The banking industry has experienced a major technological shift in the past few years and these changes are not completely settled which leaves loopholes for financial criminals (money launderers and terrorist financiers). Due to this shift, KYC and AML regulations for the baking industry are becoming more rigid. The supervisory authorities are becoming more rigid towards KYC and AML compliance of banks.
Several banks around the world have been fined millions of dollars due to non-compliance or weak AML/KYC protocols. Swedbank and Danske bank are two major cases that made the banks to learn the lesson of paying more heed towards KYC compliance and also read HSSLIVE Plus Two Time Table.
There is no doubt in the significance of KYC compliance for banks. Now that the regulatory authorities are after the non-compliant banks, KYC compliance is the headache of banks around the globe.
Key to achieve thorough KYC compliance in banks
Below are some fruitful practices for banks to experience thorough KYC and AML compliance.
KYC screening solution
KYC screening of the customers is inevitable for banks. They’ve to collect the personal credentials of their customers and verify them before onboarding them. Now that banks are online and a lot of services are offered online they need to incorporate technology into their compliance practices aswell.
Outsourced KYC screening solution is a good fit for this need. Such solutions are cost and time-effective. Building an in-house solution requires hefty resources and effort, which will exhaust the budget of a bank. On the other hand, outsourced KYC/AML solutions are easy to integrate and often don’t require advanced technological equipment.
In-house security protocols
The Danske Bank scandal is a lesson for banks to keep an eye on the upper management of including the c-suite. As often the internal agents are the source of risk and become a part of criminal activities.
Practice accountability at all hierarchal levels within the organization. Accountability of upper management will make the junior employees show more respect towards the rules and regulations of the organization.
Practice ongoing screening of your customers
Often banks just perform initial KYC on their customers and later don’t update the risk rating for long durations which cause a loophole in the regulatory compliance practices of the banks. Verify the AML status of your customers at regular intervals, so if there are any changes in the AML rating of a customer it will help the bank practice Enhanced Due Diligence (EDD) on that customer. Otherwise, one day a customer might perform some financial crime hiding behind the old risk rating assigned at the time of initial risk rating. And the bank will end-up losing its credit rating along with non-compliance penalties.
Risk management and compliance department must work parallel to each other
Risk management and compliance complement each other one cannot be achieved without the other. Often the risk management practices of the banks don’t align with the compliance needs of the bank. The clash between the two departments may leave a loophole for criminals. Align the compliance needs with in-house security protocols.
Record keeping and reporting
Banks are required to report unusual activities of their customer and for that, they must keep an eye on the activities of their customers. Banks should record the transaction data of their customers and keep an eye on the data to identify any unusual activity of the customer. It will help them in thorough KYC/AML compliance. Also, it will keep the banks updated so that they could take proactive measures against the risk.
To wrap up, KYC compliance is inevitable for banks and an online KYC solution is feasible to practice thorough due diligence on the customers. And if the banks practice efficient internal security and risk prevention protocols they’ll be able to achieve a proactive risk cover against global financial criminals.