International KYC Checks – New Avenue for CAME

What is KYC?

As International Banking in India develops, KYC of international entities becomes a pre-requisite. There are very few agencies that can perform international KYC checks effectively. And Riskpro is one of the few.

Know Your Customer (KYC) procedures are a vital function for assessing customer risk. Also for a legal necessity for adhering to Anti-Money Laundering (AML) regulations. Knowing a customer’s identification, financial transactions and the risk they pose are all important aspects of effective KYC.

Does anyone have an understanding of your client? You should in any case. If you do business with a money launderer or terrorist, you may be subject to fines, sanctions, and reputational harm. More importantly, KYC is a critical step in preventing fraud and losses caused by unauthorized funds and transactions.

The term “KYC” refers to the procedures followed by a financial institution (or business) to:

  1. Confirm the customer’s identification.
  2. Recognize the nature of the customer’s actions (the primary purpose is to ensure that the customer’s finances are legitimate).
  3. Determine the money laundering risks linked with the consumer in order to keep track of their activity.

In financial services, the know your customer or know your client (KYC) principles require CAME professionals to verify the identity and risks associated with maintaining a business relationship. The processes fall under the purview of a bank’s anti-money laundering (AML) policy.

Banks employ KYC procedures to make sure that their potential customers, agents, consultants, or distributors are anti-bribery compliant and who they say they are. Customers are increasingly being asked to supply thorough due diligence information by banks, insurance, export creditors, and other financial organizations. Initially, only financial institutions were subject to these regulations. Non-financial industries, fintech, virtual asset dealers, and even non-profit organisations, on the other hand, are now compelled to conform.

Elements of International KYC checks

The following things are required to build and run a successful KYC program:

Customer Identification Program (CIP)

How can you tell if someone is who they claim to be? After all, identity theft is common in the United States. It affects over 16.7 million people and results in a loss of 46.8 billion dollars in 2020. It’s more than a financial concern for obligated businesses like financial institutions, it’s the law.

The CIP in the United States requires that anyone doing financial transactions have their identification confirmed. The CIP, which was also included in the Patriot Act, aims to prevent money laundering, terrorism funding, corruption, and other illicit actions. Other jurisdictions have similar legislation; the Financial Action Task Force (FATF), a pan-government body dedicated to combating money laundering. It has agreed to suggestions from over 190 jurisdictions around the world. Identity verification procedures are among the recommended.

The goal is for compelled entities to be able to precisely identify their customers.

At the institutional level risk assessment plays a major role. The level of procedures for each account is an essential component of a successful CIP. While the CIP provides its guidance. It is up to each institution to decide the precise amount of risk. They are also responsible for the appropriate policy for that level of risk.

The CIP clearly specifies the minimal prerequisites for opening a personal financial account:

  • Name:
  • Date of birth:
  • Address:
  • Identification number:

The institution must verify the account holder’s identification “within a reasonable period.” To verify identification, documents, non-documentary processes (such as checking the customer’s information with consumer reporting agencies, public databases, and other due diligence measures), or a combination of both are employed.

These regulations, like other Anti-Money Laundering (AML) compliance requirements, lie at the heart of CIP. However, they should not be followed at random. They must be explained and formalized. This is in order to provide ongoing direction to employees, management, and regulators.

Customer Due Diligence

One of the first assessments made by any financial organization is whether or not a new client can be trusted. Customer due diligence (CDD) is an important part of efficiently managing your risks. It safeguards you from criminals, terrorists, and Politically Exposed Persons (PEPs) who may constitute a threat.

Due diligence is divided into three categories:

Simplified Due Diligence (“SDD”): It is used in cases where the danger of money laundering or terrorist funding is low. It is also needed where a full due diligence investigation is not required. Low-value accounts or accounts, for instance.

Basic Customer Due Diligence (“CDD”): It is information acquired for all customers. This is in order to authenticate their identity and assess the risks they pose.

Enhanced Due Diligence (“EDD”): It is the collection of additional data for higher-risk customers. This is in order to have a better knowledge of their activities and mitigate associated risks. Finally, while some EDD considerations are expressly codified in a country’s legislation, others are not. A financial institution’s responsibility is to assess its risk. Also, they are responsible to take steps to ensure that their customers are not bad actors.

Ongoing monitoring

The one verification of the client is not available. You must have a procedure in place to monitor your consumer on an ongoing basis. The financial activities are supervised through continuing monitoring role. It accounts based on risk criteria established as part of a customer’s risk profile.

Other elements to keep an eye on, depending on the consumer and your risk mitigation plan, may include:

  • Increased activity.
  • Cross-border operations that are out of the ordinary or extraordinary.
  • Inclusion of individuals on penalty lists
  • Mentions in the media are negative.

If the account behaviour is judged strange, you may be required to submit a Suspicious Activity Report (SAR).

The level of transaction monitoring is often determined by a risk-based evaluation.

International KYC Databases

There are different databases used in International KYC checks. In the different countries of the world, there are different rules and regulations,

Australia

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the government agency in charge of discovering, discouraging, and disrupting financial system fraud in Australia. Before providing any defined services to any consumer, all reporting organizations must follow customer identification procedures. which includes collecting and confirming information.

Europe

Three anti-money laundering directives have been enacted in Europe since 2016. All of this broadens the reach of KYC obligations to new industries. Necessitating more thorough Customer Due Diligence. Personal Identifiable Information (PII) is also collected, verified, and kept track of through these methods (PII). Customers are also screened against sanctions and Politically Exposed Persons (PEP) lists. As well as unfavourable news, in order to determine the risks connected with each consumer.

A comprehensive Union policy on money laundering and terrorism funding was adopted by the European Commission. This is in order to develop more integrated, harmonic, and robust AML rules.

India

The Prevention of Money Laundering Act (PMLA) of 2002 in India established Know Your Customer (KYC). In a separate document known as the PML Rules. The government also disclosed procedural specifics.  Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority (IRDA) are regarded as the main regulatory body of India. Then they interpret these rules for the organizations under their jurisdiction.

Financial service companies can now use Aadhaar-based eKYC to authenticate the identity of Indian customers electronically.

Brazil

Regulations allowing account opening through electronic means have been in effect since 2016. The Central Bank of Brazil has launched an Open Data Portal. It allows clients with an authorized digital identity to open an account fast in order to simplify the construction of simplified KYC accounts. It also improves information exchange.

Canada

Regulated businesses in Canada must file reports with the Financial Transactions. Also, they should file the Reports Analysis Centre of Canada (FINTRAC). The PCMLTFA (Proceeds of Crime (Money Laundering) and Terrorist Financing Act) is the federal statute that governs KYC and AML procedures.

New Zealand

New Zealand is a pioneer in the field of electronic identity. The RealMe system in the country allows users to give identity verification for online services. It helps to log in to government services with ease. All accounts must undergo normal Customer Due Diligence. Which reporting businesses are also required to do.

UK

The United Kingdom has strict AML and KYC legislation and regulations. Individuals and corporations must comply with identification verification regulations. The Financial Conduct Authority (FCA) – the UK regulator for financial services firms and financial markets — is well renowned for its forward-thinking commitment to innovation and advocates a risk-based strategy. Which concentrates on outputs rather than particular AML regulations and guidelines.