Banks and other financial institutions are at a higher risk of financial crimes. Therefore, they must heed the set anti-money laundering laws and regulations. These AML regulations contain steps that institutions must undertake to detect and prevent financial crimes. In addition, these regulations help protect customers and economic systems while increasing transparency.
Failure to comply with set regulations can attract huge fees and legal penalties to banks. In addition, it could result in an increase in criminal activities by criminal organizations. Money launderers keep deducing new techniques, and thus financial institutions have to keep up the pace and bombard the latest trends. Here are some of the measures financial institutions can adopt to help detect and prevent money laundering.
In general, financial institutions have a comprehensive customer portfolio. For instance, an average-size bank harmonizes thousands of transactions daily. Besides, these transactions are not limited to customers of that particular bank. A customer can transfer funds or make payments to customers of another bank. Therefore, adequate screening of these transactions demands a sophisticated mechanism.
Financial institutions must regulate the sender and recipient in money transfer transactions as part of an effective anti-money laundering program. It is a financial crime for any institution to mediate payments to a banned or sanctioned account. Such a crime can lead to severe penalties and administrative sanctions. Additionally, financial institutions lose their hard-earned reputation. Banks should invest in software to carry out automated screening for all transactions and comply with AML regulations.
With technological advancements, more people and organizations adopt digital currency, whose regulation is a significant concern to financial institutions. Blockchain may be the solution to this nightmare of tracking digital currency. Blockchain is a public digital distribution ledger containing blocks for recording transactions that can be verified independently. To ensure that data is reliable and traceable, institutions provide no alterations that can be made once a digital wallet transaction is complete.
Regulators can also demand verified digital wallets to comply with KYC and anti-money laundering regulations. Customers will then enter their information into a block. The data is encrypted and stored on the blockchain. Every client is then issued a password that can be provided to a financial institution before entering into a business relationship. Financial institutions can access your personal information and transaction history before verifying the client.
Know Your Customer is a procedure utilized by financial institutions in identifying their new and existing clients to help prevent risks. This is the first and among the most crucial stages in an anti-money laundering program. An error in this stage can lead to the entire AML program becoming dysfunctional. For that reason, Know Your Customer is a mandatory requirement for all financial institutions.
KYC identifies a customer’s identity as they open a new account. In this stage, banks collect the customer’s information and scrutinize it to verify its authenticity. This means banks have to ensure that the customer and the information provided match. Banks can use identity cards, face verification, or proof of address such as invoices in the KYC process.
Machine learning is one of the sophisticated technological innovations banks can use in anti-money laundering management. Instead of explicitly programmed instructions, machine learning utilizes algorithms in data analysis and decision-making. With time, machine learning tech learns from the decisions made and uses them to make its code without human intervention, thus making better and accurate decisions quickly.
Machine learning tech can evaluate verified money laundering and pick out predictive variables missed out by data scientists. While utilizing the vast amount of data available, algorithms can detect fine-drawn criminal activities. In addition, with machine learning, financial institutions can minimize false alerts, thus permitting investigators more time to deal with high-risk cases.
All financial institutions ought to look for money launderers and integrate technology to prevent criminal activities. At Enformion, our team of experts is ready to assist you with KYC, risk management, regulation compliance, and AML management to safeguard your institution. Contact us today to get faster and reliable solutions tailored to suit your specific needs.