In the digital world, the cases of money laundering are increasing. According to Eurojust’s case statistics, money laundering cases accounted for around 15% of all cases between 2016 and 2021. The statistics are alarming for authorities and call for the application of innovative digital solutions such as Know Your Transaction requirements services. The cutting-edge solution can easily monitor monetary exchanges by customers and identify suspicious activities in real time. This way, businesses can conveniently follow the latest know your customer & anti-money laundering regulations to discourage financial crimes actively.
The following sections in the blog will discuss the significance of know your transaction requirements services and all the steps involved in deterring financial crimes.
Know Your Transaction Requirements Solutions: A Quick Overview
Transaction Monitoring (TM) is a procedure where banks and financial authorities regularly monitor customers’ activities and identify high-risk transactions. This takes into consideration the financial profile of the customers to correctly evaluate the risk score. As experts perform transaction monitoring in real time, it can generate Suspicious Activity Report (SAR) according to the client’s actions. This way, Financial Institutions (FI) can quickly report to regulatory authorities and facilitate further investigation.
Compliance procedures are getting upgraded with time to deal with emerging crimes. They know your transaction requirements play a vital role to discourage money laundering and terrorism financing cases. With KYT, firms can perform critical analysis to identify & prevent fraudulent activities.
Significance of Know Your Transaction Requirements
There are several reasons behind the application of KYT systems and experts categorise the innovative solution into two main classifications:
First, know your transaction requirements allow businesses to screen and monitor monetary exchanges from customers or investors. This is especially helpful in monitoring cryptocurrency transactions. Additionally, KYT takes an analytical stance to observe client exchange patterns. In this way, it becomes easier for users to discourage criminal activities.
Second, know your transaction requirements solutions specifically combat the issues arising during monetary exchanges which other services cannot tackle. Financial institutions have a misconception that only the application of Know Your Customer (KYC) services is enough to deter crime but it is far from the truth. The KYC screening procedure only identifies identity issues during the onboarding procedure such as detecting Politically Exposed People (PEP). This means KYC systems cannot identify and report abnormalities in monetary exchanges by clients.
Four Stages Behind KYT Solutions
In modern times, the number of crimes linked with cryptocurrency is rising and cyber criminals are using innovative technology to accomplish nefarious objectives. This requires the latest interventions such as know your transaction requirements. TM plays an important role in combating money laundering and terrorism financing cases.
The following sections discuss the four stages of TM in detail:
Stage 1: Identity Verification of the Customer
Before establishing business partnerships, financial firms must ensure that the risk assessment framework and CDD procedures are in agreement with AML/CFT regulations. It must be able to calculate the risk associated with profiles of all customers and provide financial firms with valuable insights regarding clients’ behaviours.
Stage 2: Risk-Based Approach (RBA)
The second phase of TM is about risk-based calibration of the know your transaction requirements systems through which financial firms configure various parameters of the TM system. There must be a cross-matching of data before using the company’s capital. Likewise, financial firms must conduct screenings for data integrity to ensure data accuracy. This way, businesses can easily detect & assess abnormalities in data integrity.
Stage 3: Implementation
In the context of previous phases, financial firms must ensure the quality and consistency of staff members who will deal with the TM procedure. Companies must ensure that the workers have sufficient training and guidance to perform effectively. To increase the efficiency of the KYT systems, employees must perform pre-transaction checks & ensure proper document management.
Stage 4: Resolve & Improve
In the case of abnormal activities, financial firms must file Suspicious Transaction Reports (STRs) to officers immediately. In case of customer retention, financial businesses must implement the latest protocols to mitigate the risk associated with customer profiles. This way, experts can easily discourage money laundering and terrorism financing activities. It is also known as post-STR which includes identifying suspicious activities with advanced security measures. It is highly recommended that financial companies perform quality assurance regularly on the TM procedure to ensure the accuracy of alerts.
Concluding Remarks
For financial institutions relying only on KYC measures for risk mitigation, there can be false positives which can reduce accuracy of final results. With know your transaction requirements, businesses can easily identify and discourage money laundering and terrorist financing cases. KYT measures can help experts develop risk awareness for the effective execution of the latest digital solutions.
Know your transaction requirements procedures are GDPR-compliant, ensuring top-notch data privacy for users. This way, financial firms can secure a strategic advantage in a tough market atmosphere and strengthen relationships with customers worldwide.
