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As businesses scale up and expand operations beyond borders, they also need to conduct transactions rapidly and seamlessly. Many regulated sectors like the Financial Services, Gambling and Gaming, and Crypto Exchanges and Wallets, are experiencing greater regulatory scrutiny. This has prompted institutions and regulated businesses to develop a system of Know Your Customer (KYC) and Anti-Money Laundering /Counter Terrorist Financing (AML/CTF) programs aimed at compliance under the governing authorities and averting huge penalties of non-compliance.
Businesses and institutions are expected to capture and validate KYC and AML related information on their clients as well as the entities they are dealing with. Whereas previously KYC at onboarding stage was a good enough yardstick of Identity Verification (IDV), businesses now have additional regulatory requirements under FATF guidelines. They are required to periodically update KYC/AML information and develop checks that screen against multiple variables and business lines. This includes core functions, such as:
- KYC at relation-building stage;
- Ongoing / Enhanced Customer Due Diligence (ECDD) for high-risk entities and relationships, or high-value transactions;
- Negative or Adverse Media Checks of entities dealt with;
- PEP Screening;
- Watchlist Screening;
- Sanctions Screening to avert future complications;
- Transaction Monitoring and Investigation to check and avert Financial Crime.
As the volume of business and transactions increase, organisations are scaling their operations for efficiencies, prevention of penalties, and losses from fraud. They are taking advantage of an integrated KYC/AML managed services solution for lower costs, better compliance, effective risk management, higher flexibility as well as a comprehensive and unified regulatory compliance.
Requirements for Effective Screening and Ongoing Checks
Effective compliance solutions require highly accurate databases, sophisticated matching, and an all-inclusive investigation, auditing and reporting process.
The process of effective screening and ongoing checks includes:
- Accurate screening against risk sources – lists of sanctions, PEPs, watchlists. internal black lists and white lists;
- Screening against international databases;
- Structured screening of appropriate risks in real-time;
- Incorporating data from multiple sources and systems for efficient monitoring;
- Fuzzy matching using algorithms;
- Removing false positives;
- Establishing ongoing due diligence with integrated audit trails and automated reporting tools;
- Scaling to suit business needs and risk exposures.
Document Verification is the mainstay of IDV and CDD
Identity verification (IDV) services are the go-to measures for seamless and fast onboarding as well as CDD. This is part of customer risk assessment, to check the risk level of the entity and the proposed transactions.
Digital identity verification uses document verification, biometric verification, e-signatures, and real-time live fraud detection across the KYC/AML and CTF compliance platforms and services.
Document verification includes the processes of Document Validation, Document Checking, Data Extraction, and Data Comparison. The objective is to validate and verify identity, detect fraudulent ID documents and prevent application fraud in real time, and protect the business against criminals, terrorists, fraudulent individuals and Politically Exposed Persons (PEPs).
Customer identity verification is the very first step to establish the trust quotient of the potential client. Are the documents submitted genuine? Are the address/addresses mentioned valid as of that date? Are the registration and business licences valid and up to date? Such checks are also carried as an ongoing monitoring measure, especially for financial institutions or high-risk businesses conducting cross-border transactions.
Biometric Scans and AI are used for KYC Management
Technological developments in finance and regulatory compliance are taking KYC solutions to the next level with cutting-edge sophistication. Biometric scans and AI are offering better ways to identify customers, run due diligence checks and perform ongoing monitoring. Biometrics is a near-foolproof method of customer identification, adding an extra layer of authentication for necessary compliance and fraud-mitigation.
The authenticity of ID documents is verified in real-time using image capture and facial comparison with liveness detection. This helps to ensure that a static image has not been used fraudulently. Document Type is validated (e.g., Passport, ID Card, Driver’s License, etc.) to ensure the documents are genuine. Advanced algorithms extract biometric data from the image of the client and compare it to the image on the authenticated ID document for assessing genuineness.
Businesses and financial institutions are partnering with vendors and third-party services that deploy such processes and tools. These systems are being seamlessly integrated into the existing systems of businesses in a user friendly manner for ongoing compliance in real-time.