Frauds are prevalent in all financial sectors one way or the other. Money laundering, terrorist financing, smuggling of drugs, and human trafficking are all happening due to a lack of compliance with regulations. Another added factor are weak compliance laws through which businesses have to face great consequences such as data breaches, and fraudulent transactions.
Regulatory technologies have made it easier to combat these problems and helped financial sectors in minimising the risk of fraudulent transactions through fraud detection. Transaction screening is one such regulation that aids in making financial activities convenient for all financial sectors that carry transactional activities such as banks, money exchange, etc.
Why is KYC not enough?
With ongoing technological advancements in financial institutions, complying with regulations has become an extremely important aspect to combat financial crimes. Taking into account how criminals are evolving their tactics and how businesses are showing leverage in CFT and AML compliance, regulators are upgrading stringent and harsh regulations for those who break the law.
Therefore, just running to know your customer verification isn’t enough. Businesses need to know each transaction through KYT verification to deter fraud.
Why Is Transaction Screening Important?
Rules and regulations such as United States AML regulations require all financial organisations dealing with transactions to take precautionary steps in detecting and reporting any miscellaneous activity that poses a security threat.
It is important to detect any suspicious activity through transaction screening of invoices, cheques, and other transaction modes in order to comply with customer due diligence and anti-money laundering compliance.
What Is Transaction Screening?
Transaction screening is also known as know your transaction verification is the process of verifying the identities of customers and screening their ongoing transactions. The main goal of KYT is to identify senders or beneficiaries who can possess any risk during transactions and it further aims to stop those financial crimes. Additionally, transaction screening helps in identifying individuals who are on the sanction lists to counter money laundering.
Know your transaction verification is not just limited to screening but it also monitors and analyzes as much information as possible to keep criminals away. Effective transaction screening is also possible through KYT solution providers which are robust, cost-effective, and user friendly. These KYT solution providers allow having all transactions in one centralised location giving financial sectors more control in reviewing and managing transactions and being able to meet regulatory requirements.
KYT Solution Provider
Although transaction screening seems like an easy task, it can be time-consuming and give rise to know your transaction limitations. Financial institutions create policies and systems and work with third parties in order to screen transactions against old and updated regulations and sanction lists.
There are numerous challenges a firm may face when screening transactions such as
- Updated regulatory requirements: New and updated regulations are passed frequently to combat financial crimes, therefore, staying updated on these regulations is challenging
- Missing any individual from the sanction lists due to human error
- Giving rise to know your transaction limitations
Additionally, if a consumer has upgraded his tactics and found a way to launder their illegal funds then both the business and the criminal will be taken to court. Penalties will then be applied to the criminal for money laundering and the business for failing to spot the illicit activity beforehand.
Benefits of transaction screening
Transaction screening has multiple advantages that make it a robust KYT verification
- Targets data that is available in real-time and which cannot be manipulated or changed
- Determines true merchant activities by providing quantitative and qualitative analysis
- Helps generate data-driven conclusions
- Allows highly accurate insights of the customer data
- Exposes concealed websites used for illegal activities and opening further investigation channels
- Exposure of potential risky stakeholders such as ultimate beneficial owners and politically exposed persons
- Reveals any irregular transaction patterns and trends such as transactions to an unrecognisable company or an individual
- Brings forth any shell companies associated with the business that is involved in money laundering, financing terrorists, drug smuggling, or human trafficking
- Able to comply with anti-money laundering, customer due diligence, and enhanced due diligence regulations
To Sum It Up
It is important to realise that know your customer’s verifications is not enough to actually know the customer’s each and every transaction. Therefore all the aspects of transaction screening narrow down to one point in order to tackle high-risk transactions and criminals in no time. Incorporation of transaction verification should be the utmost choice. Apart from being a robust identity verification check, transaction screening has multiple other benefits that cannot go unnoticed. It increases your businesses’ credibility while keeping financial crimes at bay.
