Customer Due Diligence – Combating Corporate Fraud
Financial institutions have the potential for significant financial growth, but fraud is also a risk. Cybercriminals want to use the industry to further their nefarious objectives. Millions of dollars must be spent by banking service providers to comply with KYC and AML customer due diligence requirements. To address the aforementioned issues, experts must choose cutting-edge digital solutions like customer due diligence & KYC verification. To deter incidents of identity theft, money laundering, and terrorism financing, this is crucial.
Contents
A Brief Overview of the Bank Secrecy Act of 1970
Regulatory bodies aim to deter financial crimes in the corporate sector by enforcing rigorous regulations. The Bank Secrecy Act of 1970 was introduced by US regulatory organisations in the midst of the Vietnam War. The major goals were to deter drug trafficking, money laundering, and incidents of terrorism financing.
Banks must report any suspicious client activity exceeding $10,000 in this situation. The Federal Financial Crimes Enforcement Network (FinCEN) must receive the report. Bank service providers could deter terrorists, drug traffickers, and other criminal organisations by doing this as they frequently engage in money laundering.
The Anti-Money Laundering Directives (AMLDs) regulatory requirements were established by the banking act of 1970. International regulatory organisations deemed CDD and KYC verification checks crucial for the financial sector following the tragic events of September 11, 2001.
Application of AML and KYC
Applying KYC and AML rules is crucial to deterring cases of identity theft and money laundering. Complying with CDD as well as KYC rules and verifying the identity of new customers, is crucial for financial institutions to do. The efforts of the financial industry to establish multiple ID verification systems are highlighted by the following points:
- Complying with the Customer Identification Program (CIP)
- checking consumer identify credentials against worldwide watchlists
- Using statistical data, monitor customer behaviour and fraud risk related to onboarding identities
- monitoring user transactional activity of suspect customers continuously
Significance of CDD in Corporations
This is a crucial defence strategy used by financial institutions against outside threats. Global regulatory organisations continue to tighten their regulatory requirements in response to the increase in fraud cases in order to stay one step ahead of hackers. Following the disclosure of the Panama Papers, it became abundantly clear that even legitimate businesses may aid criminals in their nefarious schemes to finance terrorism and money laundering. The use of knowing your business solutions and customer due diligence became important at this point.
Global regulatory guidelines state that all financial institutions must apply KYC checks and client due diligence. Furthermore, the use of KYB legislation makes it easier to find the shell businesses that frequently take part in cases of money laundering and terrorism financing. In light of this, businesses need to confirm the legitimacy of the person holding the relevant legal authority. Anti-money laundering guidelines have also been introduced by the European Union (EU), particularly the 6AMLD, which increases due diligence process transparency.
Compliance requirements can be difficult to follow if businesses do not choose the newest digital technologies. This is where, in the context of knowing your business verification, stakeholder identification in corporations is crucial. The problem is made worse because such high-profile parties frequently go unrecorded. Additionally, this makes it very impossible to identify potential stakeholders in the corporate sector. As a result, the corporate sector faces a number of difficulties when consumer due diligence and knowing your business checks are absent.
KYC Verification: A Tool for Fighting Fraud
With the aid of cutting-edge digital solutions, the introduction of the most recent international regulatory obligations is very helpful. In this situation, businesses can manage the risk associated with client profiles by using ID verification and customer due diligence. In this approach, businesses may entice loyal customers while keeping out dishonest people.
Corporations must stay one step ahead of crooks in the modern world. Employing a risk-based approach enables organisations to lower risk and deter malicious actors from abusing the system. Therefore, the significance of using know-your-customer authentication cannot be ignored in a technologically evolved world.
According to Globe Newswire, the identity verification industry would grow at a CAGR of 16.35% and reach a value of over $32.94 billion by 2030. The graph depicts the industry’s exponential growth from 2022 to 2030, which is the forecast timeframe.
Concluding Remarks
Using customer due diligence during the onboarding process can address the risk related to client profiles. In this approach, specialists can speed up the process of document verification. The use of CDD can also help businesses comply with know your customer and anti-money laundering laws.
Businesses can perform client due diligence and assist customers in having a great experience by working with business professionals and a trusted third-party provider. Therefore, putting due diligence into practice can guarantee a great user experience and assist businesses in gaining a competitive edge.