The role of KYC and AML in banking


In a hyperconnected and digital world, the importance of KYC and AML in finance cannot be understated. For banking, what do these processes include?

In a recent post by PassFort, the company underlined the role of these two processes in banking and how they impact the sector.

The company said, “The world of banking is huge: global, offering hundreds of products, and it can be complex. There’s retail banking; digital, commercial; investment; online, and everything in between. This world of financial services comes with its own language – acronyms and initials at every turn. KYC and AML are part of that bank of vocabulary and both play a major role in the fight against fraud, money laundering, and other financial crime.”

How do banks use KYC and AML in their operations? According to PassFort, AML procedures in banks need to be as comprehensive and as efficient as possible to prevent perpetration of financial crime.

AML procedures in banks are most likely to flag up issues when there are large cash transactions, multiple unexplained transactions, transactions that have no reasonable explanation and transactions to or from countries or people that are perceived as high-risk.

PassFort highlighted that AML compliance can be ‘incredibly difficult’ to ensure, however, with initial and ongoing AML checks using automation to complete the work, it can become easier to spot money laundering and those attempting to carry it out.

The firm added, “When banks are able to spot potential money laundering, they can take measures to investigate and stop it. They are also able to report suspicious activity to the correct authorities – another area important to compliance with AML regulations.”

KYC, meanwhile, is based on financial firms – including banks – knowing who their customers are and therefore understanding what risks they may pose to their business.

PassFort said, “While KYC related procedures enable banks to better understand their customers to help them manage risks in a well-judged manner, they also help make the difference in terms of customer experience. For example, are compliance journeys digital, simple to complete, and transparent thereby creating a good experience of choosing the bank.”

A KYC process is most successful, the company claims, when banks build a holistic profile of an applicant during onboarding. Completing effective customer due diligence is one of the best ways to prevent money laundering from taking place in the first place. Then that profile can be honed, refined, and developed overtime throughout the customer lifecycle.

PassFort concluded, “A series of KYC checks might seem like they wouldn’t do much to stop criminals opening accounts fraudulently or carrying out illegal financial transactions, but in fact they can be extremely effective in stopping bad actors or illicit organisations from getting a foothold in legitimate financial institutions and using them as part of their criminal operations. KYC is therefore a crucial part of any bank’s approach to anti-money laundering and compliance.”

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