(Newswire.net — June 29, 2021) —
Money laundering has always been a threat for financial institutions for decades. The instant increase in money laundering from the past few years compelled businesses to make strict regulations. Financial organizations need to meet anti-money laundering regulations to avoid penalties. Despite the introduction of new regulations by financial regulatory authorities in the last few years, the AML fines will still increase in 2019 and reach up to $8 billion. Mostly, AML fines have to be paid by banks for not complying with AML regulations. So, the bank needs to meet AML standards to avoid fines. Let’s understand a bit about AML.
Anti-money Laundering
Anti-money laundering is the act to stop criminals from money laundering by making different rules and policies that should be followed by financial institutions. All financial bodies such as banks, insurance companies, and others should comply with AML regulations to avoid fines. AML also aims to stop means of money laundering such as drug trafficking, corruption, and terrorist funding. If we look at the previous records of AML in banking, then we come to know that online bank frauds are on the rise, and banks lose millions by online frauds. For this, fulfilling AML regulations proves helpful for banks to avoid hefty fines. Let’s have a look at AML in banking.
AML in Banking
In the last year, banks fined 12.09 billion pounds and as of today, more than one billion fines are already paid by banks and the number is still increasing. It is the need of the hour for banks to comply with all security standards and regulations led by the Financial Action Task Force (FATF) to avoid massive fines. So, know your customer is very critical for banks. To know your customer, KYC-AML compliance is required to perform. Let’s have a detailed discussion about KYC compliance.
Know Your Customer Compliance
The main purpose of KYC is to determine whether the customer is involved in any criminal activity or not to have a secure relationship with the organization. Financial regulatory authorities developed KYC to prevent money laundering. As bad actors are always there to find new ways to conceal money. So, financial institutions perform KYC to avoid online frauds. Similarly, banks also perform KYC before opening a bank account for their customers to find the current status of the customer. KYC identifies customers by running a risk assessment on his profile. Besides KYC, there is another process to check the regular activity of the customer called “ongoing monitoring”.
Ongoing Monitoring
It is also one of the crucial requirements for banks to keep a check on the customer’s regular activities to avoid any loss. Ongoing KYC monitoring is also a requirement for businesses to comply with regulatory standards. By performing continuous monitoring, banks can avoid online scams by fraudsters. It also helps identify high-risk customers by performing global AML screening and analyzing customer data with the latest records of high-risk countries, PEPs, etc. Other than that, customer due diligence is also there to fight money laundering in which customer’s potential information is screened out to detect risks.
AML Screening
It is one of the key elements in KYC/AML compliance. Whenever a customer went to any financial institution or bank to open a bank account, AML screening is necessary to perform. It is performed for different businesses such as banks, insurance companies, FinTech, brokerage houses. AML screening can be done by matching the customer’s personal information with global watchlists, sanctions, and PEPs lists. By performing AML screening, businesses can prevent politically exposed persons or money launderers to avoid financial crimes.
Conclusion
AML compliance is the need of the hour for all financial institutions specially for banks as they paid billions in form of penalties in the past few years. Banks should comply with all security standards led by FATF and other regulatory authorities of their respective countries to avoid hefty fines. By complying with AML regulations, banks are also able to generate a handsome amount of revenue and give seamless services to their customers. AML compliance also helps banks and other businesses to avoid financial loss.