Scams in the digital world have remarkably increased, which is calling for a robust system to combat all these issues. Know your customer verification is one of such measures that have helped organizations in all sectors to prevent fraud. However, fraudsters are finding more sophisticated ways to fulfill their malicious intent. Now, the need for better regulations is more than ever.
Encountering crimes like identity theft, account takeover, phishing, and BEC is not as simple as it sounds. For the same reason, KYC compliance across the globe have become stringent over the years.
Know Your Business or Know Your Customer is a verification process that authenticates the credibility of an individual. Businesses face several scams every year since the client onboarding process is not as effective as it should be. However, know your customer compliance is there to help all firms. KYC compliance means a set of regulations that are enforced to eradicate crimes like money laundering. The compliance has remarkably evolved over the years, and the financial industry was the first target of the regulations. Here’s why this sector needs KYC/AML compliance.
Money Laundering
Money laundering refers to the criminal activity of turning black money into white. Fraudsters conceal the origin of their illegally earned money and use it in legal activities. Scammers are coming up with better ideas to launder money and one such act is creating money mules. Criminals use innocent people as the third party to transfer the illegal money from one account to the other.
Terrorist Financing
Criminals also use money laundering tactics and finance terrorist groups, keeping banks as the source of transactions. Banks unknowingly transfer funds and as soon as the transactions are traced, banks are fined as per the KYC/AML compliance of the state.
Account Takeover Fraud
This fraud is very common nowadays, and the coronavirus pandemic fanned the flame. Fraudsters use credentials like passwords and account numbers to perform their illegal transactions. Some criminals also use legitimate accounts to accumulate money. For the same reason, banks and other financial institutions are adding robust verification systems to filter fraudsters before they cause any trouble.
Fake Identities
When nothing works right for fraudsters, they create fake identities to open a bank account and fulfill their malicious intent. Sometimes, scammers also use chunks of real information and combine it with fake details to create a profile that is complex to trace. This scam is known as synthetic identity documents fraud. However, KYC verification can help figure out this fraud too.
Phishing Scams
Phishing scams are initiated when scam emails are sent to financial authorities for processing large amounts. Usually, the email indicates the CEO or CFO of the firm to prove legitimacy to the receiver. The link mentioned in the email redirects you to a different page that mimics the original home page and all your information is accessible for the scammers.
KYC/AML Regulatory Authorities across the Globe
Every state has its regulatory authorities. However, some organizations are accepted globally. Here are some of the names that you might have encountered.
- FinCEN – Financial Crimes Enforcement Network
- FATF – Financial Actions Task Force
- FINMA – It is a Swiss regulatory authority that supervises stock exchanges, banks, etc.
- FINTRAC – Financial Transactions and Report Analysis Center
- Europol – It is a European Union authority working on mitigating money laundering and other activities like terrorist financing.
All these authorities aim to create regulations for combating money laundering and other financial crimes.
Conclusion
Crimes in the financial sector are increasing, and there is a dire need for stringent solutions to combat the problems. Hence, global regulatory authorities have come up with KYC compliance, and thanks to technology, e-KYC is making businesses more convenient for financial institutions. Complying with the regulations is essential. Otherwise, banks have to welcome hefty fines.
Frauds in the financial sector are increasing every day, and the industry desperately needs a robust verification solution to combat these crimes. Check out the role of KYC compliance in this regard.