In the modern digital world, technological innovation has facilitated the growth of modern-day industries. But it has also enabled fraudsters to exploit industries through sophisticated deceptive techniques. For this reason, professionals want to use innovative approaches to discourage fraud and stick to international guidelines. In case of following KYT compliance, enterprises can easily discourage money laundering & terrorism financing while avoiding hefty fines or bans.
The following article discusses the significance of KYT compliance and how it can help Financial Institutions (FI) discourage fraud actively.
Know Your Transaction Services: A Quick Overview
KYT services help financial businesses identify and discourage suspicious activities from customers. In other words, following KYT compliance enables firms to detect fraudulent exchanges by associating clients’ profiles with respective monetary trades.
According to Mordor Intelligence, transaction monitoring market will flourish at a CAGR of 14.6% during the forecast period (2021-2026).
Significance of KYT Compliance for Financial Businesses
The application of know your transaction regulatory protocols facilitates corporations to execute Transaction Monitoring (TM) on financial exchanges by customers. KYC services play an essential role in streamlining the onboarding process of financial institutions. Nonetheless, know your customer services are insufficient in the modern digital world. Only the implementation of both KYT compliance and KYC protocols can empower businesses to identify suspicious activities from clients and discourage fraud instantly. In this light, know your transaction services can help corporations extract meaningful insights from customers’ monetary transactions.
KYT compliance offers an analytical approach to identifying patterns in transactions. Several know your transaction operators have various approaches to executing transaction monitoring procedures. The cutting-edge technology can empower financial institutions to track millions of monetary exchanges simultaneously while evaluating the risk associated with a customer’s profile.
Complete Procedure Behind KYT Services
As per the Monetary Authority of Singapore (MAS), there are four phases in the transaction monitoring procedure. The following sections discuss each stage in-depth:
Stage 1: Performing Identity Verification
In the beginning, before establishing any business partnership, it is essential for all financial firms to calculate the risk associated with each corporate entity. This can happen by following the latest risk analysis framework from the international regulatory authorities. The advanced strategies must empower all financial businesses to calculate the risk score linked with each customer’s profile. All businesses must monitor customers’ profiles at regular intervals.
Stage 2: Following the Risk-Based Approach
The second stage of the KYT protocol is performing risk-based calibration. In this light, it is essential for financial firms to personalise the transaction monitoring system to deal with the specific risks faced by the organisation. This can only happen when the given parameters are properly implemented. It will allow experts to identify suspicious activities with high confidence. In any case, financial firms must perform ongoing transaction monitoring according to KYT compliance. This is also known as backtesting which is about calculating and mitigating risks before spending a company’s capital.
With backtesting, corporations can easily examine if there is any necessity to adjust the transaction monitoring system. This way, financial firms can easily upgrade the database and facilitate accurate monitoring of user monetary exchanges.
In the context of Risk-Based Approach (RBA), financial firms must keep in perspective the user’s data integrity which is about overall accuracy, and consistency in consumer information. Financial Institutions (FI) can implement checks for the purpose mentioned above and monitor the accuracy of data in transaction monitoring systems. This way, firms can easily identify and examine fraudulent activities happening because of data integrity issues.
Stage 3: Streamlining the KYT Procedure
With transaction monitoring systems, a significant challenge for firms is to ensure the training of all the employees who deal with TM alerts. It is essential for businesses to train workers properly so employees can perform their responsibilities. To follow KYT compliance, firms can easily execute pre-transaction checks and deal with fraud alerts effectively.
Stage 4: Reporting Suspicious Activities to Authorities
In the 4th phase of transaction monitoring, when firms get to know about suspicious exchanges, experts have a responsibility to report abnormalities to the Suspicious Transaction Reporting Office (STRO) immediately.
After filing the report, financial firms have the choice to remain in contact with the particular business relationship but experts must mitigate the risk associated with user accounts. This is part of post-STR practices. Finally, financial firms must conduct Quality Assurance (QA) to ensure the accuracy of transaction monitoring procedures.
Following KYT compliance can help modern-day financial firms to detect money laundering & terrorism financing cases in monetary exchanges. This way, enterprises can discourage financial fraud and stick to international regulations to avoid fines and bans.
Finance experts can also team up with third-party vendors to implement GDPR & PCI DSS-compliant TM solutions. This can empower businesses to secure competitive advantage as well as attract only genuine clients from worldwide.