The major concern faced by the Financial institution is the process of risk management to avoid the rising number of fraud risks. Financial Institutions have always been at risk of money laundering and other financial crimes. The financial institutions use KYC/AML compliance to fight off such crimes. Global regulatory authorities are becoming increasingly concerned over the rapid rise in money laundering activities over the recent years. The global pandemic has worsened the situation by moving financial institutions online. A robust AML verification system required to assist financial institutions in meeting their regulatory needs. 

Financial institutions that fail to follow the AML verification protocols have to face millions of dollars worth of fine. FINRA, a financial institution fined J.P Morgan 1.1 million USD for failing to report to the authorities about the 89 potential risk customers. 

The rise of financial technology has also raised the competition in the industry. More and more banks and financial institutions are flocking towards the technological advancements to enhance their businesses operation and streamline their security measures. 

In this blog, we will shed light on the importance of AML verifications and how financial institutions can benefit from it but first look at the types of threats faced by the financial industry. 

Most Common Types of Frauds Faced by FIs

Money Laundering and Terrorism Financing 

This type of fraud is committed to hiding the trail of the illegally gained money. The criminals use financial institutions to bypass their illicit funds so they seem like funds from legit income. Most banks are regulated and they only provide strict and scrutinized services to their clients and this is why the criminals are tuning towards other financial institutions to fulfil their malicious intent. Similarly, terrorism financing also done through such institutions. Since money laundering requires hiding the trail of the money, such methods also used to fund the terrorists as well so that authorities cannot track the money back to the terrorists. 

Account Takeover Fraud

Through this fraud, the scammers take over the victim’s account by using the stolen credentials and use it to make transactions through the account.Therefore,  In the case of money laundering, this way criminals have access to many accounts and they can surpass all their illegal funds in small amounts through many accounts. 

Fake Identities 

In this type of fraud, criminals use fake or stolen identities to open up many different accounts and use those accounts to carry out their illegal actvities. Financial institutions have the most common victim of fake identities as they fulfil all the motives of the criminal regarding the safekeeping of their illegally gained money. According to research, in 2018,  3 million identities were stolen and 1.4 million out of those stolen identities stolen to carry out further fraudulent activities. With 50% of the identities stolen, credit card fraud with banks carried out. 

Global AML Regulations Requirements for FIs

• Carry on customer identity verification checks on all the customers 
• The customers e screened against the global sanctions list, PEPs, high risks countries, and terrorist lists. 
• On-going AML verification held for high-risk customers
• A proper record held about the AML verification process by the institution
• Any transaction of more than the threshold set immediately investigated and reported to the relevant authorities
• Employees should properly trained with the AML program
• In case of non-compliance, the FIs must pay the penalties 

Benefits of AML Software Solution 

After the rigid behaviour of global regulators over the financial regulations, businesses and financial institutions are looking for a method that can help them meet the regulatory requirement seamlessly. 

Here are some of the benefits of the AML solution discussed in detail: 

Fraud prevention 

Online AML verifications ensure identity checks and catch the fraudsters before they are able to benefit from the financial institution. Money launderers and identity thieves identified and captured immediately with a digital solution of AML verification. Therefore, AI-powered solution is more accurate and reliable than the other solution. 

Compliance

The online anti-money laundering compliance makes it so much easier for financial institutions to meet their regulatory needs. They don’t have to spend hours on the verification process as this immediately verify the customer. Therefore, the resources and time spent on it much more affordable than hiring the whole staff to perform these verifications. This accurately captures fraud and reduce the chances of getting penalised by the authorities for an incompetent system. 

Enhanced Customer Experiences

The legit customer does not have to go through the lengthy process. For a business to be successful, it must ensure that its customers are having tremendous experience. Therefore, With a robust AML verification solution, the financial institution can ensure the swift process for the legit customers and ensuring the best customer experience. 

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