This can be done by taking in place stringent identity verification methods that are aligned with technology as well as traditional financial systems to combat the risks of money laundering, terrorist financing, and other criminal activities. Ongoing AML checks should be performed against each identity to participate in the financial system.
Banks and financial institutions need to perform detailed identity verification of each onboarding customers to deter the risk of welcoming bad actors that can disrupt the honest financial flow.
Identity screening should be done against the updated sanction lists and global watchlists which include the database of politically exposed persons (PEPs) to ensure no banned political entity enters the financial system to person money laundering.
It is a regulatory obligation for financial institutions to perform due diligence to identify the entities and assign a risk rating against the profile. The authorities that fail to comply with the regulations will be subjected to harsh regulatory fines and penalties.
Types of Identity screening
Customer screening is crucial for financial institutions and checking them against suspicious entities worldwide can keep the organization out of danger zone. A thorough identity screening program includes basically two types of checks. These are:
Screening through sanction lists: Screening against sanctions lists is done to ensure that no person based on sanctions lists and global law enforcement is allowed to make a financial transaction.
Screening through PEP records: Screening against PEP records is done to perform Customer Due Diligence procedures in which detailed verification of identity is done and is making sure that a person does not belong to any relative of political personality.
Importance of identity screening against watchlists
Traditional banking involves identity screening of customers by manually checking a person against databases of criminals online. The KYC verification process has made it easy for financial institutions to combat the risks of fraudulent entities in the financial system. In real-time, and onboarding customers can be verified against updated global watchlists. Digital payments are prone to several malevolent actors who perform fraudulent transactions across the world and remain uncaught. By KYC online verification process, identity is screened against sanction lists and PEP records in mere seconds. Following are some reasons to screen customers against watchlists:
- The organizations that fail to comply with the global watchlists will be subjected to non-compliance cost
- The organizations could face potential damage if failed to check onboarding identities against sanction lists
- Standard procedures of identity verification do not perform a comprehensive check and sometimes fail to capture fraudulent entities. Screening against updated sanction lists can help organizations examine the bad actors.
Ongoing monitoring of customers
Regulatory authorities are all active with respect to the scrutiny of organizations against their identity verification procedures, limitations, and strategies. FATF recommends financial institutions to implement a risk-based approach towards criminal entities such as politically exposed persons, cybercriminals, money launderers, and terrorist financiers. An internal risk assessment can help differentiate honest and fraudulent entities based on the profile of customers.
Banks and financial institutions have now integrated automated customer monitoring API to the system to authenticate each onboarding customer against several sanction ists and criminal records. In this way, online KYC verification can also be performed and organizations can comply with regulatory obligations while maintaining legitimacy in the financial system.