According to the report, banks paid more than USD 6.2 billion in AML fines all around the globe in 2019. Money laundering consumed about 1.2% of the EU’s total GDP. Companies are changing and growing rapidly with every passing day, finding it difficult to keep pace with the current trends and provide seamless services and experiences to the customer.
It’s all about enhancing the customer’s experience. KYC and AML program is the key focus of industries nowadays, ensuring increasing regulatory demands for fraud prevention.
Considering the complex nature of the ever-evolving business environment, the current state of KYC and AML compliance is much secure and better than before. However, there’s always room for improvement and enhancement.
Difference Between KYC and AML
KYC stands for Know Your Customer, which plays a vital role in financial institutions to prevent fraudulent activities. It is basically a set of verification processes, including identity verification, document verification, address verification, age verification, and so on to help financial sectors to actually “Know” their customers.
On the other hand, AML stands for Anti-money laundering, compliance in opposition of money laundering. It is a set of rules and regulations for the prevention of illegal money transfers and fraudulent activities such as illegal gambling, smuggling, trafficking, etc. The main purpose of AML regulations is to prevent criminals from obtaining illegitimate funds.
Stages of Money Laundering
With every passing day, methods of money laundering are getting more sophisticated, resulting in financial transactions to become more complex. With the advancement of technology and the advent of electronic communication, the transfer of money and assets is performed with a high rate of accuracy and efficiency.
It’s been accepted traditionally that money laundering can be carried out within three stages, and those three stages of money laundering are as follow:
At this initial stage of money laundering, the money is deposited through unlawful means in financial sectors. The manipulation of money can be done easily while depositing money and assets into the bank account, which makes the fund more liquid. In order to commence the laundering process, criminals need to place money in the bank accounts through illegal activities.
In this second stage of money laundering, the act of illegal money transfer proceeds. The main goal of this second stage of money laundering is to conceal the criminal origin of proceeds, transferring funds between offshore or onshore banks. This stage involves wire transfers, withdrawals in cash, cash deposits in other bank accounts. Layering also involves splitting and merging bank accounts.
In this final stage of money laundering, the illegal money is infused into the legitimate economy. The main goal of integration is to create an apparent legal origin for criminal proceedings. This may include creating fictitious loans, fake capital gains, and also disguise ownership of assets. This stage is not similar to the previous 2 stages, although, the identification and detection of laundered money are provided by the experts and informants.
Expectations from 2021
With the increased usage of artificial intelligence and money laundering, the future of KYC and AML compliance lies in digitization. Following are the trends predicted for 2021 keeping in mind rapid innovation in technology.
The demand for AML and KYC program in the Fintech industry is rising rapidly. In 2021, numerous organizations will come into being in order to automate AML checks and AML screening.
European Union’s Fifth Anti-Money Laundering Directive, abbreviated as 5AMLD5, will be posted by Standard AML rules for Crypto-businesses.
Ultimate Beneficial Owners will demand sharing detailed user information.
Another anti-money laundering directive by the European Union is one of the upcoming trends. The next big revolutionary thing is the 6th Anti-money laundering directive (6AMLD).
Last but certainly not least, Enhanced Transaction Monitoring Solutions. An increasing focus on monitoring AML risks and KYC will be placed by financial authorities. This will encourage financial sectors to acquire proper transaction monitoring processes. In 2021, there will be an essential need for the availability of new transaction monitoring and user identification software platforms.
KYC and AML compliance is the necessary service adopted by a wide range of organizations globally from the past few decades for customer due diligence and to intensify accuracy and efficiency.
However, The more improvement and enhancement of the AML KYC program for the next couple of years requires the investment of a few dollars, to demit the loss of millions. In order to shine and succeed, businesses should buckle up themselves for a future where they are continuously innovating and adapting.
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