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Exploring the Importance and Challenges of KYC Protocols

Exploring the Importance and Challenges of KYC Protocols

by | Apr 21, 2023 | Blog, Human Trafficking, KYC, News & Events

Exploring the Importance and Challenges of KYC Protocols

Are your fraud prevention protocols up to date with the latest Know Your Customer (KYC) and Anti-Money Laundering (AML) standards? In 2021, there was a 43% increase in fraud and computer misuse crimes compared to 2019, indicating that economic crime is on the rise. Having the right procedures and resources in place to prevent nefarious activities is essential for financial institutions and businesses.

With uncertain markets, ongoing global conflict, and a rapid influx of online banking users globally, 2023 has become a critical year for compliance legislation; failure to abide by evolving standards will likely spell even steeper costs for businesses than ever before.

At iComply, we know that using a proven KYC solution like our iComplyKYC platform is one of the best ways to streamline your operations and decrease your exposure to risk. As one of the leaders in identity verification and regulatory compliance, we’re proud to partner with clients across the globe to ensure you have everything you need to operate safely and efficiently. Below, we’ll take a closer look at some of the core elements that drive KYC legislation, as well as the benefits of using proven solutions like iComplyKYC.

What is KYC?

Know Your Customer (KYC) is a principle that refers to the practice of mitigating risk through the accumulation of verification-based information for unknown individuals and entities on a business level. From hiring new team members to securing a loan, adding a customer to your database, and more, KYC and AML protocols help to reduce the opportunity for criminals to conduct fraudulent practices and engage in nefarious activities like terrorist financing (CFT), human trafficking, the transfer of illegal products for financial gain, and more.

While KYC may not be a new concept (background checks have been an increasingly prevalent occurrence since the late 1970s thanks to both the Consumer Credit Protection Act and the Fair Credit Reporting Act), the constant push towards a more digital-centric existence makes being able to verify who you’re “working with” even more significant.

While each industry will have different points of consideration and corresponding legislation to accommodate when conducting KYC protocols, the end goal is to give businesses and their clients protection against fraud and other criminal acts that put the global marketplace at risk.

How Does KYC Mitigate Risk?

The unfortunate reality today is that international legislators and security watchdogs have yet to find a definitive method that completely halts the capacity for criminals to operate undetected in the financial sector.

While many of these crimes still go undetected, KYC and AML guidelines make it significantly harder for fraudsters to fly under the radar. By exposing fake users, flagging suspicious transfers, and performing other risk-reporting activities, organizations and regional legislators have a much better opportunity to address threats head-on and eliminate the misuse of funds or assets for nefarious purposes.

Addressing Global Challenges

One of the most difficult challenges facing the global regulation industry is pushing for the universal adoption of compliance guidelines, which, as mentioned above, currently differ regionally.

The EU and North America have the benefit of being able to leverage governing bodies like the FTC, Financial Action Task Force (FATF), Eurojust, Europol, and more, but not every country has embraced the need for KYC and fincrime prevention equally. This lack of balance presents regulators with a significant problem, as many of the highest-risk countries for illegal trafficking and fraudulent activity tend to have more relaxed (or an absence of) protocols that allow criminals to continue to operate unchecked with greater ease.

Though it may be easy to infer that financial crime is more centralized in such regions, the international community along with institutions that deal with financial and digital asset transactions must remember that rapidly evolving technology makes it more feasible than ever before for criminals to have a global reach. This makes compliance with KYC and AML protocols a necessity rather than a nicety; businesses need to be aware that failure to comply doesn’t simply result in fines, but can also lead to gateways for dangerous activities that affect the global community as a whole.

Why Partner With iComply

At iComply, we know the importance of having access to KYC protocols you can trust when it matters most. That’s why we’re proud to offer an innovative, modular-based suite of KYC programs that make it easy to stay compliant and adapt to evolving legislation.

iComplyKYC leverages cutting-edge AI and blockchain technology to ensure total regulatory compliance in over 245 jurisdictions worldwide and makes it easy to build fully-automated workflows for unique client types, jurisdictional requirements, and more with minimal downtime.

With a readily accessible 360º view of KYC data across your entire organization, you can move forward with confidence and know you are in the best position possible to combat fraud and financial crime and stay on the right side of KYC legislation in your region.

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Contact us today to learn about iComply’s comprehensive, modular compliance solutions or to book a demo with one of our product specialists.

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Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

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Assessing Customer Risk with Automated KYC and AML Software

Assessing Customer Risk with Automated KYC and AML Software

by | Apr 21, 2023 | Blog, Human Trafficking, KYC, News & Events

Assessing Customer Risk with Automated KYC and AML Software

With financial crime, fraud, and money laundering quickly taking precedence as some of the most aggressively expanding forms of crime across the globe, having a risk-based approach to monitoring your current customer base, as well as verifying the identities of new entities is essential to circumventing criminal activity and providing safeguards that allow users to navigate your institution with peace of mind.

A risk-based approach, as defined by the Financial Action Task Force (FATF) focuses on the identification, assessment, and understanding of money laundering and other types of financial crime through Customer Due Diligence (CDD) as well as Know Your Customer (KYC) protocols. When integrated into your regular securities framework and operations, KYC procedures can reduce costs, boost AML efficiency, and help contribute to a safer global marketplace for all entities to navigate.

Below, we’ll take a closer look at some of the key elements of taking a risk-based approach to evaluating entities and circumventing fraud, as well as the benefits of using a trusted KYC software provider like iComply to streamline your procedures. Read on to learn more!


What Are the Main Steps to Implementing a Risk-Based Approach?

While there are many different factors that contribute to taking a holistic approach to circumventing fraud, there are a few main variables that make up a solid risk-based plan. These aspects include:

Assessing Risk and Value

It comes as no surprise that the backbone of adopting a risk-based approach to AML involves painting a clear picture of the risk associated with certain customers through the development of detailed profiles that allow you to carefully, and accurately, segment clients as needed. Core components that help assign a risk value include your ability to verify their identity and/or financial information, known activities and patterns of behaviors that may cause concern, geographical location, and more.

Should a prospective customer raise cause for concern, you should also have refined Enhanced Due Diligence (EDD) protocols in place that allow you to dig deeper and clarify any missing variables that would allow you to make a definitive decision before moving forward.


Efficiency and Practicality

While manual reviews can solicit valuable information about clients, they are often non-practical in fast-paced business environments that demand results as quickly as possible to avoid downtime and inconvenience for users. Automated AML and KYC platforms not only help to eliminate accidental biases and the risk of human errors, but they also streamline your operations and allow you to seamlessly conduct AML screening in a significantly faster (and much more reliable) manner.

At iComply, we believe that taking a risk-based approach to KYC and AML doesn’t have to mean long wait times and further headaches. Our innovative suite of modular risk assessment software puts compliance in your hands with ease, integrating with existing security frameworks in a matter of minutes and adopting regulations across the globe for maximum protection and compliance.

Evaluating on a Micro Level

When countering finCrime and the many risks associated with criminal activity, there is no denying that it’s important to be aware of the macro-level effect such efforts have on the global marketplace, including reducing human trafficking statistics, combatting the international drug trade, circumventing terrorist financing, and more. With that being said, it’s just as important to look at the successes garnered on a micro-level, with businesses and institutions understanding that their efforts must focus specifically on an individual customer level to stay as compliant and accurate as possible. Clearly identifying parties within your own unique database plays a key role in both micro and macro efforts to reduce the harm of finCrime, and ensure that your institution will always be on the right side of compliance laws in the process.

What About Assessing Dynamic Risk?

Risk, much like the customer data it is attached to, is not a stagnate prospect. Companies and institutions that only conduct KYC and AML measures when new accounts are opened miss one of the most important parts of crime reduction. It should always be anticipated that customer information will change regularly, with new details like new associations and behaviors directly influencing their actual level of risk. Inaccurate risk scores fuelled by outdated information pose a serious risk to AML efforts, and it is estimated that including continuous review measures like transaction monitoring and customer, screening can reduce your risk of misclassifying your risk profiles by 25-50%.

Dynamic risk assessment, that is, assessing the risk that arises from sudden events in real-time, gives your company the power to pivot as needed at the moment and deal with the very real challenges associated with handling high-profile clients like PEPs and more.

Implement a Proven Risk-Based KYC Approach with iComply

At iComply, we know that compliance with KYC and AML legislations is essential to circumventing the rise in financial crimes across the globe and avoiding fines from international legislators. Our modular suite of KYC, KYB, and AML products not only ensures you have everything you need to manage and maintain a wide range of jurisdictional AML regulations and conduct risk-based assessments but also automates your customer identification and risk screening processes more intuitively than ever before.

Book a demo with our team today to learn more about iComply’s AML solutions and discover how iComplyKYC can be customized to fit the unique risk screening needs of your organization.

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Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

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Spotlight On: The Role of AML in Ending Human Trafficking

Spotlight On: The Role of AML in Ending Human Trafficking

by | Feb 22, 2023 | Blog, Fintech Glossary, Human Trafficking, KYC

Spotlight On: The Role of AML in Ending Human Trafficking

Human trafficking and modern slavery remain two of the most challenging humanitarian issues for international legislators and law enforcement agencies to resolve—due in large part to the the level of difficulty to uncover hidden channels and illegal measures that sustain these trafficking networks. According to the Council on Foreign Relations, there are 49.6 million people around the world living in modern slavery. Of this number, 27.6 million people are subjected to forced labour and 22 million were victims of forced marriages.

With the International Labour Organization estimating that human trafficking generates US$150 billion globally, the cost of failing to prevent such atrocities is clear, and compliance with evolving regulations is undeniably essential.

Preventing human exploitation is critical, and strong AML and KYC protocols are essential in achieving this goal. That’s why incorporating appropriate solutions into your current framework is crucial. Strong compliance software can help eliminate ambiguity and reduce the risk of human error, making it an essential tool in preventing serious crimes and protecting vulnerable individuals. By streamlining your business processes and enhancing compliance protocols, you can achieve better outcomes and safeguard your organization’s reputation.

That’s why we’ve developed an award-winning, truly comprehensive KYC + KYB platform that is designed to eliminate ambiguity and the risk of human error. Our solution produces superior outcomes that not only streamline your business but also help protect vulnerable individuals from serious crimes.

In honour of National Human Trafficking Awareness Day in Canada this February, we’ll take a closer look at some of the global realities of human trafficking, as well as the role of AML when it comes to prevention.

Human Trafficking is a Global Epidemic

The harm caused by any and all forms of human trafficking and exploitation is immense and pervasive in today’s society. As of the end of 2022, 49.6 million victims are still suffering from the danger of human trafficking and modern slavery.

One of the most common misconceptions in the Western hemisphere is that human trafficking is a problem relatively isolated to lower-income countries and geographical regions. In truth, human trafficking affects every country, regardless of its political or socioeconomic standing.

Evolving technology and the ease with which money and other digital assets are exchanged have opened new avenues for traffickers to continuously exploit vulnerable people. At present, the Global Crime Index identifies the highest-risk regions for trafficking as Africa, Asia, Eastern Europe, and parts of Central and South America.

Countries outside these areas are far from exempt; traffickers utilize multiple destinations throughout Canada, the United States, France, Australia, and other “Tier 1” countries (as defined by the Trafficking Victims Protection Act) as transportation hubs to move victims unnoticed.

What is Human Trafficking?

Human trafficking refers to the criminal movement of vulnerable people, regardless of age or status, for the purpose of exploitation. There are several distinct areas of criminality that fall under this terminology:

Forced Labour

Forced labour is the exploitation of individuals by forcing them to work for extremely low (often unsustainable living) wages, engage in activities that present significant risks to their health and safety, work under duress or the threat of harm, or labour with no compensation or benefit to the worker whatsoever (therefore, equating to modern slavery). Forced labour victims are often men but frequently include women and children.

As of 2021, the ILO and UNICEF have noted a concerning increase in child labour, rising to an estimated 160 million children, particularly between the ages of 5-11. Children between the ages of 5-17 who are involved in hazardous work (work that is detrimental to their health and/or morals) have also been on the rise, increasing to 79 million victims since 2016. Common avenues for child labour exploitation include agricultural work (predominately farming and livestock herding), factory labour, domestic servitude, militias that use child soldiers, and the commercial sex trade. (Source)

Sexual Exploitation

Sexual slavery makes up a significant portion of human trafficking numbers, with women and children being the predominant victims. Individuals in this category are forced into prostitution rings, sold into international marriages without their consent (e.g. mail-order brides), and forced to engage in sexual acts for money—with the profits primarily or solely benefitting the controlling party.

Medical Exploitation

The Group of International Finance Centre Supervisors (GIFCS) is a long-established group of financial services supervisors that are focused on promoting the adoption of international regulatory standards—especially in the banking, securities, fiduciary, and AML/CFT sectors. The GIFCS represents the interest of its jurisdictional members for various banking matters under the umbrella of funds and securities activities.

Victims of medical exploitation (also referred to as the ‘red market‘) are often subjected to non-consensual experimentation and/or body modification. This includes organ harvesting, forced impregnation, and other forms of human experimentation done with no regard for the lasting harm caused to the involved subjects.

Despite reported decreases in 2020 (largely due to travel complications created by COVID-19), the urgent message of modern slavery remains the same: we must do better when it comes to protecting vulnerable people from human trafficking, and end this threat once and for all.

 

Why AML and KYC Protocols Matter

Human trafficking is a highly lucrative endeavour for criminals, with many of the activities involved in the sale and exploitation of victims being directly involved in money laundering or surrounding crimes.

Anti-money laundering (AML) and Know Your Customer (KYC) legislation sets valuable safeguards in place that, when widely adopted, can make it significantly more challenging for traffickers to operate covertly.

Proper AML and KYC practices can help identify key signifiers of criminal activities such as:

  • the use of “front” or shell companies to launder money
  • suspicious capital funnels from multiple (often unknown) sources
  • the use of alternative payment methods for nefarious purposes such as cryptocurrencies, prepaid credit cards, electronic transfers, and more
  • the concealment of beneficial ownership information
  • unusual financial behaviours (e.g. high-frequency transfers, multiple accounts, etc.), and more.

Global regulatory bodies like the Financial Action Task Force (FATF) and regional decision-makers in the EU and North America work continuously to update and refine current regulations (often collaboratively) to identify prevalent risk factors and address the challenges presented by evolving technology and criminal practices.

Reliable software tools to fight financial crimes linked to human trafficking should involve:

  • enhanced due diligence,
  • transparency into ultimate beneficial ownership structures,
  • adverse media screening and known associations with existing criminal networks,
  • watchlist monitoring,
  • politically-exposed persons (PEP) screening,
  • transaction screening,
  • and more.

Building a Safer Future with iComplyKYC

Though AML and KYC protocols are, as of yet, unable to fully prevent financial crimes linked to human trafficking, they are some of our most valuable first lines of defence.

At iComply, we are proud to take a firm and unrelenting stance when it comes to preventing the atrocities caused by human trafficking. We believe in the importance of safeguarding both individuals and organizations against criminal accessibility. We are proud to offer a modular suite of KYC and AML products that enable businesses around the globe to comply with local and global legislation designed to stop money laundering and the exploitation of tens of millions of vulnerable people.

iComply acknowledges and stands in support of transparency and education where the dangers of human trafficking are concerned. Our team remains committed to pursuing a safer global financial marketplace—through continued innovation and the development of digital tools you can trust when and where it matters most.

Learn more about the dangers of modern slavery and human trafficking and how the finance sector is working to end it here.

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Your Partners in Safety and AML Compliance

Learn more about the benefits of iComply’s award-winning suite of AML and KYC software by booking a demo today.

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Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.