enhanced KYC solutions can only be properly carried out with help of ongoing monitoring. These threats can be tackled by using automated KYC services that can operate ongoing monitoring and look for the source of fraudulent activities.
How can KYC provide safeguard to Fintech Industry?
Major global changes are mostly the reason behind the amends in the Bank Secrecy Act (BSA) ordinances. The major gist of the Bank Secrecy ACT is an alliance and creating a united front against criminal activities, fraudulent practices, and terror financing. BSA has pointed out some important industries that require additional enhanced due diligence support and by keeping that in mind we can look for criminal activities in these industries and implement required KYC solutions.
Occupational fraud
Occupational fraud is a term that refers to fraudulent activities within the organization committed by an employee. Accounting companies are usually the ones that are majorly hit by fraudulent activities. If you are a finance, the probability is 39 percent that the fraud is being committed by your own staff member. Most of the time the bad actors are caught by their fellow staff members. And the major reason behind successful fraud cases in fintech was that the person involved in fraudulent activities knew how to overthrow the internal controls of the company. Therefore, the need for an external audit and help from external companies to successfully prevent occupational fraud is vital.
