Financial firms have the capacity to experience a lot of financial growth, but there is a risk of fraud as well. Cybercriminals want to exploit the sector for their malicious goals. Banking service providers have to spend millions of dollars in case of non-compliance with KYC & AML protocols. Experts must opt for innovative digital solutions such as customer due diligence & KYC verification to deal with the above challenges. This is essential to discourage identity theft, money laundering, and terrorism financing cases.
Bank Secrecy Act of 1970: A Quick Overview
Regulatory authorities want to enforce strict measures to discourage financial crimes in the corporate sector. Amidst the Vietnam war, USA’s regulatory bodies introduced the Bank Secrecy Act of 1970. The main purpose was to discourage money laundering and terrorism financing cases, and drug trafficking.
Within this context, banks have an obligation to report suspicious customer activities that exceed $10,000. The report must go to Federal Financial Crimes Enforcement Network (FinCEN). This way, bank service providers could discourage drug dealers, terrorists, and other criminal groups that often participate in money laundering.
The banking act of 1970 laid the basis for Anti-Money Laundering Directives (AMLDs) regulatory obligations. After the tragic event of September 9/11, international regulatory bodies declared customer due diligence & KYC checks essential for the financial sector.
The application of KYC & AML protocols is essential to discourage identity theft & money laundering cases. This is important for financial institutions to validate the identities of new customers and follow CDD & KYC laws. The following points highlight the efforts of the financial sector to implement various ID verification protocols:
- Following the Customer Identification Program (CIP)
- Validating identity credentials of customers against global watchlists
- Monitoring customer behaviour & fraud risk linked with onboarding identities based on statistical information
- Performing perpetual monitoring of user transactional activities of suspicious consumers
This is a major defence mechanism for financial firms against external attacks. In the context of rising fraud cases, global regulatory bodies keep strengthening their regulatory obligations to stay one step ahead of cybercriminals. After release of the Panama papers, it became obvious that even genuine businesses could support bad actors and their malicious plans of committing money laundering & terrorism financing cases. This is where the application of know your business solutions and customer due diligence became necessary.
According to global regulatory standards, the application of KYC checks & customer due diligence is important for all financial institutions. Moreover, the application of KYB regulations facilitates the identification of shell companies that often participate in money laundering & terrorism financing cases. In this light, firms must validate the identity of the individual who has legal authority concerning business. European Union (EU) has also introduced anti-money laundering directives, especially the AMLD 6, which improves transparency in the due diligence process.
There are challenges in following compliance protocols if companies do not opt for the latest digital solutions. This is where the identification of shareholders is critical in companies in the context of know your business verification. Oftentimes, there is no record of such high-profile parties, which makes matters worse. This also makes the identification of potential stakeholders almost impossible in the corporate sector. Hence, the absence of customer due diligence & know your business checks raises various challenges for the corporate world.
Using KYC Verification to Fight Fraud
The introduction of the latest international regulatory obligations with the help of innovative digital solutions is highly facilitative. In this context, the application of ID verification and customer due diligence can help corporations deal with the risk associated with client profiles. This way, companies can attract genuine clients while deterring bad actors.
In the modern world, corporations must be one step ahead of criminals. By using a risk-based approach, organisations can reduce risk and discourage bad actors from exploiting the system. Hence, the importance of applying know your customer authentication cannot be neglected in a technologically advanced world.
According to Globe Newswire, the identity verification market size will reach around $32.94 billion by 2030 while showing a CAGR of 16.35%. The figure shows the exponential growth of the KYC industry for the forecast period of 2022 to 2030.
Concluding Remarks
The application of customer due diligence can deal with the risk associated with clients’ profiles during the onboarding process. This way, experts can increase the efficiency of verification of documents. The application of customer due diligence can also facilitate compliance with know your customer & anti-money laundering regulations.
Business experts can work with a verified third-party vendor to implement customer due diligence and help businesses ensure a positive experience for customers. Hence, the implementation of customer due diligence can ensure a positive experience for users and help companies secure a competitive advantage.