Author: John Paul

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Digital Account Opening and BSA Teams

BSA Teams

Small and large businesses are the same as they are required to follow the same Bank Secrecy Act (BSA) regulations. The associated costs and workload are manageable for big institutions with big teams, but it’s tough for smaller compliance teams. Fortunately, by implementing digital compliance tools, banks of all sizes can enhance their compliance procedures. Automated compliance tools enhance customer experience, boosting the acquisition and conversion rate of customer onboarding.

Online document verification software and online ID verification software have the potential to relieve pressure on manual compliance teams. Online verification platforms are designed to automate workflows and reduce the risk of fraud and false positives. Banks that operate with automated solutions improve compliance efficiency by more than 50%. This also reduces the workload from BSA teams and enables a renewed focus on big-picture compliance initiatives.

Complying with The Requirements of the Bank Secrecy Act

Maintaining compliance with BSA regulations can be highly expensive for most banks. Community banks may not have the budget to manage personnel for potential fraud cases. To be able to comply with the allotted time limitations is tough and expensive. However, the costs for non-compliance are even more as regulatory bodies tend to charge huge fines.

In theory, BSA providers have to use protective measures. The result is that most banks are hesitant to invest in the latest technologies or services because of how they’ll affect compliance. Even the most common banking procedures like bank account opening can become inefficient if the staff has to spend a lot of time on KYC/AML procedures.

How does Digital Banking Impact Compliance?

BSA teams usually find that legacy technologies aren’t compatible with the development of fast and accurate compliance workflows. The alternative is new technologies that can replace legacy systems to automate key procedures. Newer and more advanced technologies should also maximize compliance protection programs. The U.S. Department of the Treasury has stated that technological innovations are vital for smooth BSA compliance.

The best technologies for account opening offer multiple benefits.

1. Automates KYC/AML Evaluations

KYC and AML compliance during the account opening is the foundation of BSA compliance. Technologies provide workflows that are built to analyze data and context clues vital for detecting fraudulent activity while providing fewer false positives.

Banks can set up unique technologies to build a comprehensive profile for each applicant. Banks have to control every element of the KYC decision workflow in real time.

2. Reducing False Positives

Any transaction monitoring system generates a lot of false positives. False positives just add to human hours as they have to be investigated quickly and reported if they seem suspicious. And its worst, banks close down legitimate accounts or reject worthy applicants as a caution against false positives.

BSA/AML automation systems trigger way too many false positives which increase the burden on the BSA compliance team instead of reducing it. Doing identity checks is important but if the technology is profiling most applicants as suspects, then the solution isn’t doing the job necessary. The right type of technological solutions aims towards reducing false positives offering the BSA team relief from the overload of work.

3. Streamlining the Compliance Process

Using ideal digital solutions offers your compliance team a few critical advantages to maintain compliance. Automation is the key to success. Manual interventions slow down the processes, be it account opening, fraud investigation, or auditing. When certain factors are effectively automated, the staff has room for managing other tasks. With the right automation steps in place, your team has the bandwidth to address the risks as they emerge, thus streamlining the compliance process.

Automation of BSA Compliance to Stay Competitive

Digitization in banking comes with a lot of perks, this also reduces the workload for the bank’s BSA teams, in turn improving compliance efforts to avoid fines by regulatory bodies. Using digital account opening software isn’t just a way to streamline compliance, it’s also an opportunity to improve competitiveness by offering customers easy-to-use solutions.

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How Digital ID Verification Can Mitigate Crypto Fraud

ID Verification in Reducing Crypto Fraud

Cryptocurrencies have seen incredible growth in the last decade and they are emerging as a mainstream market and a viable investment choice. The digital currency has become more famous since the Covid-19 pandemic. While the pandemic has ruined the growth of many industries, it has advanced and expanded the use of online banking and digital payment services, and digital assets like cryptocurrencies.

While the growth is good news, the bad news is that cybercriminals love the use of digital money. The use of digital currency is like a magnet for criminals because of two primary reasons.

  1. Global online access to money
  2. Complex and confusing systems make money laundering easier

With an unregulated market, cryptocurrencies are loved by fraudsters all over the world. Identity verification solutions assist in making cryptocurrencies safe for users. As the cryptocurrency markets are growing, the need for robust ID verification solutions is needed even more.

Exchanges Need to Enhance their Rules & Regulations

One of the major reasons why money laundering and other cybercrimes are growing in the cryptocurrency market is that not all exchanges have weak ID verification methods in place. According to a study, 56% of cryptocurrency exchanges have weak or nonexistent KYC policies that do no good to prevent money laundering.

To make things worse, some exchanges intentionally hide their country of origin to avoid complying with any type of KYC guidelines. This only plays a helping hand in the global money-laundering problem.

Compare this with banks and financial institutions, which are using groundbreaking ID verification technology using AI, Machine Learning & massive data sets to manage increasingly strict regulations.

Some major cryptocurrency players keep up with the demand for improved AML/KYC compliance. Using third-party solutions is a more effective solution to onboard the customers.

Banks and Regulatory Bodies Want Crypto Verified

Tons of banks still consider crypto as a volatile currency and full of risk. A reputation that is upheld by constant cases of fraud and poor crypto exchanges. These behaviors don’t foster the atmosphere of trust that is vital for the future of cryptocurrencies.

Digital currencies need to create trust among users and make them a part of mainstream financial services. Better monitoring and analysis capabilities will help mitigate the opportunities for bad actors to hide illicit financial activities among legal transactions. Also, the compliance regulations must not hinder the user experience.

One way for crypto exchanges to smoothen the frictions associated with AML/KYC compliances is by using Machine learning technology.

A survey showed that 80% of compliance professionals believe that machine learning could potentially improve the reduced compliance risk. Machine learning solutions are already in place at multiple banks, with a majority of $1 million annually for building strong ID verification solutions.

DIRO Online Document Verification for Secure Crypto Transactions

Cryptocurrency exchange needs to employ strong robust KYC/AML procedures to reduce the risk of increased fraud. DIRO’s online document verification solution verifies documents like bank statements, utility bills, driver’s licenses, and so on. Verifying documents is one of the primary methods of eliminating fraudsters using cryptocurrency for money laundering.

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Secure Online Payment Processing Practices: Protecting Customers and Businesses from Risk

Secure Online Payment Processing

Fraudsters are always looking to exploit the weak points in a system, be it ordinary banking activities or online payment. Shoppers can’t just stop making online payments due to the fear of being exposed. Customers deserve a smooth, friction-free, and secure payment experience and it’s the responsibility of a business to make that environment.

To protect customers and the business from fraudsters, merchants need to understand the best parameters and best secure online payment processing practices. By employing the best practices for secure online payment processing, businesses can ensure that every payment goes through seamlessly, be it credit cards, debit cards, or digital wallets.

Three Factors for a Secure Online Payment Processing

There are several factors that payment merchants should keep in mind while trying to build a secure online payment environment. The payment method should provide a smooth and simple experience for all types of payment methods, including credit and debit cards and digital wallets. Here are the three factors to consider to reduce payment risk:

  • Fraud
  • Security
  • Compliance

1. Fraud

How well a business manages fraud will determine its success. Fraud management is the key to businesses and may require changes to the payment methods and additional buyer identification verification. A high level of fraud can result in credit card companies stopping a merchant’s right to process payments, and it can lead to reputation loss for a business.

2. Security

As fraudsters try to find and exploit the weaknesses of a payment processor, it is up to the merchants to find all possible vulnerabilities and fix them. This will help in building a secure online payment processing environment. 

3. Compliance

Merchants need to follow the regulatory rules and regulations dictated by regulatory entities, as per their geographical location. These rules and regulations are built to protect customers and businesses from all fraudulent activities. Payment merchants need to have a clear understanding of the regulations that they’re obligated to follow to ensure secure payment processing for customers and businesses.

Best Practices for Secure Online Payment Processing

1. Matching IP Address and Billing Address

Checking the details available during a transaction can help in uncovering fraud in real-time. This can help businesses save huge sums in terms of both money and resources. Payment merchants can use the latest technologies that help in verifying the IP address of the buyer with the billing address mentioned on the credit card to verify if the credit card holder is a genuine buyer. 

2. Encrypt Information

SSL (Secure Sockets Layer) and TLS (Transport Layer Security) are standard practices that can be used to encrypt data when browsing the internet. Securing transactions with SSL protocols ensure that sensitive information is encrypted and can be accessed by the authorized recipient. 

3. Use Payment Tokenization

To build a secure online payment processing environment, merchants can use credit card tokenization. Credit card tokenization can de-identify sensitive information by converting it to a series of randomly generated numbers known as “tokens”. As a token, information can be sent and received through the internet and payment networks without sharing information that can lead to a customer being exposed.

4. Make Strong Passwords Mandatory

Fraudsters gain access to millions of accounts annually just by guessing commonly used passwords, such as names, birth dates, and common words. Merchants and eCommerce businesses can protect customers by requiring them to use stronger passwords. In case a customer forgets their complicated and secure password, they can reset it by using the “forget password” option. 

5. Leverage 3D Secure

One of the easiest ways fraudsters gain access to a consumer’s accounts is by guessing the passwords. 3D secure is a method of customer authentication designed to prevent unauthorized use of credit cards and protect eCommerce merchants from losing money in a fraudulent transaction. 

Payment merchants, credit card networks, and financial services institutions share necessary information among themselves to authenticate transactions. All merchants are required to comply with the latest regulations by the EU for better online customer verification and 3D security is one of the best ways to achieve this. 

6. Request CVV

The CVV (Card Verification Value) should be made mandatory across all payment networks. This CVV should be asked before every transaction for authenticating the user of the card, this can prevent “card-not-present fraud and fraudulent transactions over the phone.” Even if your credit card numbers have been exposed, asking for CVV information can help in the prevention of fraudulent transactions. 

7. Use Strong Customer Authentication

SCA can be leveraged by payment merchants and credit card companies to reduce fraudulent transactions significantly. SCA contains two or more elements to authenticate a customer. It requires something you know (a password or PIN) and something you have (a badge or smartphone), or something you are (fingerprints or voice recognition).

8. Continuous Monitoring

One of the best practices for secure online payment processing is continuous monitoring. Merchants need to use a payment gateway that automatically detects and manages fraudulent activity. With built-in fraud management, businesses can set rules, based on their situation and tolerance for risk, that limit or reject transactions that seem suspicious. 

9. Manage PCI Compliance

Merchants that process, store or share credit card data are required to be PCI compliant as per government rules. If a non-PCI compliant business suffers a data breach, they can end up paying hefty fines and penalties, plus they’ll have to deal with reputation damage.

Payment processors play a huge role in helping out merchants and maintaining compliance, but businesses should take a proactive role in understanding compliance requirements.

10. Train Employees to Detect Fraud

A business is as good as its employees. It should be the responsibility of a business to provide its employees with enough knowledge and skills to recognize suspicious activities and how to deal with them. When the team understands the secure payment process, they’re better prepared to identify fraudulent activities while they’re underway.

By using these practices for secure online payment processing, businesses can reduce the risk of fraudulent transactions while improving brand reputation and customer experience.

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Importance of Client Onboarding: 5 Reasons for a Smooth and Seamless Onboarding

Client Onboarding

The client onboarding process is the first step in a customer-business relationship, so businesses need to make sure that the first impression is the best one. The moment a prospect becomes a client, a smooth and seamless customer onboarding process is crucial.

Unfortunately, complying with KYC and AML regulations has made this customer onboarding process incredibly tough and challenging for businesses. Since their first introduction in the 1970s, the total amount of laws and directives has increased significantly with annual updates. The regulatory bodies have been raising the bar for compliance, thus making the client onboarding process incredibly tough.

Under these circumstances, it’s more than important to onboard clients simply and seamlessly. Current onboarding practices, however, are often cumbersome, time-consuming, tedious, and frustrating. That’s why the importance of customer onboarding is growing which enhances customer experience.

In this article, we’ve mapped out why a business needs a simple and smooth client onboarding process and its benefits.

What Is a Good Client Onboarding Process?

One client onboarding survey found that banks themselves consider their onboarding process inefficient for the customers. Some banks and financial institutions even stated that they still rely on a paper-based customer onboarding process.

As customers are becoming technology-friendly, this process needs to be changed. Therefore, businesses need to understand the basic attributes that make for a “good” client onboarding process. 

There are a couple of things that make for a good client onboarding process.

  • Simple Process
  • Smooth Process
  • Seamless Process

A user-friendly process should be a priority while building a customer onboarding process. The ideal customer verification process sets the tone for a robust and long-lasting client relationship.

The client onboarding process should also comply with all the KYC and AML regulations. These regulations are also used to support risk assessment, it includes a long list such as Anti-Money Laundering (AML) practices, and Know Your Customer requirements. In an ideal customer onboarding process, compliance shouldn’t slow down the customer onboarding process. 

A good customer onboarding process should be fast and with a quick response time. An average customer onboarding process often takes 2-3 weeks. This needs to be changed, and the client onboarding process needs to be replaced with the online customer onboarding process. This can be achieved by leveraging technologies such as online KYC verification software, online AML verification software, or online customer document verification process.

What’s The Importance of a Good Customer Onboarding Process?

There are 5 biggest reasons why businesses should have a seamless client onboarding process:

1. Demonstrate Own Value

First of all, the implementation of a smooth and simple client onboarding process allows for a company to build healthy and loyal customer relationships early on. A good customer onboarding experience goes a long way and it stays with the customers during their relationship. First impressions of these onboarding processes count, and missed opportunities to demonstrate your company’s value.

2. Exceed Client Expectations

This is a huge reason for building great customer onboarding experiences. The customer experience can be significantly improved by implementing a simple, smooth, and seamless client onboarding. Companies can make this happen by introducing a user-friendly process for onboarding. Customers are accustomed to tiresome and tedious processes and they can be pleasantly surprised when they experience a smooth operation.

3. Increase Efficiency & Revenue

This is another reason for banks and financial institutions to build an ideal customer onboarding process. Financial services companies should focus on enhancing their process as much as possible and make that visible for the client onboarding process. The drive for efficiency should enhance the customer experience. 

4. Customer Satisfaction

If a business fails to build an impressive customer onboarding process, it’ll end up losing customers to businesses that offer better processes. There’s no business that wants to lose customers instead of acquiring them. A good customer onboarding process will bind your clients to your company. 

5. Improve Regulatory Compliance

The final reason for building a smooth customer onboarding process should make sure that all parties comply with all the rules and regulations. This part isn’t actually easy. However, a smooth and simple client onboarding process with proper AML and KYC compliance can happen by leveraging technologies.

Benefits of Client Onboarding Process

The benefits of a good client onboarding process include a variety of considerations, such as:

1. Increase Efficiency

  • Boost customer onboarding time by eliminating unnecessary touchpoints.
  • Always stay compliant with the right set of requirements.
  • Reduce costs by increasing efficiency

2. Enhance Business Potential

  • Increase the scalability of business by understanding requirements across major jurisdictions.
  • Minimize risks and misconduct by understanding the regulations.

3. Try to Boost Client Satisfaction

  • A simple, smooth, and fast customer onboarding process is equivalent to limited interactions, which leads to increased customer satisfaction.
  • Increases the reputation of the business by adding real value based on great customer experiences.
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Best AML Compliance Rules for Fraud Prevention

aml compliance rules

Money laundering schemes are almost impossible to detect if a financial institution doesn’t have a proper anti-money laundering compliance regulations program. Money launderers leverage internal systems of businesses like FinTechs, banks, insurance companies, cryptocurrency dealers, gaming platforms, casinos, and other financial institutions to move illegal money around to make the money look legit. The flow of money laundering can be disrupted following AML compliance rules.

The primary goal of anti-money laundering rules is to uncover abnormal patterns between millions of transaction data, generated every day with financial accounts. By implementing regulations that have been outlined by AML laws in the Bank Secrecy Act (BSA) and the USA Patriot Act, financial institutions and related service providers can help regulatory bodies and federal law enforcement agencies and prevent the flow of money laundering. In this article, we’ll discuss the top 10 AML rules for compliance programs.

What AML Compliance Rules Do I Need to Consider?

While building a successful AML compliance rule program, firms need to meet a minimum standard set forth by the federal government. If a financial institution, does not meet these standards, government agencies such as:

  • Financial Crimes Enforcement Network (FinCEN)
  • Financial Action Task Force (FATF)
  • Financial Industry Regulation Authority (FINRA)

If financial institutions fail to follow through on the rules and regulations, these agencies can fine the institutions.

Compliance teams need to make sure that all the regulations apply to a financial institution and its specific business type and locality. Businesses need to develop proper methods and internal controls, including risk assessment and customer identification programs, to fulfill the due diligence requirements.

Anti-Money Laundering Rules for Compliance Program

Complying with anti-money laundering rules can be challenging for businesses of all scales. As all businesses have different risk factors and appropriate thresholds. However, there are some basic rules that every financial institution needs to follow. 

Below, we have mentioned 10 rules for anti-money laundering compliance programs, and these rules are the first point in building a successful compliance program.

1. Structuring Over Time

Structuring is a money-laundering activity that involves splitting the transactions into multiple smaller transactions to avoid reporting requirements. This rule should detect an excessive proportion of transactions below the reporting limit. Financial institutions are required to report transactions over $10,000, so banks need to look for transactions that are just below $10,000.

2. Profile Change Before a Large Transaction

This rule is for identifying instances where customers make profile changes to PII (personally identifiable information) shortly after making a huge transaction. This often signifies account takeover or potential “transaction layering” activity to obscure the path of the funds.

3. Suspicious User Financial Behavior

Another common rule for anti-money laundering is keeping track of suspicious financial behavior. Financial institutions should look forward to identifying transactions that are different from an individual’s usual spending behavior. You should also look for behaviors that are not common for a financial party’s financial profile. 

4. Increase in Transaction Volume/Value

This rule for anti-money laundering should help in identifying parties with high pay-out transaction volumes or a significant increase in the value of a party’s outgoing transactions compared to their recent average.

A rule like this is perfect for a P2P payment network with the capability to withdraw funds to an external account. The rule should filter out entities that have their bank accounts for a short amount of time and parties with a low balance and low outgoing transaction value over the relevant time window.

5. Circulation of Funds

Circulation of funds happens when individuals pay themselves using different accounts. This rule should detect situations where:

  • The party deposits casino checks
  • Purchase of bank drafts that are used at casinos
  • Casino checks whose memo indicates that the funds aren’t the result of casino winnings

This rule should also look for transfers between parties that have the same IP address.

6. Excessive Flow-Through Activity

This rule for anti-money laundering should help in identifying parties where the total value of the credit is similar to the total value of debits in a short period. A rule like this should be perfect for a financial service that offers a collection of funds where there won’t be comparable spend activity.

7. Low Number of Buyers

For platforms that see several buyers, interacting with a single seller, the rule should detect merchants that only receive from limited buyers. This can help regulatory bodies uncover collusion and circulation of funds. This rule for anti-money laundering should only look for accounts older than a specific time period.

8. Low Communication Between Buyers and Sellers

Platforms that keep track of the frequency of communication between buyers and sellers on the service, this rule can also identify merchants with high earnings but very few sent messages, which can indicate money laundering instead of normal business activities. 

9. High-Risk Jurisdiction

This rule for anti-money laundering compliance relies on geographic-based risk factors for countries and regions where money laundering is common. Some examples of risk categories include high banking secrecy, high financial crime, high drug trafficking, and known tax-evading countries. 

It’s important to keep this AML program rule updated based on the latest information. For example, in June 2021, the FATF updated its list of the geographical locations under monitoring to also include Haiti, Malta, the Philippines, and South Sudan. Ghana was removed from the list after new information. 

10. Anonymous Source of Funds

The last AML Program rule should look out for situations where the party sends funds into decentralized exchanges and then extracts the funds, which is used to anonymize the funds. 

It can also help in identifying when the party converts the currency into gaming tokens and then withdraws them for money laundering purposes.

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Virtual Debit Cards: Everything You Need to Know

virtual debit cards use

As the name suggests, a virtual card isn’t a physical card made of plastic, it’s just a set of sixteen digits like a credit card number combined with a CVV code that’s generated using the software. Virtual cards can be both debit and credit cards.

What’s a Virtual Debit Card?

A virtual debit card is the same as an ordinary debit card, but the randomly generated number is linked to a debit account instead of a credit card. These virtual numbers act just like a debit card and they can also be used to make purchases remotely, although a user can’t use a debit card to make in-person purchases. 

When charges are made using the virtual debit card number, the amount is detected from the linked bank account. However, people can’t trace the number back to the originating account or access money by using the number. 

What’s a Virtual Credit Card?

A virtual credit card is also a series of 16 numbers that are generated at random with a CVV code that these numbers can be used to make goods and services online. Charges can be made with the card numbers online or on the telephone, but you can’t use a virtual credit card in person.

When a card number is generated, the charges are linked to the original credit card number. Similar to a virtual debit card, a virtual credit card can’t be traced back to the original card, and it will not work after the purchase.

What is a Virtual Card Used for Payments?

Virtual card payments are payments that happen online or over the phone without cash or check transactions. These payments are done using the generated numbers securely. 

When payments are made online, hackers who steal the generated numbers will not be able to use them. The numbers stop working after you’ve made the payment and they won’t work to allow access to your accounts or your company. Virtual payments can help to reduce invoices and enhance the payment process.

Who Needs Virtual Cards? Why are they Used?

Virtual credit and debit cards are incredibly famous among consumers and now businesses are also beginning to use them. They are also used to make purchases remotely and prevent fraud. 

Since the numbers are basically throwaway numbers, hackers and thieves have no use for them. When you choose to use virtual credit and debit cards, you can eliminate the chances of card fraud. Your employees also won’t be able to use the numbers to make unauthorized purchases.

Virtual Cards for Business: Good Idea or Not?

The use of virtual debit cards can allow businesses to eliminate the need for drafting checks. They help in saving businesses from fraud and using virtual payment methods can help you save time and money.

The owner of the card can restrict what can be purchased and what can’t be purchased from virtual numbers that you generate. You can also save money on transaction costs that might otherwise be involved with requisition forms, PO (purchase orders), invoice processing, and checks. Using virtual debit cards can also help in streamlining the payments and your expense management. 

Where Can You Use a Virtual Card?

As virtual cards are not physical, they can only be used to make purchases online or via telephone. You can’t take a virtual number to a physical store and expect to pay for goods with it. Virtual numbers can be used online or via telephone to make purchases from companies that accept all the major credit cards including Visa, Discover, Mastercard, or American Express. Once they’re used, the numbers expire and are worthless. If you want, you can set an expiration date that allows purchases to happen for a couple of days, and then the card can expire. 

How Can You Add Money to the Virtual Card?

To add money to a virtual credit or debit card you need to decide how much money you want to allocate to the card from your debit account and credit card from which it originated. The funds are then automatically transferred to the virtual numbers you’ve selected. 

When you see that the balance is low on your virtual cards, you can refund the money by an electronic transfer from your bank account. There’s no need for you to make a withdrawal of cash from your account to add money to your cards.

How Easy are Virtual Cards to Use?

To use a virtual credit or debit card, you can use proprietary software used by your card issuer. You can generate as many random numbers as you need in a few minutes. The cards allow you to assign spending limits by the day or week. 

Once you’ve generated these numbers, you can distribute them to your employees, and your employees can use them to make payments to suppliers of vendors online or over the phone. The numbers can be charged similar to plastic debit and credit cards.

How Safe are Virtual Cards?

As virtual card numbers can be traced back to your account or credit card, they’re much safer to use for buying products and services from unfamiliar online vendors and suppliers. The suppliers or vendors that you pay money to won’t be able to charge you for more than you’ve authorized, thus saving you from fraud. 

Using virtual numbers and cards for purchase provides you with an extra layer of security, if you generate numbers and forget to use them, there’s a chance that someone will be able to steal the numbers before they expire.

Conclusion: Use of Virtual Debit Cards

You should keep in mind that virtual debit cards aren’t plastic, while they’re known as “cards”, they’re just random numbers that are linked to your existing debit and credit cards or bank account. 

No one can use these numbers to make purchases in a physical store using the numbers and you can limit them to single purchases from specific suppliers or merchants. Some businesses use multiple numbers for multiple vendors and only authorized vendors can use these cards.

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Maintaining Security in Financial Institutions: How Essential is KYC?

common kyc procedure of financial institutions

The 9/11 attack on American soil shook the nation to its core, and the perpetrators used The Hudson United Bank of New Jersey to fund this attack. According to the 9/11 Commission, proper money-laundering safeguards within the financial industry at the time weren’t designed to detect or disrupt the type of deposits, withdrawals, and wire transfers that helped the attackers to commit the crime. After the attack of 9/11 KYC laws were introduced as a part of the Patriotic Act as a means of preventing financial activity and crime.

Why is KYC Implemented for Banking Institutions?

Know Your Customer (KYC) laws were introduced as part of the Patriot Act as a means of preventing terrorism financing and financial crime such as money laundering. As criminals use fake or stolen identities to commit financial fraud, banking institutions have to find a way to distinguish between fake and legit customers. That’s what KYC policies help achieve, the policies require financial institutions to conduct a series of tests to get to know their customers. This should help financial institutions to understand if the customers are who they say they are. 

This makes KYC and Customer Identification Procedure (CIP) vital for banking and with more and more banks supporting online customer onboarding, KYC is becoming even more crucial. Banks, financial institutions, and other businesses need to find technologies that can streamline customer onboarding and KYC procedure and eliminate the risk of fraudsters getting access to financial systems.

Why is KYC Compliance Mandatory?

For decades, the United States Department of Treasury has had legislation guiding financial institutions on the detection and prevention of money laundering. The BSA (Bank Secrecy Act) of 1970 requires financial institutions to maintain specific records like cash transactions exceeding $10,000 and also report suspicious transactions that they think could be linked to money laundering, tax evasion, or any other criminal activities. 

Recently in 2016, the regulatory body ‘FinCEN’ issued new rules that outlined how to strengthen customer due diligence and Anti-Money Laundering strategies. This also requires financial institutions to perform due diligence so they can better understand who their customers are and what kind of transactions they conduct. Any transactions from their ordinary transaction habits can be marked as a red flag. 

To successfully comply with KYC regulations, banks all over the globe spent over $100 billion in 2016 and the cost has since risen by 10% in 2021. Regardless of the growing cost of compliance and huge investments, over $26 billion were imposed as fines in the last decade to financial institutions for non-compliance with KYC and AML laws.

Common KYC Procedure of Financial Institutions

To make the CDD (Customer Due Diligence) process more robust and meet the KYC requirements, FinCEN outlined 4 basic elements for an effective KYC procedure. The 4 elements are:

  • Identifying and authenticating the identity of customers
  • Identifying and authenticating the identity of beneficial owners of legal entity customers (Ultimate beneficial owners).
  • Understanding customer nature and purpose of customer relationship for building a risk profile.
  • Transaction monitoring, monitoring, and updating customer information based on customer risk profile. 

What do Customers Have to Provide During Onboarding?

To keep up with the regulations, financial institutions have to collect and authenticate identity information while onboarding new customers. Different financial institutions have different requirements when it comes to identity information. 

Individual customers who visit the bank for account opening will bring some ID documents (driver’s license, passport, etc), proof of address document, and any other document that is required. The banker then authenticates the documents to verify that the customers are who they claim to be. For onboarding businesses, banks ask for additional information to verify the identity of beneficial owners. Most financial institutions also require a profit and loss statement from businesses.

Opening a new account online significantly toughens the process as banks have to verify digital documents like driver’s licenses, proof of address documents, and others. Building a trustworthy link between a digital ID and an actual person requires a strong customer ID verification process to eliminate fraudsters from the customer onboarding process. This verification process may include biometrics verification, facial recognition, online document verification, and machine learning technologies for verification.

Use of Technologies for KYC Verification

Companies all over the world are using biometrics verification, manual verification, and online document verification software to comply with KYC regulations, prevent online fraud, and provide a better customer experience for customers.

The technologies can be used to enhance trust among customers and also create a seamless onboarding experience.

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Preventing Debit Card Fraud: Strategies, Tactics and Best Practices

debit card fraud prevention

Reports of debit cards, electronic funds, and ACH frauds were up by 32% in 2020 in comparison to 2019, according to reports created by the Federal Trade Commission (FTC). Most customers end up finding unauthorized charges on their account and it can be a hassle for banks to resolve debit card fraud. Fortunately for banks, financial institutions, and customers is that continuous monitoring of accounts can help in protecting your money.

Pros and Cons of Using a Debit Card

No doubt that Debit Cards allow for easy cashless and contactless transactions. Using debit cards has its own advantages and disadvantages.

Pros of Using Debit Card:

  • No monthly bill. That’s probably the best advantage of using a debit card. Every time you make a transaction, the purchase amount is deducted from your current account balance. So you don’t have to worry about paying the bills every month like a credit card.
  • Good for keeping track of your budget. The amount present in your bank is the amount you’re able to spend. Using a debit card with a limited balance can ensure that you don’t blow over your budget. 

Cons of Using a Debit Card

  • Credits are safer than debit cards. Any fraudster who can access your debit card can spend all the money in your account in an instant. If you don’t notice, there’s nothing you can do after the transaction is completed. Until the problem is solved, you’ll have to stay with the loss of your money. Credit cards are different, if someone gets access to your credit card and they make fraudulent transactions, the charges will be reversed instantly.
  • An overdraft fee is often expensive. If you go over your account balance while using a credit card, then you may end up paying so much more than your initial spend. 

What is Debit Card Fraud?

As the name suggests, debit card fraud is when fraud happens when a fraudster somehow gains access to a person’s debit card. Here are some common types of debit card fraud:

  • A fraudster installs a card skimming device on a petrol pump’s card reader or a superstore’s card reader. Then they use the stolen card data to make unauthorized purchases. 
  • Someone finds old statements in your home, steals your account number, and makes unauthorized purchases of thousands of dollars. 
  • Someone can steal a person’s debit card and use the information to steal thousands of dollars. 
  • Customers often get a phishing email and entering your data can lead to fraudsters accessing your data. 
  • A data breach at a bank or financial institution can allow fraudsters to steal personal information.

Difference between Debit Card & Credit Card Fraud

The financial problems created by debit cards can be far harsher compared to credit card fraud. That’s why credit cards are considered a safer option while making a purchase. There are two primary federal laws “Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) which are built for consumer liability in the event of a debit or credit card fraud. 

In the FCBA, credit card users are only responsible for up to $50 in terms of unauthorized transactions. At the same time, the liability of debit card fraud depends on the time taken to report it.

In ETFA regulation, if a person reports their debit card as stolen before any transaction happens. Then the customer isn’t responsible for any unauthorized transaction that happens. If you don’t report your stolen debit card, then the losses you’ll have to bear will depend on when you make the report:

  • Reported Within 2 Days: Up to $50
  • Reported 2-60 Days: Up to $500
  • After 60 Days: It is possible that you may be responsible for all the money stolen

It is vital for customers to keep a tab on the activities that happen in their accounts. Constant monitoring allows both customers and businesses to keep an eye out for red flags.

Preventing Debit Card Fraud: Best Practices

When it comes to protecting yourself from debit card fraud, it is vital to stay on the defense. Constant transaction monitoring will help customers and businesses to keep track of all the out-of-place transactions. Here are the best practices for debit card fraud prevention:

1. Review Bank Statements/Authenticate Bank Statements

Online bank accounts often provide customers with a transaction log where customers can keep track of their purchases. Banks and financial institutions also need to authenticate the bank statements that customers present to the bank to ensure that they aren’t just trying to take advantage of the bank’s policies. DIRO bank account verification software assists in authenticating bank statements instantly.

2. Keep Track of Your Statement

All the physical statements that you decide to keep safe should be kept in a safe place so that no one can access the documents. 

3. Keep Track of Your Debit Cards

As millions of transactions happen daily around the world virtually, not all customers use their cards regularly. It is easy to lose your debit card on the rare occasions that you actually use them. Keep track of your cards so they don’t fall into the wrong hands. 

4. Be Wary About Where You Store Your Data

Avoid storing your debit card number or your PIN on your smartphone. Phishing emails, data hacks, and plain old theft can lead to criminals getting your information.

5. Protect Your Debit Card During Online Shopping

Make sure you don’t shop from online stores that seem fishy. There are some common precautions to take before shopping online:

  • Before entering debit card information on any website, ensure there is an “https” on the website URL. 
  • Phishing scams can cause you to provide sensitive data to fraudsters. Fraudulent emails or texts are the origins of phishing scams. 
  • Consider using a third-party service like PayPal when playing online as these services prevent the websites from accessing your information.
Categories

Digital Banking and AML Regulatory Compliance

aml regulation in digital banking

As banks and financial institutions try to embrace advancements in financial technology, the digital banking sector has grown exponentially. The pace of digitization of banking systems has been reinforced by the covid-19 pandemic. Out of all bank customer onboarding in 2020, almost 65% of them were done with online methods. Unfortunately, as digital banking services become more meticulous, so do the criminals trying to find a way into banking systems.

In a changing and growing financial sector, firms need to prioritize compliance for their digital banking sectors and they need to make sure that they can detect and prevent money laundering and terrorist funding, and other financial activities. Banks and financial institutions need to continue to deliver regulatory compliance.

Digital Banking AML Regulation

Digital banking service providers are now facing both traditional money laundering risks and other risks that have become possible due to technological advancements in the banking sector. Those risks may be the reason for new methodologies such as phishing scams, malicious software, and virtual currencies to launder money with new digital banking systems. Digital banking services are popular with money launderers because of the anonymity offered by digital banking systems.

Global financing authorities are quickly trying to handle these threats and fill in the gap in regulations, by focusing on improving digital banking services. In the United States, the Financial Crimes Enforcement Network (FinCEN) has issued a set of rules and guidelines for organizations dealing with virtual currencies. Europe’s 5th Anti-Money Laundering regulations are a set of regulations for digital financial sectors and cryptocurrency service providers. Similarly to that, the Financial Action Task Force (FATF) has also released its guidance on digital identification and compliance with KYC and AML regulations.

How to Comply with AML Regulation in Digital Banking?

Banks and financial institutions need to make sure that they offer digital services in compliance with AML to reduce the risks of money laundering. Under FATF policies, most financial organizations need to follow a risk-based approach to fight AML. They need to implement an internal compliance program:

  • Customer Due Diligence (CDD): Financial institutions need to set up CDD measures to verify the identities of their digital banking customers. Under the risk-based approach, customers that come under a higher risk of money laundering should be verified with proper due diligence measures.
  • Monitoring Measures: Banks and Financial institutions will need to set up measures to monitor suspicious customer activities during digital transactions. Suspicious activities can include unusual transactions, transactions over the usual limit, or regular transactions with high-risk countries. 
  • PEP List Screening: Screening and monitoring potential customers on PEP (politically exposed persons), international sanction lists, and customer involvement in adverse media stories. Any of these can be enough to deem the customer as a potential risk.

Some rules and regulations require financial institutions to get licenses for certain digital services such as cryptocurrency exchange or features like digital wallets. FATF policies also require organizations to train their employees and appoint a compliance officer to go over all the AML programs.

Digital Banking AML Measures

To manage the new money laundering and digital banking risks, banks and financial institutions need to take new approaches to keep up with regulatory compliance. Firms need to change the way they collect and verify customer data. The most effective factors of a digital AML solution include:

  • Digital Identification: Digital ID systems include biometric verification such as fingerprints and retinal scans. Combine with fully equipped smartphones, both the customers and banks may use those systems for customer onboarding. Digital identities can support more accurate and efficient CDD during onboarding and throughout the business relationship. Technologies such as DIRO online document verification technology can verify customers online by verifying documents such as bank statements, address proof, and utility bills. DIRO’s document verification tech can verify documents instantly thus improving the overall digital onboarding process.
  • Artificial Intelligence: AI technology offers a wide range of opportunities for firms to improve their AML and KYC compliance. AI can help in prioritizing data collection and transaction monitoring. AI-based technologies can also improve the detection of red flags during online transactions and reduce the time and effort banks spend on detecting suspicious activities manually.
  • Blockchain: As cryptocurrency is slowly growing, blockchain technology is also becoming more common among banking institutions. Blockchain is a public distributed ledger and blockchain allows firms to record and verify transactions. The technology could be used to store and encrypt customer information as a secure block of information. The use of blockchain technology within AML regulations would help fight the challenges associated with digital banking.

Integrating Technologies for Smoother AML Compliance

Managing customer data and following compliance in the era of digital banking means leaving the traditional AML rules behind. Embracing smart technologies for verification and automation for a better customer experience. 

The utilization of DIRO’s document verification technology can offer real-time document verification with 100% of proof of authentication. DIRO’s online document verification technology can verify:

  • Bank statements
  • Bank account holder information
  • Proof of address
  • Insurance information
  • Utility bills
  • Student records & many more.

By employing instant online document verification technology, banks, financial institutions, and FinTechs can improve their digital banking methods. 

Categories

Detection and Prevention of Sophisticated Document Fraud in 2021

document fraud

In 2020, the world saw the biggest use of fake and stolen documents for illegal activities. One of the biggest reasons for that is the pandemic that caused millions to face unemployment. We live in a digitally connected world and most of our lives are spent using online services. Digital banking, government tax portals, and digital payments have taken up a huge portion of our lives.

That’s why most fraudsters rely on forged documents and try to avoid document fraud detection. To signify the impact of document fraud, it costs more than $3 trillion annually. It is one of the biggest threats the world can face and it continues to grow. That’s why the best document fraud prevention techniques are required.

Different document fraud types are rising in banks and financial institutions since these organizations have to comply with KYC and onboarding information. Fraudsters use fake documents for various reasons and have a huge impact on the economy. They use the documents to apply for loans, purchase new property, make fake insurance claims, and travel to countries illegally.

All industries support the use of official documents for verification and customer onboarding. That’s why businesses must prevent these cases before fraudsters grandly hurt businesses. Investing in document fraud detection and prevention technologies is the first step toward safety.

Document Fraud Cases for Various Industries

The federal trade commission received over 2.1 million fraud reports in 2020. Imposter scams were the most common type of document fraud and the stealing of online credentials is the second most common type. Businesses lost over $3.3 billion in fraudulent cases by consumers and the FTC received over 4.7 million reports in 2020 about ID theft. 406,365 people reported that their information was misused for numerous illicit activities.

Document fraud types differ from industry to industry. Scammers love going for real estate as there are many types of these frauds. Victims face the consequences of false sale deed filings and fight to prevent getting evicted from their homes. Fraudsters claim ownership of the property using fake documents. They then sue the owners which cost them a huge fee to resolve the issue. Application fraud and identity theft make use of fake documents that are either stolen or purchased off the dark web.

Document Fraud Types

To successfully build document fraud prevention, banks, and financial institutions must be aware of document fraud types. This fraud industry is valued at more than $3 trillion and it’s one of the favorite industries of the fraudsters. The most common document fraud types are:

  1. Forged Documents

As the name suggests, forged documents are files that have tampered information in them. It is up to the fraudsters to change the information completely or partially. Some examples of forgeries in documents include adding timestamps, watermarks, adding or removing pages, and digitally changing signatures. These forged documents are usually used alongside fake identities to commit fraud.

  1. Invoice Fraud

This is a common type of document fraud, this is where an employee impersonates a vendor and makes up a fake invoice. Fraudsters then send these invoices to the company that disburses funds directly to user accounts.

  1. Blank Documents

Blank document is another common type of fraud, it can be used to insert falsified information and these type of documents are leaked from the manufacturing supply chain. In blank documents, blank fields can tamper however they want since they are empty and are needed to be verified.

  1. Camouflage Documents

Camouflage documents are fake identities that fraudsters create to trick banks and other institutions into believing they are someone else. This is a rare type of document fraud but it can be hard to detect if an institution is not directly looking for it.

  1. Counterfeit Documents

Counterfeit documents are something that fraudsters build by copying official documents. Bad actors can use these documents to open new accounts, and gain access to additional credentials. One of the most common uses of a counterfeit document is to use someone’s driver’s license to learn about the social security number.

Document Fraud Detection

Manual verification of documents is the oldest method that banks, financial institutions, and other businesses rely on. But as fraud is evolving, manual document verification can’t keep up. Obvious signs can be detected with document verification, but sophisticated documents can’t be detected with manual methods. 

Technologies like DIRO’s online document verification can help businesses to build document fraud prevention programs and detect forged and stolen documents instantly. DIRO verifies over 7000 document types from all over the globe. DIRO can verify documents instantly by verifying the data from the source. The technology also provides 100% proof of verification backed by verifiable credentials to prevent the use of stolen and fake documents. Businesses need to invest in the right technologies to ensure that the documents aren’t stolen or forged.