Know Your Transaction – Mitigating Money Laundering in Financial Firms

3 Mins read

Outdated payment screening processes are a big problem that Financial Institutions (FI) face nowadays. Fraudsters see the loopholes in the security systems and use sophisticated techniques to exploit the mainstream systems. Experts find this challenging because specialists cannot discourage financial crime and ensure compliance with KYC & AML regulations. Utilizing cutting-edge know your transaction procedure can help enterprises deal with the above issues effectively. 

The following sections of the article discuss the significance of the know your transaction requirements and how the state-of-the-art technology can fight financial crime. 

Know Your Transaction Procedure – A Quick Overview

According to Mordor Intelligence, the transaction monitoring market size will achieve a CAGR of around 14.5% during the forecast period (2021-2026). The largest market is North America (US & Canada), whereas the fastest growing region is Asia Pacific. The latest KYT solutions have AI & ML support, facilitating compliance with AML & PSD2 regulations. 

The Case of Guotai Junan Securities

Hong Kong’s Securities & Future Commission (SFC) fined Guotai Junan Securities around 25.2 million dollars for not complying with AML procedures. The reason behind this was the failure to monitor user’s monetary exchanges and delays in reporting. 

For financial firms, KYT service providers help them monitor data units that are difficult to track otherwise. The financial messages comprise invoices and regulatory records. The information must be tracked properly with the records, which helps later in the auditing process or for AML checks. 

Following the latest compliance procedures can be tough and cumbersome in the case of traditional monitoring procedures. With rising issues in data retrieval and outdated due diligence measures, financial firms cannot discourage money laundering & terrorism financing cases. Considering the above issues, IT experts have introduced know your transaction procedure, which is more accurate than traditional defence mechanisms. 

Understanding the Significance of Know Your Transaction Procedure

The KYT system can help businesses validate and monitor financial transactions from customers. The following are important monetary transactions that users perform from digital accounts:

  • Cash & card transactions
  • Cross-boundary exchanges
  • Trade finance transactions

Modern-day financial institutions must collect certain details of all monetary transactions. This is critical when there are third parties involved. The data helps determine the purpose & nature of transactions to identify suspicious activities and use the information for other analyses. For this purpose, several financial institutions use the latest data models to extract the following information from consumer’s records.

  • Full name
  • Transaction patterns
  • Country of origin
  • Kind of monetary exchange 
  • Originating bank

Know your transaction procedure is a data model that supports FI to observe all exchanges and discourage money laundering. Banking service providers can analyze data internally to detect abnormalities instantly. The evidence proves to protect financial institutions and help firms avoid hefty fines. 

Incorporating Know Your Transaction Procedure with KYC Checks

Several financial firms still rely on traditional procedures that are time-consuming and cumbersome in nature, unfortunately. When experts perform the process, there is usually no follow-up session to update information and calculate the risk scores of customers. Moreover, companies still store data in paper forms prone to natural damage. This is where it becomes challenging for financial firms because experts want to retain customers and fulfill regulatory requirements. 

Using advanced technologies, financial businesses can ensure compliance with international regulations and avoid hefty fines. Viewing market trends and customer preferences, lawmakers keep updating AML & KYC standards to discourage financial crimes. This way, businesses can safeguard investors and other stakeholders against external attacks. 

Performing KYC is insufficient to discourage financial fraud in the modern digital world. Transaction monitoring system is essential to fighting fraud and actively ensuring compliance with international regulatory obligations. 

Fighting Fraud with Know Your Transaction Procedure

All modern-day industries, whether banks, insurance companies, or others, must implement cutting-edge solutions to discourage crime. The world has moved towards digital payment systems, and fraudsters see an opportunity to achieve nefarious goals. Payment service providers also have a responsibility to identify and detect fraudulent transactions. This way, businesses can offer a positive customer experience and boost annual revenue. 

The Bottom Line

With multi-channel availability, customers can easily benefit from financial services anytime. Within legal transactions, there are always some fraudulent ones. Using the know your transaction procedure can help experts effectively discourage money laundering cases. 
Collaborating with a third-party vendor can help enterprises implement KYT solutions that are GDPR and PCI-DSS compliant. The latest know your transaction procedure has AI & ML support, which can detect anomalies instantly.

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