KYC and AML compliance

Last updated on August 5th, 2024 at 02:50 pm

If you’re a banker or a financial industry decision-maker, you already understand how much due diligence is required to keep the business safe and operational.

The more knowledge you obtain about your clientele and the customers you serve, the more prepared your business will be to serve those customers. This information can protect your business from those who may look to conduct criminal activities using your establishment, including money laundering or financing terrorism.

When running a financial institution you need technology that can effectively prevent financial crimes from damaging your business. Fortunately, IDScan.net has the technology your financial institution needs to ensure compliance and safety.

With KYC technology from IDScan.net, your business can seamlessly integrate this AML compliance technology into your everyday business practices.

What are KYC and AML?

KYC and AML are often used interchangeably but refer to two different methods for preventing financial crime. As crime trends and methods for conducting criminal activity against financial institutions evolve, both KYC and AML regulations and methodologies have adapted to these new security breaches over the years.

AML stands for “anti-money laundering.” Money laundering is an illegal scheme that conceals the origins of money that is obtained through illegal means. To “clean” the “dirty” money, criminals will pass the money through banking transfers or commercial transactions.

AML encompasses the anti-money laundering laws and regulations that are required for financial institutions in order to prevent criminals from being complicit. There is a wide range of regulatory processes that must be in place which are mandated by national and international authorities.

KYC stands for “know your customer,” which is a key component of AML regulations. The primary purpose of KYC is to verify customer identity. Know your customer processes should be done early on during customer onboarding. KYC technology can streamline the entire process, making it more efficient for both your business and the customer.

IDScan.net offers Know Your Customer solutions for mobile and in-branch onboarding. Our instant mobile ID validation accelerates and simplifies identity validation and can be used on its own or integrated into an existing app. Third-party checks are available for both mobile and in-branch solutions to take identity validation a step further, with options for DMV, address, and IdentiFraud validation, along with criminal background, watchlist, and PEP checks. IDScan.net’s solutions make it easy to stay compliant and protect your business.

CDD and EDD

As mentioned, due diligence is vital for running a financial institute. Two key processes that create KYC are Customer Due Diligence and Enhanced Due Diligence.

Customer Due Diligence (CDD) is a basic process where a customer’s risk profile is evaluated, usually by using the information from the customer’s ID. Enhanced Due Diligence (EDD) is for high-risk customers – such as those that pose a threat of money laundering or financing of terrorism – that are more highly regulated and monitored than most other customers.

Reducing human error with IDScan.net

At IDScan.net, we offer solutions that can reduce human error and make your AML and KYC systems more efficient. All information from an ID is automatically populated into applicable fields, reducing typos or other possible errors.

IDScan.net offers 3rd Party Checks to verify identity checks against watchlists. The 3rd Party Checks will translate the information collected from the subject’s ID and will search it against any criminal background checks or PEP (Politically Exposed Person) watchlists.

All of this information is then automatically stored and easily accessed with IDScan.net’s integrated VeriScan technology. This is also beneficial for financial institutions because regulations often require record storage systems to be secure and up-to-date, which are key traits of all of IDScan.net’s complete solutions.

KYC with mobile transactions and DIVE API

KYC with mobile transactions are a relatively new technology that is becoming increasingly essential for running a financial institution. Fortunately, IDScan.net has a solution for mobile onboarding that can easily integrate in to existing apps, or be used on its own to verify identity.

IDScan.net’s document verification service (DIVE API) is an application specifically made for KYC-driven solutions. Our DIVE API technology works by having customers take three different pictures, which includes a selfie of the customer, a picture of the front of their ID, and a picture of the back of their ID. The ID and selfie are then validated the following ways:

Document Format Validation

IDScan.net has a robust library of drivers’ licenses and government IDs to ensure the ID is formatted correctly.

Front-Back Cross Match

IDScan.net’s technology compares the information in the barcode to that displayed on the front of the ID to check that it matches.

Address Validation

When an ID is scanned, the mobile validation technology sends a query to the USPS database to confirm the address on the ID exists.

Facial Matching

Using facial recognition technology, a confidence percentage of the facial is calculated. With IDScan.net’s guidance, the institution can set a threshold to determine when to reject the individual. All facial recognition goes through anti-spoofing measures to check that the selfie is real.

Our DIVE API can work to solve your pain points and give your financial institution peace of mind and the ability to keep up with KYC protocols on mobile.

AML regulations

There are anti-money laundering regulations around the globe. Because there are developing rules and regulations surrounding anti-money laundering in the U.S. and around the world, financial institutions must be ready to adapt to these ever-changing mandates.

AML compliance will require your business to financial regulators and legislation that could be imposed any given year on a state or federal level.

Here are some of the AML compliance regulations and organizations that your financial institution should monitor:

Financial action task force (FATF)

The FATF was established in 1989 and has a global reach for AML compliance. Aside from the United States, there are 38 other countries that help to form the FATF’s regulations, including the UK, Australia, China, Russia, and Japan.

The FAFT is dedicated to combating money laundering and the financing of terrorism. The organization sets the standard for AML compliance and monitors effective implementation.

In order to comply with the FATF, financial institutions must implement KYC, ID verification measures, maintain records, and monitor accounts for suspicious activity.

Bank secrecy act (BSA)

The BSA is the United States’ chief anti-money laundering regulation that works alongside the Financial Crimes Enforcement Network (FinCEN).

Financial institutions must comply with all written policies and procedures mandated by the BSA. This includes employee training, audits, and appointing a compliance officer. Such businesses may also be required to file a variety of reports under the BSA, including Suspicious Activity Reports and Currency Transaction Reports.

Organizations that don’t comply with BSA regulations can face prison time and fines of up to $250,000.

5th and 6th anti-money laundering directives

The European Union’s 5th Anti-Money Laundering Directives have been in effect since January of 2020. The 5th Anti-Money Launder Directives covers cryptocurrency regulations, reporting obligations, and regulations over cryptocurrency. A draft of the 6th Anti-Money Laundering Directives was released in late 2018, but the regulations will not come into effect until June of 2021. The 6th AMLD extends the definition of money laundering and gives harsher punishments for those convicted of money laundering in the EU.

Frequently asked questions about KYC and AML compliance