In the financial services industry, anti-money laundering (AML) and within it, Know Your Customer (KYC) are two important security strategies. They are aimed at identifying individuals and preventing financial crimes – money laundering, terrorist financing, and fraud. Financial analyst Roman Tereshchenko is convinced that the connection between AML and KYC is significant. AML systems often operate based on information and analysis provided by KYC measures. Together, these strategies provide the basis for effective control and security of financial transactions. How do they interact and what innovations do they use?
Global trends in combating financial crime: interaction between AML and KYC in identifying clients and protecting companies from fraudsters
Roman Tereshchenko states that failure to effectively prevent money laundering can seriously undermine the stability and reputation of financial institutions. According to the expert, this can also lead to legal consequences and significant financial losses. Thus, in 2022 alone, global financial institutions were fined more than $5 billion for violations of AML, KYC areas, and non-compliance with sanctions. Given these growing statistics, the importance of strict adherence to rules and regulations in the field of financial security has only become more relevant. This means that the tandem of AML and KYC should be a priority in the financial policy of companies. Moreover, the specialist is convinced that they should work in close tandem.
KYC provides basic information about clients, which is necessary to verify their legitimacy and risk. This information includes information about identity, place of residence, employment, and other relevant factors. With KYC, financial institutions can ensure that their customers are not involved in illegal activities and are not using financial services for money laundering.
– The information received from KYC is then transmitted to AML systems, which monitor transactions and customer activities for suspicious transactions. AML uses algorithms and analytical techniques to identify anomalies and potential indicators of money laundering or financial crime,– says Roman Tereshchenko.
Roman Tereshchenko: integration of KYC and AML is a double blow to financial crimes
The expert says that the integration of KYC and AML allows financial institutions to create joint customer profiles. They combine data about their identity, verification of sources of funds, as well as financial transactions. This approach provides a comprehensive risk assessment and simplifies the decision-making process for each client.
– Financial institutions can also implement integrated software systems that enable continuous exchange of information between KYC and AML monitoring teams. This allows you to quickly respond to changes in a client’s profile or suspicious transactions, as well as receive updates and alerts in real-time,– explains Roman Tereshchenko.
In addition, the analyst draws attention to another method of verification and protection. The point is that financial institutions can integrate AML controls with KYC procedures. This means that every customer interaction and every financial transaction goes through AML control systems. This includes checking for compliance with sanctions and suspicious transactions. This approach ensures consistent compliance with regulatory standards and uniform protection against financial crime.
How AML and KYC enhance financial stability: an expert’s position
After a detailed analysis of the interaction between AML and KYC, Roman Tereshchenko emphasizes that this union truly brings mutual benefits to financial companies. It is effective for several reasons:
- Regulatory Compliance.AML and KYC coordination ensures that financial institutions comply with both international and local standards. This helps avoid serious fines and sanctions from regulatory authorities.
- Management of risks. Using accurate and complete customer data collected through KYC, coupled with transaction monitoring through AML, can more effectively identify unusual transaction patterns and high-risk customers. Based on his practice, the expert is convinced that this helps financial institutions make informed decisions about risks and measures to manage them.
- Strengthening the financial system. Integrating AML and KYC helps create barriers against illegal financial activities such as money laundering and terrorist financing. This, in turn, helps build confidence in the financial system.
Roman Tereshchenko also considers it necessary to draw attention to the fact that KYC processes, supported by modern technologies, significantly improve the accuracy and efficiency of customer verification. The use of biometric authentication, document verification algorithms, and behavior analysis based on artificial intelligence helps with this. The analyst argues that such technological innovations not only improve the efficiency of KYC and AML processes but also reduce transaction costs, speed up data processing time, and improve customer experience.
