AML verification is a significant security protocol for financial institutions especially banks. Every financial institution is obliged to perform thorough AML verification before onboarding customers to prevent fraud and possible AML activities. The countries that fall under the umbrella of FATF (Financial Action Task Force) specifically are liable to follow the AML regulations set forth. FATF, on the other hand, ensures global action to fight against the growing affliction of money laundering and terrorist financing.
KYC and AML processes were set into motion by regulatory authorities to purposely lay down specific standards. That should be used to verify customers in financial institutions in order to eliminate money laundering within the sector. Money laundering accounts for an estimated 1.2% of the EU’s total GDP. Conclusively, about 50% of money laundering cases reported in Latin America are by financial organizations. Thus, AML compliance mandates every financial sector to follow the requirements so as to avoid massive penalties in case of violating the policy whether intentionally or unintentionally.
How AML Verification and Identity Verification are related?
Financial Action Task Force (FATF) – an intergovernmental organization, was founded in 1989, for the sole purpose to counter money laundering and financial frauds. FATF has 37 countries on its panel, and one of the requisites for financial institutions presiding in FATF member states is to comply with KYC by verifying the identities of their potential customers. This AML verification helps them to uncover and monitor high-risk individuals involved in financial crimes such as corruption, tax evasion, and money laundering. Failure to report such atrocities to the regulatory authorities can result in inflated fines. The total penalties due to the non-compliance of anti-money laundering regulations from June 2017 to April 2019 was £241,233,671, in the UK, alone.
Enhanced customer due diligence, also known as Know your customer or KYC usually helps in achieving AML compliance. Because a comprehensive KYC and AML verification system prevent criminal activities such as money laundering and terrorist financing from being involved with legitimate entities. Identity verification helps authenticate each customer against government-issued ID documents and supporting shreds of evidence such as face verification, address verification, or age verification. Extensive KYC along with AML integration reduces the risks of suspicious activities in the financial system. Also, to meet the guidelines of global and local regulatory authorities, the KYC process is mandatory for banks. AML screening is a part of KYC, which screens customers during the onboarding process against government-issued sanctions and blacklists, including PEP’s (Politically exposed persons) list.
Financial institutions usually perform 2 types of AML screening:
Onboarding: Here, customers are screened in the early stages of customer onboarding. As mentioned above, they are monitored against global watchlists, PEPs, and sanction lists. Databases should fall under the guidelines of FATF and GDPR. If customers are successfully verified and do not belong to any sanction list, they move to the next stage, or else the process will be declined altogether.
Ongoing: This type of AML integration happens on a regular basis. Here clients are monitored regularly, say for example, when the customer updates his information regarding a bank account or when there are changes or updates in the global watchlists. No industry is ever free of fraud but the financial sector is more vulnerable to white-collar crimes and otherwise. As technology is becoming more intelligent, online financial criminals are readily finding newer ways of stealing money. Data breaches have risen to 44.7% in the past few years, which is disturbingly true. With crime evolving rapidly businesses need to stay one step ahead in order to protect their customers and revenues. That’s why by using AML systems, companies can obstruct crimes before they even happen.