Fraud is increasing rapidly and causing businesses and banks to lose millions of dollars. The primary motive behind these frauds is to make illegal money. Fraudsters conduct a list of frauds with the help of fake credentials and stolen identities. That’s why customer due diligence measures are practiced commonly to identify the customers before onboarding them. It empowers businesses to develop transparent relationships with their customers. But mere KYC screening is no more sufficient, AML screening of customers is also vital to manage the risk properly.
Major banking scandals
Banks are the oldest practitioners of AML screening but still, they lack somewhere that huge money laundering scandals are arising. Danske banks scandal and Swedbank scandals are the primary frauds that shook the world. These scandals left the world questioning the significance of the regulatory scrutiny and AML compliance practices in those countries.
Given the increase in frauds, banks are under the strict scrutiny of the global regulatory authorities. Many banks paid huge non-compliance fines and made other banks to take compliance seriously. So in 2020, compliance is even more significant for banks, otherwise, it leads to loss of money, market value, customers and credit rating.
AML screening of customers helps banks dodge these losses by onboarding only legitimate customers and screening them at major touchpoints throughout their journey.
Regulations are becoming stricter
Regulatory authorities are always in a bid to bridge the loopholes in AML and KYC laws. The primary reason behind this is an increase in fraud and financial crimes such as money laundering and terrorist financing.
Recently FATF incorporated virtual assets dealers and legal professionals in the list of reporting entities of AML/KYC laws. These businesses will be required to follow the laws implemented in financial institutions. Once these recommendations are incorporated in the laws of member countries, almost every business sector will come under the umbrella of strict AML/KYC laws. It’ll bridge the loopholes in these business operations that are utilized by financial criminals.
The regulatory authorities are not unaware of the technological advancements and laws are passed to cover for the risk. EU’s 5AMLD and 6AMLD have clauses that cover for the technological advancements. 5AMLD has the clause that requires the money services businesses to screen their customers on every transaction above EUR 150, previously this threshold was EUR 250. On the other hand, the 6AMLD has listed 22 predicate offenses that will be treated as punishable crimes to bring uniformity in the AML laws of EU countries.
Increase in fraud
Fraud is increasing and it is one of the primary reasons why businesses need to choose compliance over breaking the law. A report of the united nations stated that annually laundered amount of money is equivalent to 2 – 5% of the global GDP. It shows criminals still have a lot of means to launder money and to hide their black money.
Technological advancements
The trend of automating everything is increasing and this has lead to an increased risk for businesses and consumers. Data breaches are quite common and stealing the account credentials of customers is not difficult, using which the criminals could make illegal payments or transactions.
The rise of Fintech has increased risk as this industry is new and laws are in the pipeline to control the risk. Decentralized cryptocurrencies and payment solutions are used to launder money. So it’s important to screen the remote customers before onboarding them or allowing them to transfer funds or trade on the digital platforms. So the growth lies in effective fraud prevention and compliance with global and local laws. It ensures the growth of the businesses while increasing customer value.
