€2 trillion…Chasing Crooks and counting Zeros.
Each year, it is estimated that over €2 trillion is laundered around the world. In Europe, the combat against money laundering and terrorism financing represents a real challenge. For some countries within the continent, the amount of money laundered is estimated to represent a significant part of their respective GDP. Belgium, for instance, comes on top of the podium with 6,1%. Luxembourg and the UK follow with respectively 5% and 4,3% of their GDP. With such enormous amount of money, it is hard to measure the scale of the problem, but it is easy to see that the problem is not going away any time soon.
Regulatory Framework as an ultimate Ally!
However, regulations and tools, that financial institutions must comply with and use such as Anti Money Laundering and Know Your Customer regulations, have been implemented to reduce as much as possible financial crimes risks. These regulations can be burdensome at times but, as a financial company or institution, you better follow them rigorously if you want to avoid getting a slap on the wrist from regulatory bodies!
Where AML targets money laundering and terrorist financing with rigorous regulations, KYC ensures accurate customer identification, mitigating fraud and enhancing financial system integrity. Together, they form a robust defence system against illicit activities, safeguarding the security of the financial ecosystem.
Both are subjects to global regulations such as the Financial Action Task Force for AML and the General Data Protection Regulation for KYC, or to local regulations which may vary from one country to another. Regulatory bodies are here to oversee sector-specific regulations. Entities such as FinCEN mandate transaction monitoring, recordkeeping and reporting, but also sanction for non-compliance.
Takeways
Thorough customer identification is critical for financial institutions to form a complete analysis of the risk they present in terms of money laundering and terrorism financing. Risk principles in KYC involve categorizing customers into different risk levels when in AML, financial monitoring systems are used to detect and analyse unusual or suspicious transaction. Internal reporting systems such as the Suspicious Activity Reports (SARs) help a financial company to keep track of any risk indicator. Recordkeeping is also essential to make sure the company will report accurate and updated data to the authorities.
By identifying low, medium and high-risk categories with the help of these specific tools, financial institutions can tailor their due diligence processed accordingly. Furthermore, ongoing monitoring is crucial to adapt these risk categories to changing circumstances over time. Such a systematic approach enables organizations to effectively manage and mitigate risk associated with diverse customer profiles.
Customer Due Dili.. Have you heard of it?
The Customer Due Diligence process involves the collection of data publicly available or provided by the customer in other to place the latest in the appropriate risk category within the AML&KYC procedures. For High-risk customers, Enhanced Due Diligence is applied. It ensures a deeper understanding of high-risk profiles and involves a more comprehensive scrutiny and additional verification measures. EDD provides an additional layer of compliance in situations where standard due diligence process might not be enough.
How to be a hero, with no cape!
Procedures and regulations are the core of the combat against financial crimes. Strictly respecting them is therefore a must to be able to stop some financial criminals, but by optimizing some practices you will be able to detect any suspicious behaviour or transaction and no fraud will succeed under your radar! You would be the superhero of your company.
As we mentioned, implementing a risk-based approach to tailor CDD procedures and developing clear and comprehensive AML and KYC policies are two key factors allowing practices to be the most efficient possible. However, ongoing employee training is the best way to enhance your team’s awareness and compliance facing risks. These training must go together with regular audits, internal and external, to assess the effectiveness of the procedures implemented. The last best practice we recommend is to educate the customer on the importance of KYC and AML compliance. Fostering cooperation in verification or data gathering processes is going to help you a lot. This cooperation could be extended to industries peer and authorities by sharing information on emerging threats and new practices or technologies.
Unveiling a Hopeful Horizon
The fight against financial crimes is a long way to go. As we mentioned, it is not going away anytime soon. Nevertheless, new technologies and research offer great perspectives and bring a lot of hope in the sector. These new technologies represent a significant gain of time, productivity and efficiency in the combat against money laundered, fraud or terrorism financing. Artificial intelligence provides, for instance, advanced monitoring capabilities based on unsupervised machine learning system and automates processing adverse media reports. On the other hand, Clouds services allow the company to share freely and quickly information within a team. The data collected are centralised and easier to access. What is exciting is that new services are created each year with the help of new technologies such as the AI and Clouds services. All of this is still new, and the regulatory bodies must keep the same pace development as the tools that are being created, but the results it has shown so far are very promising.
Financial industries must comply with the rigid financial crime regulations and aim at being excellent in complying with it. AML and KYC procedures have been created to standardize and regulate the process of companies facing potential financial criminals. But no one should lose hope, and every company should head up towards the future, as it has never looked so promising and hopeful.
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