There are some important issues that finance-based companies are facing. For instance, poor characteristics, integration issues, and KYC complications. To solve the above issues, there are feasible solutions appearing in the market. The solutions are formulated in such a way that they facilitate the companies in customer onboarding, executing reviews on client records, and monitoring the sanctions.
In digital finance companies, it is valuable to develop insight into data such as clearances, invoices (bills), and guideline documents. These kinds of notifications must be tracked with their correct records so that they can be used later on for inspection or AML objectives.
An In-Depth Analysis Of Know Your Transaction (KYT)
KYT is about verifying the exchanges done by the clients. Main financial transactions e.g. cash and card exchanges, cross-frontier exchanges, and both kinds of remittances (inward and outward) are included in the KYT solution provider.
Any financial organization is interested in the above details, especially in scenarios where third parties are included. The details are valuable because they help detect any suspicious activity and keep track of the nature of exchanges for future purposes. For this purpose, a lot of companies are making data models that have specifications such as:
- Client’s name
- Pattern of exchanges
- Client’s country
- Type of exchange
- Name of the bank
KYT is a kind of data model that supports financial institutions in screening the exchanges for illegal activities. The purpose is to spot criminal activity as soon as possible. The results give the evidence that keeps the institutes secure from scammers and unwanted sanctions.
Reasons That KYC Is Inadequate
Finance-based companies have tough KYC guidelines and they are obligated to follow the recommendations given by global bodies. The guidelines have uniformity about the requirements of the clients but they are not globally accepted parameters. There are some countries that have laid out rules and regulations to satisfy the requirements and there are certain countries that have left it to particular organizations (to use the proper strategies).
Reliance On Old Procedures
In contemporary times, many institutes still rely on manual methods. This means that when the KYC and the review process (due diligence) are carried out on the client’s profile, then usually there is no follow-up session to protect the customer from damages in the long run. When the customer is onboarded, their record is kept in a paper format until the regulations state otherwise. It is challenging for the banks because they cannot efficiently perform the review process without compromising the customer experience.
Why Better Regulations are needed?
With a rise in technology in banking and financial organizations, it has become critical to implement better regulations. When clients look at market trends and how the user profiles have become open in their dealings, the regulatory bodies have become more exacting in their scrutiny processes. Moreover, the law-making bodies have also advanced their regulations to protect the clients and support institutions in tackling monetary fraud and financial terrorism. Hence, KYC is not enough for organizations and KYT limitations are extremely significant as well.
With cross-channel accessibility, customers have the option to connect with financial platforms without the limitation of time and place. When there are legal exchanges, there are also illegal ones. According to research, 99.85% of the financial transactions that occurred looked illegal which means that detecting fraud is an extremely difficult process.
A Weakness Of KYC
There are a number of restrictions while using KYC in regular exchanges. It is because KYC solutions are heavily dependent on openly available data from businesses and individuals. It has multiple issues e.g. the data can be old and tempered. Without a doubt, KYC is critical for due diligence and onboarding new clients because it helps profile the new clients and organizations. However, KYC is not enough for long-term screening and KYT compliance should be added as well.
If clients observe the initial stages of customer onboarding, the procedure looks enough but it has some flaws. For example, insufficient evidence for detecting suspicious activities. Moreover, if one relies only on KYC, it can give false positives i.e. highlighting financial risks when there are none.
With the progress towards the fourth industrial advancement, each client (banker, businessman, and manager) cannot avoid digital development. According to research, of all the payments that were done, only 5% were done by the means of paper. The fact points to the change in payment transactions i.e. payment through digital means instead of cash. Experts in the field describe the change supported by the availability of online banking options. They are a great way to boost customer experience.
Therefore, KYT is the priority of the time and regular screening of transactions is required for pinpointing fraud. The addition of KYT in the equation leverages artificial intelligence and machine learning to expose suspicious behavior.