The big wide-world of banks
The world of banking is huge: global, offers hundreds of products, and it can be complex. There’s retail banking; 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 (pardon the pun), and both play a major role in the fight against fraud, money laundering and other financial crime.
According to Europol - "The scale of money laundering is difficult to assess, but it is considered to be significant. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global GDP is laundered each year. That's between EUR 715 billion and 1.87 trillion each year."
The amount of money and the risks involved in financial crime are huge and they are significant to all financial institutions - not just banks. So, no matter what type or manner of bank, KYC and AML activity will be a legal requirement, a moral duty and good for business.
But what are AML and KYC? What do the terms mean? And how do banks use KYC and AML in their operations? This article explains more about the role of KYC and AML in banking, and why these little acronyms are so important in the big fight against financial crime.
Anti-money laundering (AML)
AML stands for Anti-Money Laundering and is an umbrella term for all of the regulatory processes that a financial firm has to go through to ensure their customers are who they claim to be, and all the transactions they go through are legitimate.
Anti-Money Laundering procedures in banks need to be as comprehensive and as efficient as possible to prevent perpetration of financial crime. AML procedures are most likely to flag up issues when there are:
- Large cash transactions
- Multiple unexplained transactions
- Transactions to or from countries or people that are perceived as high-risk
- Transactions that have no reasonable explanation
AML checks involve ensuring all documentation relevant to people, accounts or transactions “make sense” and are legitimate. Checks mean completing ID verification and monitoring or auditing transactions to ensure their legitimacy. AML compliance can be incredibly difficult to ensure, but 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. When banks are able to spot potential money laundering, they can take measures to investigate and stop it from taking place. They are also able to report suspicious activity to the correct authorities.
Know Your Customer (KYC)
KYC stands for "Know Your Customer" and is based on financial firms, such as banks, knowing who their customers are and therefore understanding whether or not specific people, organisations or transactions can be trusted. Additionally, KYC related procedures also enabled banks to better understand their customers to help them manage their risks in a well-judged manner.
The KYC process is most successful when banks build up a holistic profile of an applicant during customer onboarding. Completing effective customer due diligence is one of the best ways to prevent money laundering from taking place in the first place.
A series of KYC checks might seem like it wouldn't do much to stop criminals carrying out illegal financial transactions, but in fact they can be extremely effective in stopping bad actors or illicit organisations from getting a foothold from which to carry out their illegal activities. KYC is therefore a crucial part of any banks anti-money laundering activities.
Using RegTech for AML & KYC processes
If your organisation is struggling to get a handle on its AML processes and is falling behind when it comes to KYC at customer onboarding, regulatory technologies - or RegTech - such as PassFort's could be ideal for you.
Our SaaS solutions make it much easier to see which customers may be trying to break money laundering laws. PassFort allows you to automate KYC and AML checks, and keep track of your customers on an ongoing basis – no matter what type of bank you are or the types of customer you serve. You might work with individuals or institutions, but PassFort is able to automate your KYC and AML processes and bring in compliance professionals from within your organisation where they add most value i.e. in decision making, judgement or analysis.
KYC and AML are some of the most important compliance requirements for any bank, so make sure you get them right with the help of PassFort. Please get in touch anytime to discuss your compliance challenges and how we might be able to help.