KYC (Know Your Customer) is a process used by financial institutions and other businesses to verify the identity of their customers. KYC helps to prevent fraud, money laundering, and other financial crimes by ensuring that customers are who they claim to be.
Monitoring of transactions in KYC:
Transaction monitoring is an important part of KYC. It involves the ongoing review and analysis of customer transactions to identify any suspicious activity. This is done by monitoring transactions for patterns or behaviors that are outside of the normal range of activity for a particular customer or account.
Transaction monitoring works by collecting and analyzing data from various sources, such as transaction records, account activity, and other relevant data points. The data is then analyzed using algorithms and other analytical tools to identify potential patterns or anomalies.
For example, transaction monitoring software may flag transactions that are larger than usual, occur more frequently than normal, involve unusual locations for parties, or are inconsistent with a customer’s stated financial profile. Once a suspicious transaction is flagged, it can be reviewed by a human analyst to determine whether further action is necessary, such as filing a Suspicious Activity Report (SAR) with regulatory authorities.
What is transaction screening?
It is a process used by financial institutions and other businesses to check incoming and outgoing transactions against various lists of individuals, entities, or countries that are sanctioned, restricted, or considered high-risk.
Transaction screening involves the use of automated screening software or systems that can quickly check each transaction against relevant lists to identify any potential red flags. The lists used in it may include government watchlists, blacklists of high-risk individuals or entities, or internal watchlists developed by the institution itself.
How does the payment screening process work?
This process is a type of transaction screening that is specifically focused on screening payment transactions. The payment screening process involves checking payment information against various lists of sanctioned or high-risk individuals, entities, or countries.
It typically involves the following steps:
Collection of payment information:
The payment information, including the sender and recipient information, the amount, and any other relevant data, is collected.
Comparison to watchlists:
The payment information is compared to relevant watchlists, which may include government watchlists, blacklists of high-risk individuals or entities, or internal watchlists developed by the institution itself.
Identification of potential matches:
If a match or partial match is found, the payment transaction is flagged for further review.
Review by human analysts:
A human analyst reviews the flagged payment transaction to determine whether it should be approved or denied, or whether additional due diligence is required.
Decision and action:
Based on the review, a decision is made regarding the payment transaction, and appropriate action is taken, such as approving or denying the transaction, or filing a report with regulatory authorities.
A payment screening process is an important tool for financial institutions and other businesses to comply with regulations, protect themselves from financial and reputational risk, and prevent financial crimes such as money laundering and terrorist financing. It helps to ensure that payment transactions are not processed if they involve sanctioned or high-risk entities, and it helps to identify suspicious activity that may warrant further investigation
Suspicious transaction monitoring in the USA
Under the Bank Secrecy Act (BSA), financial institutions in the U.S. are required to implement a comprehensive Anti-Money Laundering (AML) program that includes the monitoring of transactions in KYC verification for suspicious activity. The AML program must be tailored to the specific risks associated with each institution’s business and must include the following components:
Policies, procedures, and systems to ensure compliance with the BSA and other AML laws and regulations.
Designation of a compliance officer:
An individual is responsible for overseeing the institution’s AML program.
Ongoing employee training:
Regular training for employees to help them recognize and report suspicious activity.
Regular independent testing of the institution’s AML program.
Customer due diligence:
Procedures to identify and verify the identity of customers, and to assess the risks associated with each customer.
Suspicious activity monitoring and reporting:
The ongoing monitoring of transactions in KYC for suspicious activity, and the filing of suspicious activity reports (SARs) with FinCEN when necessary.
Real-time transaction monitoring
It typically involves the use of automated systems that can analyze large volumes of transaction data in real-time or near-real-time. These systems may use artificial intelligence (AI) and machine learning algorithms to identify patterns or anomalies in transaction data, such as transactions that are outside of a customer’s normal behavior, transactions that involve high-risk countries or individuals, or transactions that exceed certain thresholds.
When a potentially suspicious transaction is identified, the system can alert a human analyst or trigger an automated response, such as blocking the transaction or requiring additional authentication from the customer. Real-time transaction monitoring can help financial institutions quickly detect and prevent fraudulent activity, such as account takeover, identity theft, or fraudulent wire transfers.
Overall, the suspicious transaction monitoring requirements in the U.S. are designed to prevent financial crime and promote the integrity of the financial system. By implementing effective AML programs and monitoring customer transactions for suspicious activity, financial institutions can help to detect and prevent money laundering, terrorist financing, and other financial crimes. transaction monitoring is an important tool in the fight against financial crime, and it helps to ensure that businesses are complying with their KYC obligations