KYC and AML regulations – A Necessity for the Business Sector


Businesses have forever been a victim of the criminal financial crimes including money laundering. Financial institutions mostly suffer from that. Money laundering is the process by which the fraudsters try to legitimize their illicitly obtained money and financial institutions play an integral part here. By means of this process, they try to transform the proceeds of their crimes into an apparently legal origin. If they become successful in this particular process, the rest becomes easy. Legitimizing the proceeds enables the criminals to maintain control over the rest of the process in declaring their income to be legal. 

Read more: KYC and AML

The modern era and identity frauds:

The modern era has seen criminals come up with unique and witty techniques to fulfill their evil intentions. Exploiting the systems of legitimate financial institutions for the purpose of committing frauds, concealing the original source of their illicitly acquired money, and trying to legitimize it. Money laundering affects every single business i.e. it could either be a simple process exploiting a small business at a local or international level or an intensive technical process disrupting an international financial system. The financial institutions engage in the transfer of huge amounts of funds, making it easier for the criminals to swoop in with their black money and conceal its original source. 

The problem is no longer an issue as the regulatory authorities have made it compulsory for every single business, not only the financial institutions, to be Anti Money Laundering (AML) and Know Your Customer (KYC) compliant.

Why is it important for businesses to be KYC compliant? 

As soon as the criminals succeed in declaring their illicitly acquired money to be legitimate, they use it for terrorist financing and other drug-related activities. Therefore, to deter such fraudulent activities and to protect the business from falling prey to the evil intentions of the criminals, the identity verification market had developed solutions that identify and authenticate the user’s identity before getting them on board. Hence, creating a reliable financial system for the company.  

AI-powered KYC Processes:

Appropriate AI-based automated KYC procedures are critical to a company’s security and their risk management along with being a legal requirement to comply with anti-money laundering (AML) laws. Effective KYC and AMLsolutions require a company to not only authenticate their customer’s identity but to conduct a thorough check on their financial activities to prevent potential risks. A financial institution, in the absence of KYC and all solutions, faces huge losses and often have to pay hefty fines, sanctions that could in return account for the reputational damage of the firm. 

The primary goal of the KYC process is to establish the customer’s identity by understanding the nature of his activities i.e. to authenticate the source of his funds and assess the risks associated with the customer by making him go through a diligent customer due to diligence processes. 

Elements critical to an effective Digital KYC Solution:

The aml kyc solution are actually a combination of the following significant elements that make the entire process authentic and accurate. They are as follows: 

  • The Customer Identification Programs (CIP): businesses worldwide have reported numerous cases of identity theft. The year 2017 marked around 16.7 million US consumers affected by identity theft accounting for the loss of nearly 16.8 billion dollars. Hence the CIP mandates the need for every individual dealing with any kind of financial transaction to get their identity verified. By doing so, it restricts the criminal activities of money laundering, terrorist financing and corruption.
  • Customer Due Diligence: CDD is responsible for making sure that the potential client is trustworthy and business relations could be maintained with him. It requires the customer to go through a diligent process of risk assessment by matching his identity against the sanction list or that of PEPs. Depending on the intensity of the risk, it deals with the customer according to the following three types: 
    • Simplified Due Diligence: A customer with a low-risk assessment is subjected to a simplified due diligence process, i.e. when the risk could either be due to low-value accounts.
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  • Basic Due Diligence: It involves the process of obtaining basic information from all customers and assessing risks associated with them.
  • Enhanced Due Diligence: if the customer turns out to be a little too suspicious, he is subjected to the process of EDD where additional information is extracted to prevent any harm to the company. 
  • Ongoing Monitoring: Assessing the customer against any risk, only during the onboarding process, may prove highly dangerous for the company’s reputation. Hence, through the ongoing process, the customer’s further financial activities are monitored and a risk profile is maintained. 


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