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 service providers are now facing both the 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, virtual currencies to launder money with new digital banking systems. Digital banking services are popular with money launderers because of the anonymity offered by the 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. Similar to that, the Financial Action Task Force (FATF) has also released its guidance on digital identification and compliance with KYC and AML regulations.
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:
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.
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 includes:
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:
By employing instant online document verification technology, banks, financial institutions, and FinTechs can improve their digital banking methods.