Technological innovation has shifted everything to digital platforms, which has increased monetary transactions as well as money laundering cases. Moreover, financial companies also face issues linked to AML monitoring. Globally, fintech firms invest $2 trillion per annum to combat money laundering incidents. In this light, financial transaction monitoring has become an essential part of anti-money laundering standards in recent years. Consequently, banking and other financial institutions have designed a know your customer transaction framework to identify suspicious activities instantly.
Know Your Customer Transaction: A Quick Overview
Transaction monitoring empowers financial firms to observe users’ monetary exchanges instantly to combat money laundering and terrorism financing. Additionally, financial firms make customer profiles and use due diligence protocols to generate a risk score.
Revolutionising Conventional Transaction Monitoring Process
Nowadays, several financial institutions want to implement innovative approaches to keep track of transactional activities. The purpose is to mitigate money laundering cases and other financial crimes. Nevertheless, outdated approaches are time-consuming and cumbersome, which is counter-productive.
Digital solutions having Artificial Intelligence and Machine Learning (AI & ML) integrations with big data improve KYC transaction systems. This enhances the mechanism of detecting and reporting fraudulent activities. With this, financial firms can modernise know your customer transaction solutions and examine suspicious exchanges. ML & AI-driven solutions also provide more accurate authentication results and generate comprehensive assessments of due diligence protocols. The know your customer transaction service also upgrades the users’ profiles for all possible financial crimes in the past, present and future.
New technologies can detect anomalies and eliminate the redundancy from the users’ records to increase the effectiveness of risk analysis. For example, deep neural learning is a subset of machine learning. Artificial Neural Networks (ANNs) operate similarly to a human brain which increases the quality of output. Deep neural network algorithms can execute tasks recurringly, enhancing the quality of output to know your customer transaction series effectively to deal with various challenges.
Consequences of Non-Compliance with AML Protocols
In the context of infringing Anti-Money Laundering (AML) regulations and KYC standards, financial firms can face hefty fines and permanent bans. Moreover, companies can experience criminal court proceedings, poor market reputations, and restrictions. The aforementioned issues can put financial firms to a speedy demise while disrupting business operations. The regulatory authorities push firms to limit operations by incurring partial or permanent bans and restricting cross-border transactions. Moreover, law enforcement agencies can also freeze financial assets, which puts pressure on a company’s liquidity.
Utilising AI-Driven Know Your Customer Transaction Approach
Using the aforementioned digital solution, financial firms are familiar with all possible financial threats, which facilitates combating money laundering. To fight financial crime, financial institutions must implement AML & KYC procedures at regular intervals.
The main purpose of the know your customer transaction framework is to highlight and deal with money laundering cases. Financial firms must incorporate AI-driven mechanisms that improve risk score calculation without pressurising compliance officers. The latest anti-money laundering protocols help generate an action plan to deal with monetary crimes without limiting the client experience.
Gaining Insight into AML Requirements in the USA
The Bank Secrecy Act (BSA) was established in the USA to fight rising cases of money laundering and terrorism financing.
- Financial institutions have an obligation to establish AML programs to fight money laundering & terrorist financing crimes.
- Financial Institutions must implement Know Your Customer (KYC) procedures to collect user data before extending any services.
- Within the context of BSA, financial institutions must maintain records of users’ financial transactions. Furthermore, any monetary transactions going beyond $10,000 must be reported to FinCEN.
- According to the requirements, the financial firms have a responsibility to organise Suspicious Transactions Reports (STR) for at least 5 years.
Understanding The Sixth Anti-Money Laundering Directive
Financial firms operating in Europe and US jurisdictions have an obligation to exercise know of customer transaction solutions to fight crimes.
6AMLD are stringent guidelines for financial firms to tackle financial crimes and highlight hidden Ultimate Beneficial Ownership (UBOs). Moreover, strict regulatory penalties motivate institutions that fail to stick with AML regulations.
- Strict repercussions are there for financial firms that are allegedly involved in money laundering. For instance, corporations can face hefty monetary fines or restricted access to public funding.
- Criminal consequences also apply to legit customers and financial firms. In case the enterprise is guilty due to inadequate supervision, companies must face the repercussions.
- If a client is allegedly involved in money laundering crimes, the criminal must face incarceration of a minimum of four years.
Summing it up
High-risk clients are a threat that can damage monetary infrastructures. In this context, financial firms have an obligation to implement risk assessments during the onboarding process. Moreover, AML background examines the client credentials against global watchlists and PEPs.
Teaming up with a third-party vendor can offer know your customer transaction systems that actively monitor financial exchanges of customers. Using ML & AI algorithms, trustworthy vendors can also provide AML screening solution, which assists in customer risk profiling to mitigate money laundering and terrorist financing.