Financial institutions and banks, today, have the main concern of ‘risk management’. The reason is that in the financial services industry, the crime rate is high. To counter this, AML KYC compliances are being followed by the financial entities.
Common frauds committed without AML Verification
a. Money laundering and financing of terrorism
Anti money laundering is committed with the purpose of hiding the money trials or the money
earned illegally. Criminals usually exploit the financial institutions in transferring their black
money to other countries. Financial institutions may also be exploited by the criminals for
financing terrorist activities.
Banks, ofcourse, need to be aware of such people, who intend to use their services for illegal
activities. When financial entities are unable to identify such criminal individuals or criminal
activities, they are fined as per AML KYC compliance regulations.
b. Account takeovers
The account takeover fraud is one of the most common fraud committed in the financial
industry. It involves account take over of the genuine customers by the criminals.
Account takeover fraud is usually committed by the criminals by stealing the credentials of the
customers. The credentials can be passwords, pin codes, and similar. The AM KYC
compliance, therefore, oblige the banks to certianing customer identities. Financial
institutions and banks have started using biometric verification systems for countering such
c. Phishing Scams
Another fraud which is committed commonly, without following the AML KYC compliance, is the
‘Phishing Scam’. It is committed by sending fake emails to the employees of some financial
institutions. The main motive behind sending such emails is to get access to the private and
financial data of an organization. This fraud can be countered by training the employees
d. Fake identities fraud
Criminals create and use fake identities for opening accounts at the financial institutions. The
main motive behind this is to commit criminal activities without having real identities
revealed. Financial entities are the main target of such fraud. The reason being, they serve the
motive of criminals well.
A research conducted by the Insurance Information Institute suggests that nearly 3 million
identities were stolen in the year 2018. It was also revealed that almost 50 percent of those
stolen industries were used to commit credit card frauds.
Key Points for KYC AML Compliance
1. To perform identity verification of the customers before onboarding or serving them.
2. To screen the customer identities against the global sanctioned lists. The sanctioned
lists are terrorist lists, high-risk countries, and lists of Politically Exposed People (PEP).
3. On-going AML to be performed against the existing clients.
4. Records should be maintained related to the AML practices in an organization.
5. A transaction above the specified threshold should be reported to the concerned
6. Employees to be trained properly in the aspect of AML KYC compliance.
7. An AML KYC compliance program should be integrated into the organizations.
8. Non-compliance fines for the organizations not adhering to the AML KYC compliance.
Benefits of KYC AML monitoring
a. Helps reduce fraud preventions
Following AML software helps financial institutions in preventing frauds to a great extent.
Criminals and criminal activities are identified at a very initial stage. This helps the financial
businesses to onboard and serve genuine customers only.
b. Helps in making regulatory compliances
Adhering to the AML KYC compliance is obligatory for the financial entities. It not only helps to
prevent frauds but to avoid non-compliance fines as well.
c. Helps onboarding credible customers
AML KYC compliance besides helping to prevent frauds also helps in making a credible
customer-base. Since the customer identities are authenticated prior to serving them, only
genuine customers are onboarded.