In today’s modern era, it is increasingly easy to launder money and fund terrorist activities online. According to the data provided by UNODC, the annual amount of money laundered is between $800 billion and $2 trillion, or between 2% to 5% of world GDP. Experts are anxious to put into practice cutting-edge digital tools to prevent financial crimes. Experts can combat fraud and guarantee KYC and AML compliance using a know your transaction procedure. This innovative method will guarantee a competitive edge and improve connections with clients.
The following articles dive deep into the value of a know your transaction procedure. In addition, the blog covers innovative methods that firms can use to combat money laundering and terrorism financing.
Know Your Transaction Procedure – A Brief Overview
Banks and other financial institutions can protect themselves from potential losses by keeping tabs on their customers’ transactions in real-time with KYC transaction monitoring. It analyzes client histories and bank records to calculate risk and predict outcomes. The results of the AI-driven systems are shown in real-time, and a Suspicious Activity Report (SAR) is automatically generated and submitted to the appropriate authorities.
Authorities worldwide are constantly revising the compliance framework to account for changes in the market and cover existing regulatory gaps. Know your transaction procedure is a cornerstone of the compliance process. Modern technologies provide in-depth analysis to flag potentially fraudulent financial dealings. The cutting-edge answer connects customers’ personal details and investors’ portfolios to business dealings. In this way, companies can take an active role in the battle against money laundering and the financing of terrorists.
According to Markets & Markets, the global transaction monitoring market will be worth around $16.8 billion by 2023, growing at a CAGR of 15.1% from 2018 to 2023.
Most sales throughout the anticipated time frame will occur in North America. North America will generate the most significant revenue for the projected time frame, followed by Europe. The importance of transaction monitoring services in mitigating data privacy breaches drives growth in the APAC market. Businesses of all sizes in the Asia Pacific area already recognize the Know Your Transaction (KYT) process’s potential for reducing instances of financial crime.
Four Key Steps of the Know Your Transaction Procedure
Fraudsters can now perpetrate financial crimes with more sophistication because of technological advancements. This calls for implementing innovative measures like a know your transaction procedure. The following paragraphs elaborate on several aspects of the system;
- Authentication of Customer IDs
Establishing reliable commercial relationships requires modern transaction monitoring solutions and client due diligence procedures to be implemented by financial institutions. Each client’s risk profile must be determined, and the new method must ensure that financial institutions are always informed of their clients’ behaviors.
- Implementing a Risk-Based Strategy
Risk-based calibrations, where financial firms define parameters based on organization needs, are the second part of the know your transaction procedure. To provide reliable forecasts, experts must frequently conduct back-testing. Similarly, FIs must conduct data integrity checks to guarantee the truthfulness of records. These precautions allow for investigating all anomalies and errors that could compromise the data’s integrity.
- Implementing the System
It is essential for financial institutions to invest in the proper training of their employees who will handle know your transaction procedure and produce alerts in earlier phases. Financial institutions need to pay more attention to employee training to minimize mistakes. The implementation of KYT processes is simplified with this novel method. Employees manage warning signals and associated documents while doing pre-transaction checks.
Resolving Issues & Enhancing the System
FIs must file unusual transaction reports with the STR officer when they find unusual money transactions. It is Crucial for client retention at FI. Post-STR methods involve investigating potentially fraudulent accounts and securing legal authorization before proceeding. Financial institutions could promote quality assurance checks by analyzing the effectiveness of notification management and the know your transaction procedure.
The Bottom Line
Dependence on KYC processes for risk management could lead to the incorrect categorization of clients as potential financial threats. Analysis of financial dealings can provide helpful information for spotting illegal transactions at an early stage. In order to deter instances of money laundering and terrorism financing, financial institutions must implement a thorough payment screening process.
Know your transaction procedure is a GDPR and PCI DSS compliance approach that guarantees unparalleled data security. This technique allow companies stand out from their rivals and boost annual revenue. In order to guarantee global coverage and multilingual service, the AI-driven system brings in genuine clients globally.