Signzian, Author at Signzy

Future Of Corporate Banking Automation- How Traditional Titans Can Take On Digital Startups

Posted on January 13, 2021 | by Signzian

Introduction

There was a time when Digital Startups in the US struggled to keep up with the highly resourceful Titans in Banking. But times have changed and the Davids in the industry now pose an imminent challenge to the Goliaths. One might ask how the underfunded neo-banks and startups are able to do this. The answer lies in the core essence of any business, they understand what the customer needs and aren’t opposed to banking transformation advancing technology.

Of course, there is no doubt that these little innovators are definitely not in the leagues of big banks like JPMorgan Chase & Co. or Bank of America Corp. But their maximal utilization of minimal resources makes them highly efficient. Thus their growth through the decade is evident.

As of February 2020, a total of 8775 Fintech Startups are functioning in the US. The calculated CAGR of 8.6% will continue to remain the same or close until 2024. A study reported an estimated US $880 Billion total transaction value in the digital payment space alone.

The smaller players are using their instruments to increase their value in the market. They very well know how banking transformation will help them achieve their ambitions. But we need to take a closer look at how they are using the low hanging fruits of retail banking to make their marks in the corporate banking industry.

Process Automation in US Corporate Banking

Corporate banking or business banking serves a spectrum of clientele, ranging from small and mid-sized businesses to giant conglomerates with billions in turnover. The difference between Corporate Banking and Investment Banking lies in the fact that the former is associated with financial operations and business goals while the latter is associated with raising capital for investments. It was differentiated from investment banking after the Glass-Steagall Act of 1933 but was repealed in the 1990s. Now both services are provided by multiple banks.

Corporate Banking brings in huge numbers as it is one of the key profit centers in the industry. This does come at a cost as the largest originator of loans renders it as a source of numerous write-downs for soured loans. They provide multiple services to financial institutions and corporations. Some of them include:

Credit products including loans
Cash management and treasury services
Equipment utilization and lending
Commercial real estate
Financial services for trades
Employer-Employee services

With specialized branches for investment banking, they provide services to corporate clients for securities underwriting and asset management.

Traditionally the corporate banking industry had been dominated by the old and major banks in the US. This includes banks like JPMorgan Chase & Co., Wells Fargo & Co., Goldman Sachs Group Inc., etc. But in recent times niche-specific fintech startups are on the rise and soon enough will constitute a major portion of the market. This is because of their tactical use of technology. With banking transformation, They are automating all the unnecessary manual interventions.

Automation in Banking is the system of utilizing technology to operate banking processes through highly automatic means rendering human intervention to a minimum. To have a thorough idea of the fundamentals of the topic, check out our blog post on Automation in banking.

Most titan banks have advanced from traditional automation processes to RPA methods. But even the age of RPA is over and it is time to adapt to the new norm- Artificial Intelligence(AI). With Machine Learning(ML) and additional advancements in the field, the banks have a long way to look forward to.

How Are The Traditional Banks Using Automation?

Most banks in this segment have been in the industry for decades or even centuries. Some of them like JPMorgan Chase & Co. and Capital One Financial Corp. adapt well to banking transformation. But most of them are too late to the game. Till the 21st century, their established presence in the country alone would have substantiated their dominance. Now, the playing field is changing with the incursion of the internet and digitizations they need to up their game.

It is also noteworthy that most top tier banks won’t be affected to a destructive level due to their enormous presence in the industry. But the ones just below them, who still stick to the traditional methods will be stricken.

The generic provisions of online banking, credit cards, and others. are no longer a luxury for the customer, but a necessity. Now the banks must provide more options to the customer. These include e-wallet payments, digital availing of loans, etc. In 2018 Statista.com reported 61% of Americans use digital banking. They expected it to rise above 65% by 2022. They also reported that 66.7% of all bank executives expected Fintechs to impact e-wallets and mobile payment methods, globally. Where the giant banks stand in this advancing fintech market is yet not definite.

People look for ease of access in areas like lending and loan applications. Even without advanced automation, the numbers are high.

Some important facts about the adoption of automation for the traditional banks include:

With a massive presence in almost all states, the giant banks have too much manpower and machinery. Most of them have over 100,000 employees to handle day to day transactions. Some Automation with a central database and RPA help lighten the load a little, but this certainly is an area of improvement.
Millennial customers are not keen on doing business with giant banks as the experience is not always smooth and easy. Unfortunately, most banks ignore the millennials due to their current low market involvement. But in 30–40 years time, they will be the inheritors of trillions of dollars. For that future securement, smart bankers must think now.
Individuals and businesses now prefer mobile-only banking over standing in a queue. This is an area where digitization is the only solution.
The fact that most banks are well established comes with an additional issue of maintenance. BAI(Bank Administration Institute) reported banks overpay 15–20% for real estate on an average compared to other retailers. Over a long period of time that amounts to a huge amount. This could be reduced if banks were to go remote.
Apart from the conventional facilities offered these banks do not have many attractive features for the customer. Even the rewards provided through credit cards are minimal.
The boon for giant banks is their all-encompassing nature. They are present in all spheres of financial transactions. Unfortunately, this leaves them little room to focus on specific areas. Most of the time this renders them to be all over the place.

What Gives The Fintech Startups An Edge In Corporate Banking Automation?

Previously the startup industry was mostly located in Silicon Valley. Lately, this has changed and fintech startups are booming all across the country. These startups adapt to technology through automation and digitization. Some of the way they use it to provide services to their customers include:

Unlike major banks, the fintech startups are primarily focused on a specific area of banking or finance. For example, Blend focuses on lending and loan sanctions for small business owners. This gives them breathing space to improve their service in that sector.
Since they have limited manpower, they use automation for repetitive tasks and processes. This makes the transactions swift and free of human error.
Since they have mostly remote accessibility and faster response they provide a better customer experience. Much time, effort, and funding is spent on making the user experience good.
They focus on millennial customers and entrepreneurs. The services are calibrated to entertain millennials as in the long run they know a loyal customer base from that generation will pay off.
The millennial population in the US will have more than 78% digital banking users by 2022. Fintech startups acknowledge this, embracing mobile-only banking, and are constantly trying to up their ease of access. Chime and Varo are good examples of successful startups in this sector.
Most of these startups reduce human interaction and use ML and AI technologies for processing and improvement. To avoid a detachment from comfort for the customers, Some of them go to the extent of making their offices feel like cafes instead of formal buildings. The approach encourages a more casual experience in banking than a formal one. This psychological move has a positive impact on people’s emotions since it removes general stigmas.
Easy access to loans as much of the bureaucracy involved is cut down with automation.
Startups like Brex that offer credit cards are on the rise as their rewards systems favor the users much more than other banks’. Even with high debt regret, most users avail credit cards from these providers for their attractive rewards.
Innovative ideas are encouraged as startups are not impeded by bureaucracy. Forwards Financing’s practice of lending money to startups and using their own technology to give access on the same day to the funds is a brilliant move. It attracts most startup owners for quick fund access.
Some of the startups are venturing into uncharted territories like the equity markets and even major Wall Street scenarios. Robinhood and Acorn are good examples.

How Can The Giant Banks ace the game with banking transformation?

The competition has moved beyond basic automation and RPA. Now the banks should focus on newer technology like AI and ML. Better procedures for onboarding and corporate transactions can be done efficiently with automation.

Specifically, the banks should expand their target audience to include the newer generations. Millennials along with Generation Zs will form the majority of the customer base within the next few decades. Learn from the startups on how to provide them with a better experience. Additional services and features will help. The startup Varo provides no-fee transactions and spending habit trackers to their customers along with other bank services. Banks should take note and bring to life such innovative ideas.

As mentioned in the beginning, top tier giants are less likely to be affected, but the banks that fall after the top ten should tread with caution. This is evident as many giants do take some sort of technology adoption to further their market. For example, the top 7 banks in the USA (JPMorgan Chase, PNC Bank, U.S. Bank, Bank of America, BB&T, Capital One, and Wells Fargo) came up with the app, ‘Zelle’. It’s an exclusive digital payments network for these banks.

Capital One also took a step to remove the formal feeling of visiting a bank with a more laid-back type of ambiance by setting up their offices like cafes.

But these initiatives are exclusive to the elite titans. The lesser giants will have to fend for themselves. As most startups pose a competition for them, it is only sensible to collaborate with international companies for digitization and automation. The expenses will be reduced while getting dependable manpower for set up.

Conclusion

In essence, the financial market is more competitive than a couple of decades ago. With emerging technology and even more innovative ideas, traditional methods must be upgraded. With AI expected to power 95% of customer interactions in the coming decade, the banks need to act fast.

Even in the Stock Market Robo- Advisors intend on managing more than $2 trillion in assets in the coming year. Thus all-encompassing banks require to adopt the new methods. If they don’t, in the coming 30–40 years will be the diminishing of their lights. But this is the time to act. Including new partners from overseas and implementing new ideas will help the giant banks to fly high. While the concept of banking transformation has, both, pros and cons, moving forward automation is the way forward for US corporate banks in the years to come.

About Signzy

Signzy is a market-leading platform redefining the speed, accuracy, and experience of how financial institutions are onboarding customers and businesses – using the digital medium. The company’s award-winning no-code GO platform delivers seamless, end-to-end, and multi-channel onboarding journeys while offering customizable workflows. In addition, it gives these players access to an aggregated marketplace of 240+ bespoke APIs that can be easily added to any workflow with simple widgets.

Signzy is enabling ten million+ end customer and business onboarding every month at a success rate of 99% while reducing the speed to market from 6 months to 3-4 weeks. It works with over 240+ FIs globally, including the 4 largest banks in India, a Top 3 acquiring Bank in the US, and has a robust global partnership with Mastercard and Microsoft. The company’s product team is based out of Bengaluru and has a strong presence in Mumbai, New York, and Dubai.

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

How Digital KYC Can Prevent Ponzi Schemes In The US

Posted on January 6, 2021 | by Signzian

Introduction

In the early 1920s, Charles Ponzi created one of the first Ponzi Schemes depriving people of their hard-earned money. After a century, similar scams are on a decade high in 2020. Over 60 alleged Ponzi Schemes with a total of more than $3 billion investor funds were uncovered last year alone. Few reasons for this hike were unsatisfactory KYC check, the pandemic and its aftermath.

The COVID-19 outbreak was a tragic and fearsome event. Unfortunately, many fraudsters thought this a good time to make some unethical profit. The vulnerability of people and their desperate financial state has enabled them to fool the people and take their money. Most of this occurred due to the insufficient and improper KYC checks on such fraudsters by regulatory bodies and financial institutions.

Numerous people fell prey to claims of low-risk high returns schemes and programs. This will not stop unless the authorities make strict regulations for the verification of individuals and enterprises. The fist of justice, though stern is not swift enough. Thus the responsibility falls on the entire financial sector’s shoulders. It is up to banks and financial institutions to have advanced modes of KYC checks for proper verification and affirmation of security.

If nothing is done to ensure better verification of customers with advancing technology, this new decade will be bleak from here on. Let us have a look at how the coming years can fight such fraudsters and how we could have done it before too.

Why Do People Confuse Ponzi Schemes With Pyramids Schemes And MLMs?

In the US, Ponzi Schemes and Pyramid Schemes are illegal while most Multi-Level Marketing(MLM) Schemes are considered legal and people are tricked into investing in the former illegal opportunities. One of the reasons for this is people misunderstanding Ponzi Schemes and Pyramid Schemes for MLM. MLM is a metamorphosed step in direct selling. In MLM, existing distributors recruit new distributors for a capital fee. They primarily sell products directly to consumers without moderators. If the major source of revenue is from selling products and not distributorship, it is legal.

If the business model enables major profit from selling distributorship and minimal product sale revenue, then it is classified as a Pyramid Scheme. This is illegal because, as the recruiting multiplies, it becomes incredibly difficult for new recruitments. This causes sufficient returns for early investors but the later ones are sure to experience monetary loss.

Prima facie, Ponzi schemes resemble Pyramid schemes since both promise high returns with no or low risk. But the mechanics are where the similarities end.

Ponzi Schemes center around fraudulent management services for investments. People invest in funds for ‘portfolio managers’ promising multiplied returns. When the investors demand their money back, incoming funds from new investors are used to pay them off. The early investors mistakenly believe that they have increased profits, while the later investors are outright scammed. The individual who sets this system up controls the entire operation. They exclude any real investments while transferring funds from client to client.

Bernie Madoff’s Bernard L. Madoff Investment Securities LLC is considered the most successful fraud company to pull off a Ponzi Scheme. It still holds up with $65 billion deceived from over 5000 clients. With advancing technology, Ponzi schemes and frauds are expected to rise in the coming decade with at least one to surpass the Madoff ceiling.

The Necessity For Automated/ Digital KYC check

Digital/Automated KYC verification procedures leverage AI, ML, and other advanced technology to ensure clients meet regulatory standards with minimal dependency on internal resources.

This doesn’t imply that high-level decisions are automated, but the majority of legwork is automated primarily through Intelligent Process Automation(IPA). IPA combines collections of technologies that combine, manage, and automate digital processes. It is mainly constituted of Robotic Process Automation (RPA), Intelligent Document Processing (IDP), Artificial Intelligence (AI). Read more about Automation in Banking and Digital KYC.

These technologies are used for automated workflow, identification, verification times, extract data from documents, and to reduce screening. Collecting and analyzing data with IPA and ML provides financial institutions with a more sturdy and instantaneous picture of the client. This is the crucial element in preventing frauds like Ponzi Schemes. The constant surveillance for illegal activities always renders the fraudsters less volatile.

Some aspects of Digital KYC that prevent Ponzi Schemes and other financial fraud include:

Strict identification and verification procedures ensure any malpractice or fraudulence in customers.
More precise execution of processes reducing vulnerability to risk.
Reduced Human errors as the majority of work is automated in a workflow.
Reduced Time required renders responses swift denying time for fraudsters for their schemes.

Recent Ponzi Schemes That Could Have Been Prevented With Automated KYC check

1. Jeff and Paulette Carpoff- 2020

What Happened?- The SEC in January 2020 filed a case against Jeff and Paulette Carpoff, charging them for helming a $910 million Ponzi scheme. The money was obtained from 17 investors in California between 2011 and 2018. They used their solar generator companies to attract investors. But they did not manufacture even half of what was promised. The lease payments committed to early investors were obtained from later investors. The additional money was used for their lavish lifestyle. This included a sponsorship deal with Chip Ganassi Racing for a NASCAR Xfinity Series. Later the couple pled guilty.

How Could It Have Been Prevented?- The financial institutions involved did not conduct proper KYC check and other verification processes with this company in the beginning and when it added new investors. If they had, better transparency could have been maintained and the investors could have seen the scam from afar. The reason cited by the banks for the lack of this diligence was the impracticality of manually attending each investor and company for verification. A digital approach would have created a faster and reliable verification procedure. In essence, a scam like this could have been prevented to an extent with methods like Digital KYC.

2. Woodbridge Group of Companies- 2017

What Happened?- In the winter of 2017, The U.S. Securities and Exchange Commission (SEC) charged Woodbridge Group of Companies with a US$1.2 billion Ponzi scheme. It was helmed by Robert H. Shapiro. Woodbridge and 236 related LLCs filed for bankruptcy on December 4, 2017, in the Delaware Federal Court. This occurred amidst the absconding of relevant position holders and an ongoing investigation. More than 8400 investors fell prey to Shapiro’s scam. Due to the Bankruptcy declaration, these investors received zero returns as opposed to the 5 to 10 percent promised in the beginning.

How Could It Have Been Prevented?-The lack of sufficient financial checks on the individuals involved in the Woodbridge case is evident. Verifications on financial data could have prevented this. Even after the Government setting up federal portals, financial institutions are not using them to their maximum potential. With Digital KYC verification this could be changed and a more diligent form of verification could be introduced. It is high time banks and organizations accept this.

3. Burton Greenberg and Bruce Kane- 2015

What Happened?- A relatively smaller scam by Burton Greenberg and Bruce Kane in the state of Florida is worthy of notice. The fraudulent scheme ran for nearly a decade but came to a halt after the FBI arrested them on October 7, 2015. The scam operated with the name “Global Financial Fund 8, LLP”. They obtained millions of dollars from investors. It was used for personal expenses while they were assured safety of investment. Much of the money was found in institutions overseas including Turkey, Switzerland, and Italy. The two were sentenced to prison in 2016 after more than 9 years of scamming people.

How Could It Have Been Prevented?-Such individual and nuclear cases of Ponzi schemes mostly go unnoticed due to their lesser magnitude. But in time multiple of these add up to a great extent and can cause major crises- let us all not forget 2008. With diligent inspection on entry, such fraudsters, especially ones with previous records could easily be identified. Soon enough in the next decade, these fraudsters are going to use advanced technology to trick institutions and individuals. It is only sensible to upgrade the existing systems KYC check to meet such demands.

Conclusion

Ponzi Schemes are no new ideas. Fraudsters infuse technology to this brilliantly vice idea and seem to have no intent to stop it anytime soon. But we can’t let the public be the victims. Necessary measures need to be taken for safety. As always, nipping the problem in the bud is the most advisable solution. This requires authenticating the customers and the organizations. For this, using technology is not just a brilliant strategy, but an unavoidable one.

The financial sector has always adapted to technology swiftly. Even government bodies in this sector are keen on upgrading their security and processing. Since Ponzi Schemes and other financial frauds are projected to increase, necessary steps need to be taken. Digital KYC is one step towards this.

It is time the individual institutions in the sector acknowledge this and adapt. This will keep them stay ahead of the curve. The reluctance expressed by banks and financial organizations are understandable but rebounding. An early adaptation to technology like Digital KYC will only benefit them.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

Impact of E-Stamping On Indian Rental Economy

Posted on January 5, 2021 | by Signzian

E-Stamp paper or electronic stamp paper is an online application through which Stamp Duty can be safely paid to the Government. Government transactions need payment of non-judicial stamp duty. However, doing so in a conventional way would be a time-consuming process. Stamp papers are mostly used for creating rental agreements.

The law mandates that a certain amount has to be paid to the Central/State Govt. each time certain kinds of transactions take place. Such payments are referred to as Stamp duty. Examples of such transactions are buying and selling real estate, business agreements, leasing property, etc.

Stamp Duty is never paid in cash transactions. Instead, Stamp Papers equivalent to the payment value is purchased. Then the deed is printed/typed/written on it. Stamp papers evidently show that the required Stamp Duty has been paid to the Govt. It behaves similar to receipts.

The amount to be paid towards duty differs from state to state. In case a state does not possess its own Stamp Act, it will be overseen by the Indian Stamp Act.

The Backdrop of E-Stamping — How It Came About

In 2019, the Indian Stamp Act of 1899 was amended for the purpose of preventing tax evasion. The amendment was to be officially legislated from April 1, 2020. However, due to the outbreak of COVID–19 the amendment was delayed to 1st July 2020.

The process of E-Stamping is one of the simplest ways to fulfill an agreement. For this, a web portal is available where the payment for the stamp duty can be made. The e-SBTR (Electronic Secure Bank and Treasury Receipt) system enables E-Stamping for the authorized bank. This reduces time and other administrative expenses.

So What Is E-Stamping?

E-Stamping was launched to enhance the stamp duty payment method. Stock Holding Corporation of India Limited (“SHCIL”) is responsible for all the e-stamps utilized in the country. SHCIL is a body appointed by the Central Government. It is also responsible for the maintenance of records.

There are many advantages to using e-stamps. E-Stamping is basically tamper-proof. A unique identification number is generated to check the authenticity of the e-stamp.

There are drawbacks to e-stamping as well. For example, in the event of loss of the e-stamp certificate, then a duplicate copy cannot be issued. Another point is that despite online payment, the actual stamp paper has to be collected physically. This can be done from their respective vendors. It is a hassle and a major challenge in the current situation to collect the physical stamp paper.

Another consequent problem faced in e-stamping is a late fee. In such cases, a late fee will be levied. The Collector is the discretionary authority to accept delayed payments if an appropriate reason is given. This will be at his/her discretion.

An exception with regard to the late fee due to delayed payments is the Maharashtra Stamp Act. According to Section 17 of the Maharashtra Stamp Act, the stamp duty can be paid the next day after the execution.

On April 20, 2020, the Ministry of Finance appealed to the State Governments to issue proper instructions to the Collector. This should be done before collecting the late fee with regard to loan agreements or any other instruments. However, there has been no mention of any penalty.

4 Benefits of E-Stamping

Taking the documentation process online is easy, fast and hassle-free. Getting the Stamp paper signed is a challenging task at times. This is especially true when you need the process done faster to move things ahead. Given below are some benefits of E-Stamping:

Fast documentation

The entire process of collecting documents, taking them for stamping and then filing them wherever needs is a lengthy process. E-Stamping makes it easy for you. You can easily upload the documents in minutes on the portal. Using the certificate ID number and other details one can easily check its authenticity.

No Fraud

Going online with the documentation process makes sure there are no frauds. As E-Stamping solutions can be easily verified, there is no danger of manipulations that can be done on paper. These are mainly done by tampering with the quality of paper, signature/thumb impression etc.

No shortages in paper

This is one of the biggest advantages, there will never be an issue of the paper. There are times when people go to buy stamp papers and you come empty-handed as they have no stock left. But with e-stamping, this topic is out of the discussion. Because e-stamps are available online with licensed vendors and banks.

Going Paperless

With an e-stamp made available online, buying or selling properties or renting a place or even goods is easier. Going paperless also helps to save the environment while it gives you the opportunity to complete certain things fast. You can easily get your papers signed and submitted wherever needed. An example is Madras High Court which went paperless in April 2018.

Where Can Businesses Use E-Stamping?

Stamp Papers are utilized for creating agreements/contracts as well as affidavits. Every agreement, starting from the office’s rental agreement to the vehicle lease agreement needs to be printed on stamp paper. Contracts comprise everyday business transactions in almost all industries. On the other hand, affidavits are commonly used by regulatory bodies to issue circulars.

However, if stamp duty is not paid for an agreement, the agreement would not be considered as legal evidence in the court if one of the parties dishonors the terms agreed upon. This is where the e-Stamping & Digital Contracts can be used to speed up business documentation and processes.

E-Stamp Paper And Rental Agreements

In order to use e-Stamp paper for rental agreements, the first thing you need to do is verify whether your state provides this facility. This can be done by logging on to the website of SHCIL and checking whether your state is included in the list. The current Indian states that allow e-Stamping are Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand and Uttar Pradesh.

To get a rental agreement printed on e-Stamp paper, you must purchase an e-Stamp paper from allotted centers in your city. This cannot be done online from SHCIL or their distributors. Next, you should write/print your prepared rental deed on it. Then the executants must sign at designated places along with the signatures of two witnesses. This makes the contract, legally binding.

How E-Stamping Can Contribute To Rental Economy

The above section explains how e-stamping applies to rental agreements. These no longer apply to just renting a home or commercial space. In India, there are many instances in which people choose to rent goods or services for mostly two reasons. Youngsters do not know which city they might have to live in when they relocate for work purposes. Secondly, many items ranging from clothing to furniture may have a price tag that may not be suitable with one’s income. People who need formal wear for a special occasion may not wish to wait a year to purchase it.

All of the above have given rise to multiple rental businesses which drive the rental economy in India. Most of these businesses require agreements and stamp duty when dealing with tenants, distributors, brokers etc. Some top examples are given below:

Rental/Shared Workspace:

India has seen the rise of startup companies that offer co-working and co-living spaces. They are near each other. Most working professionals or students prefer staying near colleges/schools/workplace. Some popular co-working companies include WeWork, InstaOffice, GoWork, and Innov8.

However, the current Covid-19 crisis has changed this equation to a great extent. While new companies continue to spring up across the country, physical interaction is still frowned upon, giving rise to technologies like e-contracting and e-sign. With the recently introduced e-stamping directive, this innovation is also set to change the shared workspace economy.

Rental/Shared Accommodation:

In 2019, rental living companies have expanded to providing a wide range of services. Living spaces by Zolostay, Nestaway or NoBroker are perfect if you are looking for a place to rent/share. In fact, a December 2018 survey by Knight Frank India shows that 72% of millennials gave co-living spaces a thumbs-up. Over 55% of respondents were in the age bracket of 18–35 years. They were more than willing to rent co-living spaces.

In India, 47% of the youth population approximately fall under the country’s working-age population. They are an integral part who take up coliving spaces in major cities.

About 60% of Indian students being outstation students in most cities. As such, the demand stands at approximately 100,000 beds across India for student accommodation.
Coliving industry in India has a net worth of about 85 Cr INR. This is responsible for about 2.5% of the entire rental market. This is based on the industry expectation and the forecast which stands at 2X growth in three years.

But with Covid-19, the same issue arises where most tenants/customers want rental agreements to be done online. A Digital E-Stamp can speed up the process of creating rental agreements. This can be done by merging the agreements with stamp paper. It helps save the time and effort involved in the physical process of acquiring stamp paper and printing the agreement on it.

Rental/Shared Vehicle Industry

The Covid-19 crisis has created an aversion to public transport amidst people. As such, self-drive and rental car companies have seen a steep rise in subscriptions and inquiries. Car rental companies like Eco-Rent-a-Car and Revv have seen a sudden spike in demand. Other companies like Zoomcar have witnessed a 4x increase in rentals while some like Drivezy are launching new services to ride the wave. Work from home, fear of infection in public transport and schools being shut are some of the factors that are contributing to greater demand for car rental companies.

Currently, the individual cab business for Eco-Rent-a-Car is up to 350 cars a day. However, travel and tourism which used to be 200 cars a day are now down to almost zero.
Revv have seen a 30%-40% increase in subscriptions

While availing the services of cars and drivers, these companies also have a higher demand for signing agreements online. With e-Stamping being cleared by the government, paying stamp duty is no longer a hassle for vehicle rental companies.

Rental/Shared Consumer Goods

While it may not seem like much, but this industry was actually growing at a huge pace before the pandemic. Here are some facts:

According to a report by PricewaterhouseCoopers, the sharing economy is set to generate potential revenue of $335 billion by 2025 globally.
In 2019, the rental industry has made a huge market in India with estimates that the market stands at about $1.5 billion.
In an article by Livemint, a rough estimate shows that the market for rental of furniture is seen at around $800–850 million. Rentals of electronic appliances are approximately a market of $500 million while that of bikes is $300 million.

The rental/shared consumer goods companies need to deal with a lot of third parties like brokers, manufacturers, distributors, retailers etc. They require contracts/agreements on a yearly/monthly basis, which is why the need for e-contracts and e-stamping is crucial in this sector as well.

Conclusion:

In the situation of COVID-19 Pandemic, it is important that the documents can be executed and at the same time be valid under the court of law. E-agreements are valid under the court of law and they are eligible for stamp duty as well.

E-Stamping also points towards a reduction in corruption and improving transparency. Yet there could be technical issues to be faced by the executors of an agreement through e-stamping. This may be a major challenge to sign an agreement.

Further, the state legislature can be lenient in terms of levying delayed payment fees. In contrast, there are certain states which have to show more importance to e-contracts and e-stamping. An important factor is the Indian rural population. People still do not have adequate knowledge in technology. This makes it very challenging in rural areas to adapt to this e-stamping. It could also be challenging for lawmakers and government departments.

In conclusion, while E-Stamping is still in it’s infancy and growing, it has many hurdles to overcome yet across the country before being accepted as a standardized norm.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at: www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

Evolution of ENACH

Posted on December 30, 2020 | by Signzian

The journey of ENACH (Electronic National Automated Clearing House) is a testament to the evolving landscape of digital financial transactions in India. As we increasingly transition to a cashless society, the need for efficient, automated, and secure payment systems becomes paramount.

The centralized payment/transaction processing system was launched on 30th June 2019. The launch was done by the National Payments Corporation of India (NPCI). National Automated Clearing House (NACH) has been constructed for banks, corporates, financial institutions and the Government. It enables you to easily manage recurring payments across multiple banks. It assists you to manage payments of utility bills, SIPs, premiums, donations, Credit Card bills etc.

NACH was set up to serve as a faster and efficient platform for clearance.

NPCI — The Driving Force Behind ENACH

The NPCI was formed by the Reserve Bank of India (RBI) in collaboration with the Indian Banks Association and ten promoter banks. The ten promoter banks are SBI, ICICI, HDFC, PNB, Citi, HSBC, Canara Bank, Bank of India, Union Bank of India and Bank of Baroda. NACH is NPCI’s product offering. Its objective is to replace the existing ECS systems across the country.

With the implementation of the NACH system, NPCI intends to provide a single set of rules for businesses. It also allows for .open standards and best industry practices for electronic transactions. These are common across all the participants, Service Providers and Users, etc. NACH system also supports Financial Inclusion measures initiated by Government, Government Agencies and Banks by providing support to Aadhaar based transactions.

The NACH system enables the member banks to design their own products. It also addresses the specific needs of the banks & corporates. These include a refined Mandate Management System (MMS) and an online Dispute Management System (DMS). The last one is coupled with strong information exchange and customized MIS capabilities.

The NACH system provides a robust, secure and scalable platform to the participants. It has both transaction and file-based transaction processing capabilities. It has best in class security features, cost efficiency & payment performance. All these are coupled with a multi-level data validation facility. It is accessible to and from all participants across the country.

Know Your NACH — Its Evolution & How It Helps

NACH was a system introduced by the NPCI, for interbank, high volume, electronic transfers. These were periodic in nature.

NACH Over ECS — What Was The Need

NACH creates a better option for facilitating clearing services. It is more efficient than the existing Electronic Clearing Service (ECS) system.

NACH is a centralized, web-based clearing service that facilitates services for banks, financial institutions, the government and corporates. It consolidates all regional ECS systems into one national payment system. This helps by removing any geographical barriers in banking.

The most evident difference between NACH and ECS is the method by which the system makes a transaction. Electronic Clearing System (ECS) is a time-consuming method for electronic transactions. Whereas NACH is an online-based transaction system working on the basis of Core Banking Solutions.

Validation is another issue that was majorly faced by the ECS system. This is another reason for giving way to the formation of the NACH system. The NACH is a superior system that is trusted by a major portion of the population.

Here are 5 major differences why NACH is a better choice over ECS

The NPCI introduced NACH as an improvement over the existing Electronic Clearing System (ECS) and consolidated multiple ECS systems running all over the country. The NACH system is used for bulk towards the distribution of subsidies, dividends, interest, salary, pension, etc. and also for bulk transactions towards the collection of payments for telephone, electricity, water, loans, investments in mutual funds, insurance premium, etc.

Benefits of NACH:

E-NACH facilitates everyone who deals in bulk and high volume payments every month or so. From the customers to the banks to the organizations — everyone will be equally benefited through the NACH system.

For consumers

An automated process of transfer for easier and simpler handling of payments.
A faster process that can be settled in a single day.
The auto-debit feature allows customers the freedom to not remember the payment dates. This applies for EMI, bills, taxes and other recurring payments that one has to pay at regular intervals.

For organizations

The online process is fast and independent of cheques and clearing.
Requires less time do and send payment like dividends, salaries, bonuses and so on.
Make the payment of grants and subsidies easier and quicker for the beneficiaries.
Easy settlement of customer bills providing better satisfaction for the customers.

For banks

Quicker approval of payments helps in creating better customer relations. It also helps maintain corporate clients satisfied with quick services.
Less paperwork like cheques reduces the complexity and time required.
The online transaction makes it simpler and easier for every party to conduct business easily.
Reduces chances of fraud and theft.

Classification of NACH

The 3 major types of NACH are:

E-NACH
E-NACH through eSign
Physical mandates

E-NACH

NACH Debit ‘e-mandate’ is a process that enables registration of mandates through the Merchant website, thereby making the whole process of mandate registration online. E-mandates through its digital form of creation of mandates via merchant/aggregator websites are authenticated directly by the end customers.

E-NACH through eSign

In this variation, the merchant, aggregator or bank can get a digital mandate authenticated using Aadhaar credentials verified using UIDAI data. The digital mandate contains the eSign of the customer which will be passed on by the Sponsor bank to the Destination bank. The Destination bank can then verify the eSign and accept/reject digital mandates.

Physical mandates

In this case, the customer can submit the physical mandate to their bank branch. The bank after verification of the customer signature and other details provided on the mandate will upload the data mandate through NACH system on the sponsor bank. The mandate image is optional in this case.

NACH Mandate — How It helps Businesses

NACH helps in the online transactions of money across businesses and customers. It also facilitates loan acquisition and repayment. This makes it a widely utilized system in the modern economy. Small businesses, government agencies, corporate agencies, banks, and other financial institutions use NACH to for effective credit flow. NACH also reduces the time taken for such transactions. It is safe and provides tracking of the transactions. This can be done using the reference number produced for every transaction which happens through NACH.

There are 2 main mandates under the NACH that overlook the transaction flow from a client’s account to the collection agency. In such cases, the lender of the loan can collect the EMIs automatically. This is by sending a NACH mandate to the customer’s bank.

NACH Credit

NACH credit is a part of the NACH mandate. Under this section, a business authorized under the RBI guidelines can make huge payments. These are made directly to the bank accounts of multiple beneficiaries. It is an electronic payment service for bulk payment options. It is applicable for large organizations and corporate companies.

The mandate is helpful in the payment of salaries, dividends, implementation of the mandate. You have to specify the following information in the NACH mandate along with your signature. The sample NACH Form is given below.

Features of NACH Credit

The system can facilitate 10 million transactions in a single day.
Provides safety for uploading documents through web access for approval.
In case of a dispute, it provides an online dispute management system for redressal.
Multiple file processing is allowed in a single settlement request using the NACH.
Corporate organizations can have Direct Corporate Access.
Direct Corporate Access to NACH allows corporate organizations to check the status of their transactions effectively.
ACK/NACK helps in tracking all your transactions.
Operational every day of the week apart from Sundays and days when RTGS does not operate.

NACH Debit

Financial institutions and banks use the NACH Debit to collect payments in large volumes from multiple people without any interference. In case of a loan, the lender uses this system to collect EMIs automatically from your bank account once the customer submits the NACH mandate form. It makes it simple and easier to pay recurring payments like EMIs, bills, taxes automatically and simply. For the organizations, it makes the collection easier and trackable using a single settlement.

Features of NACH Debit

Easy collection of recurring payments from bulk customers directly from their bank account safely.
Online dispute management system allowing safety and security for high-value transactions.
It makes it easier for the agencies and organizations to collect payments on behalf of the customers using a safe system that generates a unique reference number for tracking.
It makes it easier for the customers to pay their dues on time without having to remember the date for paying EMI, bills or taxes.

E-Nach Debit Mandate — The Base For EMI

The NACH is used for regular payments. You are not required to issue cheque or transfer funds every time. Instead, you have to issue a one-time mandate for the regular NACH payments.

The NACH mandate form is similar to the normal cheque. But it asks for more information for effective and foolproof implementation of the mandate. You have to specify the following information in the NACH mandate along with your signature. The sample NACH Form is given below.

Bank account number
Bank name
IFSC or MICR
Payment Debit type — Fixed or Maximum
Frequency
Debit type
Maximum Amount
Period From, to or until cancelled.
Signature with name

Debit Type and Period

In the form, you have to select the ‘ Debit Type’. You must decide the ‘Debit type’ carefully. If you are paying the same amount repeatedly, you should use the ‘Fixed Amount’ Debit Type. It ensures that the debit from your account would remain the same in the future.

While you should use the Maximum amount for the Bill payments as billed amount changes. In this case, you set an assumptive maximum amount. The biller would not be able to withdraw more than the specified limit. Fix this amount after the due consideration. The very low limit would create hassles instead of convenience.

Period For Mandate

You have to also decide the beginning and end date of the NACH mandate. The tenure should be fixed for EMI payments. But you can keep it ‘Until canceled’ in the case of Bill payments. If you choose a shorter period, you have to again give the mandate.

E-Mandate of NACH

Normally, people give a mandate for the NACH through the physical slip. But now you can give the E-Mandate as well. This is done through net banking or debit card.

The institutions which give e-Mandate facility, ask for all the information online and takes your consent through net banking. Besides net banking, you can also use a debit card to give the E-mandate. Earlier, Aadhhaar authentication was also used for the Mandate but, the NPCI has stopped it.

You can use the E-mandate, only if the institution has made an arrangement with the bank.

How NACH Debit improves Customer Experience

NACH Credit uses ‘Push’ payment methods which denote payments through credit cards, debit cards, digital wallets and UPI. It is generally required that the customer authorizes each and every payment. As a result, customers often delay, forget or fail to pay, or they just cancel. RBI has relaxed the requirement for second-factor authentication on card-not-present transactions. This allows recurring payments on cards — but customers must have a card. They must also be comfortable with using it. Further, customers must have authorized the instruction via the card network’s security system.

NACH Debit is a ‘pull’ payment method. It requires the customer to only authorize an initial mandate for you to pull money from their account. This is that they don’t need to worry about authorizing future transactions. On the other hand, collectors don’t need to worry about chasing up customers for future payments.

Cards can expire or get canceled, in such case the payment will fail. NACH Debit mandates expire when you want them to. They can’t be lost or stolen. This makes them much more reliable for recurring payments.

Payment gateways levy uncapped percentage fees of up to 3% for card, wallet and UPI payments. NACH Debit charges much less.

Most Indians do not possess credit cards. NACH Debit requires the customer to have a bank account and no credit card is required.

Digital wallet payments require the customer to load the wallet first. This needs the customer’s authorization each time, generating more friction

EMI-based E-NACH Use Cases

Below we explore some popular areas where recurring payments like EMI’s are easily supported by E-NACH:

eNACH via Debit card or Net banking

With the Supreme Court’s verdict on the use of Aadhaar, most private sector companies could not utilize Aadhaar APIs for user verification. NPCI, after the judgement, deactivated eSign based eNACH product. This led merchants to revert back to paper-based NACH or ECS systems for recurring payments. This was especially in the case of loans and EMIs.

Debit card/Net banking authorized eNACH is meant to be a replacement to the eSign based eNACH. It has a simpler flow and zeroes to minimal human intervention. APIs from NPCI allows a merchant to get the mandate signed using a debit card or Netbanking credentials. They can then send the same directly to NPCI.

NPCI then uses and shares this information with the sponsor bank and destination banks. It then sets up the eNACH payment just within 2 days.

Insurance: If you are subscribing for an insurance plan for your family through an e-Mandate, you can schedule all your premium payments through a simple online process at the start of the insurance period, instead of manually keeping track and making individual premium payments. This applies to all sectors of the insurance industry and is particularly beneficial as regular payments are made throughout the year by the claim owner.

Electronic Appliances; E-Nach also helps when you purchase electronic appliances or consumer goods in the form of EMI-based payments. Today, EMI’s are applicable for devices like mobile phones and tablets as well. If you have bought a few electronic appliances on EMI for 2 years, you can schedule fixed payments through the online process.

Vehicle Loans/EMI’s: If you have purchased your vehicle by taking a loan from a bank or through a financier, then the E-NACH form is provided to you by the banker/financer. If you have picked up a loan for a vehicle, the payment for the loan can be completely automated in this way.

Utility Bills: Most utility bills are paid on a periodic basis. These include Phone bills, electricity bills and others. For example, postpaid bills can be scheduled to be paid automatically. This is by using standing instructions with a credit card.

But, the same thing can’t be done with other utilities. For example, electricity and water bills. This is due to the dynamic nature of bills that are generated on a usage basis every month. As soon as a new bill is generated, you are manually required to pay the amount in full before the due date. Failure to do so risks penalization or no service. With E-NACH, you can schedule recurring payments for the same, hassle-free.

IoT based Smart Services: With recurring payments opening up for debit cards and internet banking via eNACH mandates, India can finally start seeing the IoT industry capitalizing and building products that would mirror IoT innovation in the western hemisphere.

In the future, recurring IoT services like home-security monitoring, smart homes and more would not need you to create your personal infrastructure. In fact, Google and Amazon are already making moves. by introducing their products like the Nest Hub, or Amazon Echo, which are the first step in creating Indian smart homes. Another potential application for E-NACH.

Why Do Customers Choose ENACH?

Fundamentally designed for business use (like corporates, banks, and government bodies), NACH provides higher mandate limits up to Rs 1 Cr. for customers.
E-NACH mandate creation takes up to 2–10 days as opposed to ECS which used to take 30 days or more.
E-NACH eliminates physical movement of mandates, resulting in very low TAT (<2 days)
24*7 capability for mandate registration through corporate web/mobile applications

Conclusion

Recurring Payments powered with eNACH are unlocking a new economy in India. With Debit cards and internet banking being allowed for the first-time to make recurring payments in India. various Industries in India could look forward to building a unique experience for their customers. EMI-based payments are beneficial for both businesses and customers with regards to areas like predictable cash flow, predictable growth, better customer experience and affordable services.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at: www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

KYC’s Impact On Investment Scams, Bank Fraud, And Other Financial Crimes In The US

Posted on December 26, 2020 | by Signzian

Introduction

With a projected GDP of USD 24.9 trillion by 2023, The United States of America will remain to hold the title of the World’s Largest Economy. This position has always provided lucrative opportunities not just for genuine investors but also for fraudsters and scammers. This is evident from the fact that the majority of all scams in the US revolves around the investment sector.

An Investment Scam is an initiative where fraudsters and scammers convince investors to expend their money in fraudulent opportunities offering high returns and unrealistically low risks.

With the advent of technology, along with the benefits it brings to investing and banking some concerns need to be addressed too. It is far easier for fraudsters to scam individuals and organizations as almost everything is going digital in the sector. Without proper precautionary measures, the boon of technology might turn against the very people whose lives it is trying to make better.

All this renders institutions to hesitate before adopting new technology and its applications. This should change and the careful adoption of technology with secure and safe measures is the right solution. One major measure for this is to obtain and verify crucial data of the entity without letting any red flags go unnoticed. This will help the financial institutions to assess and evaluate if the situation involves any potentially fraudulent activities. Properly implemented KYC achieves this.

Investment Scams and Financial Fraud From The Past Century In The US

No discussion about investment fraud can avoid the name Charles Ponzi, the first man to have nationwide infamy for creating one of the earliest pyramid schemes in the world. The term ‘Ponzi Scheme’ originated from his name.

In the late 1910s, Ponzi promised a 50% return in a mere 45 days time span. The scheme failed causing 5 banks and all investors to lose money and earning Ponzi more than $20 million ( Adjusted to inflation- $220 million). But this was just the dawn of the next generation of financial fraudsters in the country.

Musch closer to the 21st century, Kenneth Lay, the founder of corporate mogul Enron. His ‘strategic’ moves resulted in Enron’s stock price plummeting from $90 to just $1 between 1999 and 2001. The once $68 billion company filed for bankruptcy in the fall of 2001. Neither the banks who had loaned the company money nor the general investors who had invested had any idea of how much they had been hoodwinked until they lost all of it.

Almost every citizen in the US is aware of investment scams in the country. But the problem is that they have neither the required knowledge nor the clarity to protect themselves from the fraudsters. A simple solution is to have strict identification procedures and security measures from banks while onboarding a customer and carrying out transactions.

Apart from these big ones, numerous ‘nuclear’ scammers operate in the country.

Such fraudsters focus on stealing social security numbers by presenting themselves as phony tax officers or stealing the identity of the consumer and misusing it with the bank. Some of them even misuse benefits by forging fake documents to fool the financial institutions. With the advent of the internet by the end of the century, the scams began to go global attracting remote scammers from all over the planet.

How is Financial Fraud Faring In The Age Of Information?

In 2014 a Brazilian National under the name Rojo Filho opened more than 17 bank accounts under his real name in the US and used them for illegal money transfer and laundering. The banks included JP Morgan Chase, Citigroup Inc., and Wells Fargo. This was a true mockery of these bank’ policies to know their customers. These policies and systems were supposedly strict after the 2008 financial crash. ‘Supposedly’ being the operative word here. It did not add to the banks’ safety credibility that Mr. Filho had committed multiple financial frauds and investment scams before this.

Mr.Filho was a mere individual who was unsuccessful in the long term. Imagine how many successful scammers are slipping through the cracks.

The fraudsters who target banks and financial institutions are the primary targets for bank security. They impart a direct threat. But what most banks neglect is that even the scammer ripping off of an old man’s IRA or another’s 401(k) can be stopped by proper verification of bank accounts and customer information. The indirect effect this has is immeasurable.

The ease of access to the internet in the 21st century has given tremendous access to scammers. Governments and financial institutions are not blind to this and are taking the necessary precautions to avoid any large scale scamming. This has helped them to subdue singular massive fraud occurrences. But the small scale or as some may call, ‘nuclear’ incidents still take place.

With banks adopting automation more, ACH(Automated Clearing House) scams are also increasing. ACH is a network that functions as a central clearing facility for EFTs( electronic funds transfer) forming an integral part of the national banking system. In the ACH system, payments linger awaiting clearance and to complete the transactions. Using commercial customers’ credentials or even employees’ credentials the scammers manipulate the clearing process and transfer the funds to their desired accounts. If the customer data is well fortified this can be avoided.

A practical way to reduce this is to implement proper verification of customers and businesses. An initial evaluation is necessary, but even annual follow-ups strengthen safety.

Top 5 US States Affected By Financial Fraud and Scams

Though almost all types of investment scams occur in almost every state, we have focused on the state-wise relevant ones here:

Florida

Social Security numbers are the primary targets for scammers here. They pretend to be phony tax collectors representing IRS or other agencies and contact individuals to obtain their financial information. The state also has one of the highest numbers of identity theft cases. The majority of the 40,000 complaints received in 2019 were associated with government benefits and documents.

Complaints per 100,000 increased to 997.8 in 2017
Total complaints were 208,443 in number

2. Georgia

More than 13,000 cases of identity theft were reported in Georgia in 2019. More than half of this includes government documents and financial benefits frauds. This occurs in a state with a financially dependent youth population with an average student loan debt of $32,283.

Complaints per 100,000 increased to 924 in 2017
Total complaints were 96,316 in number

3. Nevada

Nevada mostly had a mix of general financial fraud and identity theft cases in 2017 and 2018. A state that was hit hard by the housing crisis, citizens of Nevada are still struggling after a decade of recovery. The near 8% unemployment rate in the state also contributes to an increase in fraud as people are financially pressured.

Complaints per 100,000 increased to 770 in 2017
Total complaints were 23,071 in number

4. Delaware

New accounts are opened in other people’s names for phone and utilities frauds. This is more than in any other state in the US. Even the surging number of imposter scams contributed to the state becoming the 4th(2017) most affected from 5th most (2015).

Complaints per 100,000 increased to 758 in 2017
Total complaints were 7,290 in number

5. Michigan

Michigan stands out as of all the major states affected, its citizens had far fewer debts than most of the others. Nonetheless, it was severely affected by the cases of INvestment scams and other financial frauds.

Complaints per 100,000 increased to 750 in 2017
Total complaints were 74,689 in number

What Is KYC And How Does It Help?

In 2003 the Congress implemented the Customer Identification Program (CIP) as a provision of the USA Patriot Act. It prescribes institutions to verify the identities of individuals who conduct financial transactions with them. It is more commonly known as KYC

Know Your Customer (KYC- for individuals) or Know Your Business (KYB- for organizations and institutions) are processes where a firm identifies and verifies the data provided by its clients.

Clients or potential client data is obtained. This includes names, dates of birth, addresses, etc. From individuals and checking Companies House registration, ultimate business owners, annual returns, etc. for companies and businesses. KYC identifies PSCs(Persons of Significant Control), Ultimate Beneficial Owners, and exposed individuals.

Most businesses and financial institutions perform KYC manually using physical ID documents such as the original copy of the passport or driving license. As technology has advanced not only is it more convenient for digital processing but also safer as the options offered by novel fintech security players are well fortified. A Digital KYC process would cross-check all details with multiple data sources from government entities and other bodies to ensure accurate safety.

KYC prevents fraud in multiple ways. Some of them are listed below:

Tracking Tax Evaders
Undoubtedly, track evasion is a type of fraud. The perpetrators defraud the government and thereby the general public of the country. There have been cases in the judiciary where major tax evaders have been tried for grand larceny from the public. To perform this, individuals with high-income use banks to conceal their financial assets. This permits them to evade the high taxes levied on them by the government.

AML(Anti-Money Laundering) and KYC processes prevent such activities. They verify and confirm the identity of the customers as well as the data they provide. Referential data is stored after compulsory document and compliance checks. This will assist authorities in future investigations if there ever arises a need.

Continuous Transactions Monitoring
Regular Transaction Monitoring with compliance checks forms an essential part of KYC processing. Potentially suspicious customers are tracked and reported accordingly. This includes money being transferred for terrorist financing and money laundering. It prevents the flow of black-market funds into the economy preventing any funding for terrorist entities.

Such measures reassure the customers and stabilize trust in the financial system. This will encourage the public to act with integrity and report relevant instances.

Background Checks
Background checks help institutions to evaluate potential customer’s risk classification and status on government watchlists. This provides safety to the organization to be not involved in financial crime, even unintentionally.

Overall Benefits
As an overview, we can say that KYC helps understand the customer’s legitimacy better. All kinds of scams extract customer data and misuse it in another portal. KYC allows prevention at both levels. It makes it hard for scammers to produce legitimacy and double checks the use of data by verifying it with existent credible databases.

For scams ranging from basic identity theft to massive money laundering and terrorist funding, KYC will be a wall hard to pull down. Every single data provided by the customer will be used to verify at each access point. Not only does it fight the problem upfront, it roots it out by making it near impenetrable for scammers to even register as processors or other false pretexts. This renders the investment scammers to oust from their existing methods.

Ultimately KYC reduces investment scams and more significantly develops trust. Adopting strict KYC procedures ensures the customer that the institution is concerned with lawful business practices. This translates into credibility and a good reputation improving the trust in the company.

Conclusion

KYC is no longer an additional measure for banks to take. It is mandatory for safety. But methods of KYC implementation have altered in the US over the decades. The pen and paper approach is no longer viable and what we see are the prerequisites of a coming digitization. As Cyber Crime and Investment Scams evolve to adapt, we must take it with absolute certainty that we stay ahead of the fraudsters.

KYC will prevent scams, especially investment scams as the scammers in this particular arena are not as sophisticated as more developed fields like advanced cybercrime. But we must consider the fact that the scammers will evolve according to the cages they are put in. They are already evolved over our current traditional methods. KYC alone may not safeguard in certain occasions, but without KYC the sector doesn’t stand a chance. It has come to that, digital KYC is the next step in financial security for all institutions, including the traditional ones.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

The Common Factors Of Global Privacy Framework — A Brief Overview On GDPR, CCPA & DEPA

Posted on December 22, 2020 | by Signzian

“India needs a paradigm shift in personal data management” — stated in the NITI Aayog draft on DEPA architecture. With the introduction of the PDP Bill, the argument holds rightfully so. We already have the blueprint, so isn’t it time we get started on the building architecture itself? So the DEPA was just a matter of time.

The DEPA framework is robust and unique to Indian data privacy laws. Anyone who goes through the proposal will agree that it overlays some areas which are not unique. These areas can be found in the data privacy framework of other nations as well. Let us take examples of the two prominent ones — Europe’s GDPR and California’s CCPA.

CCPA — Popularity Of Privacy In California

There is no single authority for oversight on data privacy in the U.S.

Instead, the country maintains a sectoral approach. It is dependent on a collective of sector-specific laws and state laws.

There are almost 20 industry — or sector-specific federal laws. on the state level, more than 100 privacy laws exist (in fact, there are 25 privacy-related laws in California alone) .

The California Consumer Privacy Act (CCPA) provides citizens of California with 4 rights for power over personal data:

– right to notice

– right to access

– right to opt-in (or out) and

– right to equal services.

Any organization which gathers the personal data of California residents must adhere to CCPA.

Personal Data Classification in CCPA

The CCPA defines personal information as “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” In other words, the State recognizes a “broad list of characteristics and behaviors, personal and commercial, as well as inferences drawn from this information” that can be used to identify an individual. Examples of covered personal information include:

Personally identifiable information (PII) . This can be name, address, phone number, email address, social security number, driver’s license number, etc.
Biometric information, such as DNA or fingerprints.
Internet or similar electronic network-based activity information. This can be browsing history, search history, and information regarding a consumer’s Internet activity.
Geolocation data
Audio, electronic, visual, thermal, olfactory, data or similar format of data.
Professional or employment-related information.
Education information, defined as information not readily available for the public.
Inferences drawn from any of the above examples that can create a profile about a consumer. This reflects the consumer’s preferences, characteristics, psychological trends. It also displays predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.

GDPR is an EU regulation that has been designed to protect user’s personally identifiable information (PII). It also enables businesses to hold a higher standard in terms of how they collect, store, and use this data.

Similar to CCPA above, GDPR gives EU citizens control over their personal data. It also assists in changing the data privacy approach of global organizations.

Key Highlights

GDPR is applicable to all who process “personal data”. Most obviously, these are names, email addresses, and other types of PII
It creates significant new responsibilities. Processing personal data makes you responsible and accountable for its security and use.
It has a global reach. Despite being an EU law, it applies to all, regardless of their location.
It doesn’t just apply to traditional businesses. The principles are concerned with what you do with other people’s data, not who you are or why you do it;
There are hefty fines for non-compliance. These can go up to €20 million ($24m) or 4% of global revenue, whichever is higher.

What are the common denominators?

The CCPA is about increasing transparency for California residents. It allows them to discover and change how their data is collected and transacted. Meanwhile, the GDPR is a binding regulation. It monitors data privacy across the E.U., replacing dozens of national privacy laws with a single framework. However, GDPR does have implications for businesses in the US, despite originating in Europe.

Side by side, here’s how they compare:

Both regulations arose to protect people in a world of increasing global interconnectivity. This is in a world where international transfers of personal data are more frequent and elaborate. Regrettably, advances in technology have resulted in data misuse scandals & sophisticated cyber attacks.

CCPA and GDPR apply to individual organizations in different ways. While there are some nuances in scope that distinguish both sets of legislation, they share similar goals.

How do the laws define personal information?

Personal information (CCPA) vs. personal data (GDPR)

CCPA deals with the collection and sale of personal information. GDPR on the other hand addresses personal data processing.

The CCPA defines personal information as any information that identifies, describes, relates to, or can be linked with a consumer or household. This includes PII as previously discussed.

Under the GDPR, personal data refers to any information that directly or indirectly identifies someone. While this doesn’t include household identifiers, any identifying personal data that is not anonymized falls under the GDPR. The CCPA, however, exempts specific categories of medical and personal information from its scope.

Contributions of CCPA & GDPR:

The two regulations overlap when it comes to some rights — so if you’re already compliant with GDPR, you’re well on your way to meeting CCPA requirements.

Here’s what the CCPA and GDPR have in common:

The right to know: Under the CCPA, businesses must disclose to consumers (upon request) the information that is collected, used, disclosed, and sold. Organizations under the GDPR must notify individuals at the time of collection and inform them of the purpose. They must also inform how long they’ll retain this data, and who it will be shared with.
The right to access: Individuals are entitled to access their personal data. They can request copies of their personal information verbally or in writing. Businesses have a month to respond to requests under the GDPR and — most of the time — can’t charge fees to deal with them.
The right to portability: Individuals protected by the CCPA and GDPR have the right to request their personal information. This can be inaccessible, machine-readable formats such as CSV, XML, and JSON.
The right to erasure: Consumers have the right to request the deletion of any personal information. This can be to an organization has collected or stored under a variety of circumstances.

The PDP Bill introduces the construct of consent managers. They are data fiduciaries registered with the DPA. They provide interoperable platforms that aggregate consent from a data principal. This is similar in many ways to the GDPR Data Controllers. As mentioned above, personal data identification is also similarly reflected by the CCPA. The assigning of key stakeholders is also the same here.

Data principals may provide their consent to these consent managers. The consent is for the purpose of sharing their information with various data fiduciaries. They may even withdraw their consent through these consent managers. This is a unique construct. This concept has been introduced to support the Data Empowerment and Protection Architecture (DEPA) for financial and telecom data. This currently powers the Account Aggregators licensed by the RBI.

DEPA — Building From The Data Privacy Blueprint

NITI Aayog has presented a draft policy highlighting DEPA. DEPA stands for Data Empowerement and Protection Architecture. It allows individuals to “seamlessly and securely access their data. This can be shared with third-party institutions.

The report looks into assisting organizations with sharing the personal data of an individual with one another. This can be done through the concept of “consent managers”. They will manage people’s consent for data sharing.

The policy constitutes this new data governance model in light of ‘individual empowerment’. This is done by enabling the seamless exchange of personal data among institutions. The process is secure and minimizes privacy harms.

This draft policy follows the myriad of other data-related policies in India. These include the Non-Personal Data Governance Framework and the National Digital Health Mission. NITI Aayog has stated that the policy will be publicly launched and operationalized in 2020 itself.

Features:

DEPA will authorize individuals with control over their personal data. This will be done by implementing a regulatory, institutional, and technology design for secure data sharing.
DEPA is designed as an evolvable and agile framework for good data governance.
DEPA empowers people to seamlessly and securely access their data. It can be shared with third-party institutions.
The consent given under DEPA will be free, informed, specific, clear, and revocable.
Consent Managers: DEPA will involve the introduction of new stakeholders — User Consent Managers. They will ensure that individuals can provide consent for all data shared. These Consent Managers will also work to protect data rights.
Account Aggregators: Reserve Bank of India (RBI) had earlier issued a Master Directive for creating Consent Managers in the financial sector. They are to be known as Account Aggregators (AAs). A non-profit collective or grouping of these stakeholders form the DigiSahamati Foundation.
Open APIs: These enable the seamless and encrypted flow of data between data providers and data users through a consent manager.
Implementation: RBI, SEBI, IRDAI, PFRDA, and the Ministry of Finance are set to adopt and execute this model. This regulatory foundation will eventually evolve with the onset of new legislation (eg. with the forthcoming Data Protection Authority envisaged under Personal Data Protection Bill, 2019).

Background:

The regulatory direction on data privacy, protection, consent, and the new financial institutions required for DEPA’s application in the financial sector was provided through the following sequence of events:

Supreme Court Judgement on the Fundamental Right to Privacy in 2017.
Personal Data Protection Bill (PDP), 2019.
Justice Srikrishna Committee Report, 2018.
RBI Master Direction on NBFC-Account Aggregators, 2016 (for the financial sector).

Impact On Financial sector:

Individuals and Micro, Small and Medium Enterprises (MSMEs) can use their digital footprints with DEPA. They can also access not affordable loans. Other amenities include insurance, savings, and better financial management products.
The framework is expected to become functional for the financial sector starting fall 2020.
It will help in greater financial inclusion and economic growth.
Flow-based lending: DEPA can provide portability and control of data. This could allow an MSME owner to digitally share proof of the business’ regular tax (GST) payments or receivables invoices easily. On the other hand, a bank could design and offer working capital loans. This can be based on the demonstrated ability to repay. (This is known as flow-based lending). This is suitable for offering bank loans backed by assets or collateral.

Conclusion

This is the beginning of a new uniquely Indian journey on data empowerment and financial inclusion. An open and vibrant data democracy can be created. But this is only if we can enable a billion individuals to thrive in an increasingly digital economy.

The digital economy should comprise digital public goods. These should be designed to scale to meet the needs of a diverse population. Moreover, the technology standards constituting DEPA are open and publicly available. This also means that the technical and institutional architecture can also be applied to other countries. An institutional body could even be designed to help globalize this standard. This will help apply it to other nations facing similar challenges as appropriate.

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Fighting Financial Crime With UBO — The Final FinCen CDD Rule

Posted on December 21, 2020 | by Signzian

In 2016, FinCEN introduced a new Customer Due Diligence (CDD) rule. It consisted of specific rules on Beneficial Owners. The rule required financial institutions to comply by May 11, 2018. The Final Rule indicates new FinCEN rules with the applicability date of May 11, 2018. But before we understand the importance of the FinCEN CDD rule, let’s have a look at what these terms mean and how they impact due diligence.

What is FinCen?

The Financial Crimes Enforcement Network (FinCEN) is a government body of the United States. It maintains a network whose objective is to prevent and punish criminals and criminal networks. These are associated with money laundering and other financial crimes. FinCEN is overseen by the U.S. Department of the Treasury. It operates domestically and internationally, and has three major players —

law-enforcement agencies, the regulatory community, and the financial-services community.

FinCEN monitors suspicious people and activity by implicating mandatory disclosures for financial institutions.
The FinCEN is assigned its duties from Congress. Further, the director of the bureau is appointed by the U.S.Treasury Secretary.

What is Customer Due Diligence (CDD)?

Customer Due Diligence (CDD) is the process of determining your customers’ background. This is done in order to determine their identity and the level of risk they possess.

The application of CDD is necessary when companies with AML processes enter a business relationship. This can be with a customer/potential customer. It may be needed to assess their risk profile and verify their identity.

The above risks mainly highlight money laundering and terrorist financing. Companies may need to ‘know their customers’ for a variety of reasons:

to adhere to the requirements of subsequent legislation and regulation
to be reasonably certain that the customers are who they say they are.
to provide them with the products or services requested, which requires knowledge of who the customer is.
to guard against fraud, including impersonation and identity theft.
to help the organization to identify unusual events and to enable the unusual to be examined;
Unusual events must have a commercial or relevant rationale. Else it may involve money laundering, fraud, or handling criminal or terrorist property
to enable the organization to provide any required help to law enforcement.
information on customers being investigated subsequent to a suspicion report to the FIU.

Why The Fincen CDD Rule?

The idea behind this new rule to fortify CDD requirements. The rule establishes explicit requirements for CDD. Further, it imposes a new requirement for the FIs. This requires identifying and verifying Beneficial Owners of legal entity customers (businesses).

The CDD Rule applies to Banks, Brokers or dealers in securities, Mutual funds etc

Customer Due Diligence Best Practices

There are 4 crucial elements for due diligence as per FinCEN:

(1) Customer identification and verification,

(2) beneficial ownership identification and verification,

(3) understanding the nature and purpose of customer relationships. This can help to develop a customer risk profile,

(4) continuous monitoring for reporting malicious transactions. On a risk-basis, this can be used for maintaining and updating customer information.

The new rules are not retroactive. In other words, it’s not necessary to acquire beneficial ownership information on every existing client. FinCEN felt that this would be too cumbersome for the institutions.

However, it’s not just an account opening where this information is mandatory. During monitoring the account, the risk profile may change drastically. In that case, the customer information — including beneficial ownership — should be updated. For example, new transaction types or amounts may reflect the change. This can be in terms of account or new ownership. They then fall under the coverage of the new final rule.

6 Major Highlights of the Fincen CDD Rule

Calibrating Beneficial Ownership Threshold

FinCEN has restated that the specified threshold (25%) is the base, not the apex. It is at the discretion of covered (FIs) to implement stricter thresholds. FinCEN further states that any incremental risk factors may be mitigated by other reasonable means. This includes enhanced monitoring, collection of additional non-mandatory information and recording information relating to expected account activity.

2. Highlighting Identification and Verification Procedures

Although the CDD Rule’s verification procedures are required to contain similar elements, they may not be identical. For example, a financial institution choosing to accept photocopies of identification documents. This would not meet the standard under the Customer Identification Program (CIP) rules. This derogation is expressly authorized within the CDD rule. Financial institutions should determine the documentation standards. This must pertain to the outcome of the required risk-based analysis. It will lead towards the identification and verification (ID&V) of beneficial owners.

3. Determining beneficial owners of new legal entity customer accounts

Where the individual identified as the beneficial owner must be:

(i) a pre-existing customer of the particular FI, and

(ii) is covered under the FI’s CIP,

A financial institution may recycle the information previously collected. This can be done provided the existing information is up-to-date & accurate. Further, the legal entity customer’s representative must certify or confirm the accuracy of this (verbally or in writing).

4. FinCEN Certification Template

As seen earlier, financial institutions are not mandated to use the template certification. They may use alternative formats such as the institutions’ own forms or similar means. These must comply with the substantive requirements. In the given instance, covered FIs should retain the form and refrain from filing it with FinCEN.

5. Document retention periods for ID&V records

Covered FIs must compulsorily retain all beneficial ownership information collected about a legal entity customer. Identifying information must be held for at least five years after the legal entity’s account is closed. Ex: the Certification Form or its equivalent.

6. Certification of a beneficial owner of multiple accounts

An institution may already have obtained a Certification Form (or its equivalent) for the beneficial owner(s). In such case, the FI may rely on that information to satisfy the beneficial ownership requirement for subsequent accounts. This is provided the customer certifies or confirms (verbally or in writing) that:

(i) such information is updated accurately at the time each subsequent account is opened, and

(ii) the FI is not aware of facts that would question the reliability of such information.

New Additions — FinCEN Issues New Guidance for Complying with the CDD Rule

On August 3, 2020, FinCEN introduced additional frequently-asked-questions (FAQs) r4egarding CDD requirements. These were for covered financial institutions detailed in FinCEN’s “CDD Rule”. The 2020 FAQs follow earlier FAQs from FinCEN in July 2016 and April 2018. They provide additional detail on implementing due diligence, building customer risk ratings, and updating customer data.

2020 FAQs — Question 1

Question 1 is in response to the question of whether covered FIs are required to collect information. This is with respect to expected activity on all customers at account opening, or on an ongoing or periodic basis. FinCen highlights that the CDD Rule does not require acquiring of any particular customer information. The only information necessary is to develop a customer risk profile. Others include to conduct monitoring and verify beneficial ownership (for legal entity customers). Likewise, FinCEN states that there is no categorical to conduct media screening on all customers. However, an FI can determine on a risk basis whether such information is needed. This is in order to adequately understand a particular customer relationship. It also helps to identify potentially suspicious activity.

2020 FAQs — Question 2

In Question 2, FinCEN elaborates that the CDD Rule does not require financial institutions to use a specific method. This refers to the method to establish customer risk profiles. It can also automatically categorize as “high risk” products or customer types. These can be identified in government publications as posing specific potential risks. Covered financial institutions are required to comprehend the financial crime risks of their particular customers. They should utilize risk profiles that are “sufficiently detailed. These can be used to distinguish between significant variations in the risks of its customers.

2020 FAQs — Question 3

In Question 3, FinCEN talks about how the CDD Rule does not require financial institutions to update customer information on a continuous or periodic schedule. However, they may decide to do so on a risk basis. Rather, financial institutions must update customer information when they become aware. This can be the result of normal monitoring. It can also be a change in customer information that is relevant to the risk posed by the customer. In such cases, financial institutions also may need to reassess the customer’s overall risk profile. This guidance is consistent with FinCEN’s previous statements in the preamble to the final CDD Rule as well as in the 2018 FAQs.

Practical Considerations

The 2020 FAQs do not break any major new ground with respect to the CDD Rule. It is helpful for financial institutions seeking to set risk-based limits. It helps determine when specific types of information are needed to determine customer risk. FIs should review their CDD policies and procedures. This is with respect to developing and updating customer risk profiles against the new FAQs. Doing so will help identify any areas that may need to be updated or adjusted.

On the other hand, the guidance emphasizes FinCEN’s preference against customer risk profiling that uses broad categories to assign customer risk. It is in favor of a methodology that is more individually-tailored. It focuses on a solution suitable to the characteristics of particular customers and the products and services they use. This is somewhat in contrast with FinCEN’s statement in the preamble of the Rule. It states that risk profiles in certain cases can be based on “categories of customers” or “risk categories”. The 2020 FAQs appear to allow such an approach at least where a financial institution concludes that a customer’s risk profile is low.

No matter the case, these FAQs may provide a valuable reference point for financial institutions. They explain — for example, to regulators — the risk-based decisions that have gone into their AML programs. They also shed light on why not all accounts with certain characteristics are similarly treated.

The European example

The European Union (EU) appears to be far ahead in terms of implementing the rules. They display clarity in the beneficial ownership structure of legal entities. The problem with UBO identification was on the regulatory agenda. This was as early as 2005, with the introduction of the 3rd European Directive on AML. This critical case of European AML Regulation promoted the risk-based approach. It was as a key strategy for tackling money laundering and terrorist financing. It also required obliged entities to identify the individuals controlling legal entities. This would ensure that they cannot be used for hiding asset ownership.

Guidelines for enhanced transparency on legal entities’ ownership were brought about by the 4th (2015) and 5th (2018) money laundering directives to:

Constitute National UBO registers,
Ensure reliable UBO information,
Provide public access to UBO registers.

In the UK, there exists the People with Significant Control (PSC) register. It consists of information about the owners who own or control companies. Currently, however, only a few countries have collected beneficial ownership data. This is due to the numerous challenges inherent in such an initiative. The UK parliament also decided earlier this year to accept an amendment to the sanctions. There was mention of an anti-money laundering bill that requires the UK’s overseas territories (the British Virgin Islands, Cayman Islands etc.). It would mandate to publish public registers of company ownership by the end of 2020. This reflects the will to extend the beneficial ownership disclosure to tax heavens across the Atlantic. This is sure to improve the governance of tax avoidance and corruption. It might also influence the Americas to follow a similar path.

FinCEN has initiated the journey towards the implementation of sound UBO identification requirements. EU regulations might set the path for the United States to catch up. It will be interesting to observe whether the United States follows the same path and if so, at what pace.

Conclusion

Perhaps the biggest challenge now is to meet the CDD Rule’s compliance requirements efficiently. Identifying UBOs can be a tedious and time-consuming task. it often results in individuals physically constructing the ownership tree on paper. This is highly inefficient and open to regulatory questioning.

With the new regulations hopefully, UBO will be collected digitally in the years to come. There are already many significant developments in this direction. Multiple countries are now placing measures to adopt UBO collection as part of the standard AML process.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

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Written By:

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Written by an insightful Signzian intent on learning and sharing knowledge.

How Will Unified Data Protection Regulations Affect State, National, And International Banks In The USA?

Posted on December 4, 2020 | by Signzian

Introduction

Consumers’ personal data is used by companies to sell their products and services, but when this data is personal or private, discretion and safety are essential. In some of the US states, there are personal data regulations that keep an eye on companies processing and using consumers’ data. A good example of this is the California Consumer Privacy Act(CCPA). A relatively new law, CCPA came into effect on June 28, 2018, as part of the California Civil Code. It has been praised as a step in the right direction for data regulations by industry pundits, as it solidly defines how data can be protected and how its misuse will result in dire consequences.

But one of the questions that returned to the spotlight after it’s introduction was, ‘Why isn’t there a federal body like this to regulate data privacy all over the country?’ This is where the US can benefit from a step for Unified Data Protection, a central regulation from the Federal Government that oversees and regulates all handling of consumer data. It will give control to the consumers over their personal data while unifying data privacy laws for all states in the US and simplify regulations for international companies. A Unified Data Protection Regulation will have provisions to process US consumer’s data regardless of the location of the company.

Such a body will force the companies to disclose how the data is processed making the purpose, tenure, and sharing of data transparent to the consumer. The Government will impose heavy fines on companies that violate the regulations making the consent of the consumer irrevocably mandatory. This article focuses on how such a unified regulation would impact the different levels of banking and the types of banks in the US.

What Is The Current System Of Banking In The US And How Does It Handle Data Privacy?

Unlike most countries, banking in the US is regulated at state and federal levels, and depending on the class of the bank it is subject to state or federal regulations. The central banking system which regulates all other banks is called the Federal Reserve and was established in 1913.

Duties of the Federal Reserve include:

Conduct the national monetary policy
Regulate and supervise banking institutions
Sustain the stability of the financial system
Financial services to the U.S. government, depository institutions, and foreign official institutions.

Banks in the US are regulated by the Federal Reserve and overseen by the Federal Deposit Insurance Corporation(FDIC) and the Office of the Comptroller of the Currency(OCC). The banks are classified into:

National Banks
It includes all federally chartered banks and has permission to operate in any part of the country. It is not subject to state laws barring a few exceptions. Even though these banks fall under federal jurisdiction, they must comply with state regulations too, if there are any making it a burden for them.

Depending on the type of charter and structural organization, a bank may be subject to many federal and state regulations and is specifically supervised by the OCC. It is important to note that not all national banks possess nationwide operations as some of them have operations in only one city, county, or state. A common misconception is that the Federal Reserve is a national bank, but this is untrue as it is a system of institutions chartered by Congress for financial oversight.

Banks from other countries that have established a presence in the US are called International Banks. Even though they fall under the category of National Banks, It is noteworthy to consider them as a third category for easier understanding. Some of them have exceptions with the national status and a few of them already follow protocols from other countries’ financial regulatory bodies. Many of these banks are European and already follow GDPR regulations even in the US. Sometimes these are not direct implementations.

State banks
State banks are state-chartered and are permitted to operate within the state where they are chartered. They can acquire customers from other states, but they can not open branches in other states unless they acquire the respective state’s charter or a national charter from the federal government. It is also mandatory for them not to have “National” or “Federal” in their names and nomenclature.

Is Data Privacy Safe in This System of Banking?

Information security and banking privacy in the US is not protected through a singular law rendering the regulation of privacy sector-based. Thus regulations are different in different states and all states do not possess sufficient research data or machinery for good regulation. This leads to risk and data breaches.

Gramm-Leach-Bliley Act (GLB) regulates the collection, disclosure, and use of personal /non-public information by banks. Federal Trade Commission (FTC) with guidelines from GLB act as the primary protector of banking privacy. It fines violators of state and federal banking privacy laws and these violations are treated as civil offenses in contradiction to other countries where they are usually considered criminal offenses. Nonetheless, there are too many discrepancies and contradictions in these laws that create loopholes and increase risk.

Cyber attacks cost an average of $18.3 million annually per company in 2019 making the total cost $164.6 million. This was through more than 1,473 cyberattacks over the year. The risk is clear from this data and a change for the better is inevitable.

How Has Unified Data Protection Been Implemented In Other Regions?

The most relevant implementation of Unified Data Protection regulation is in the European Union which is the General Data Protection Regulation(GDPR). It sets the guidelines for the collation and processing of personal data, exclusive for consumers from the EU. GDPR instructs companies to give proper data disclosures to their consumers while not compromising any privacy and protection they are entitled to. For example, timely notification of any personal data breach to the consumer is mandatory while making sure this information can not be misused by any third parties.

GDPR succeeded the first Unified Data Protection initiative in Europe, Data Protection Directive 95/46/EC which was created on 24 October 1995. Major banks in the EU encouraged it because it brought more security and credibility for the financial sector. But with advancing technology it became outdated by the late 2000s forcing the EU to consider a new unified data protection framework for 4 years before sanctioning it on 14 April 2016. GDPR came into complete effect on 25 May 2018.

Even though GDPR is for consumers and companies in Europe it affects international entities too. Any company which uses the personal data of a consumer from the EU must follow the regulations which strictly include overseas companies. A bank from the US will have to reframe their process to comply with the regulation. This is important because international US banks already have to comply with data protection regulations rendering them more preferable for consumers.

Notable privileges prescribed for consumers:

Right to Access
Consumers have the right to access their personal data and information. They should be aware of how this personal data is processed and who all will have access to it. Data must be treated as a resource that belongs to its respective owner, the consumer.

Right to Erasure/Be Forgotten
Consumers or customers have the right to request the erasure of personal data. This can be on any one of a number of grounds prescribed. This has certain regulations provided by GDPR, but it still lets the option to be forgotten open to the customer.

Right to Object and Automated Decisions
This allows a consumer to object to processing personal information for non-service related reasons. This includes marketing or sales. Data controllers must allow a consumer the right to stop controllers from processing their data any time they prefer.

Notable guidelines to companies:

Data Controller and Processor
The processing of data has two entities involved- a data controller and a data processor. A data controller is an entity (person, organization, etc. that establishes the why and the how of processing data). A data processor is an entity that performs the data processing overseen by the controller.

Pseudonymization
Pseudonymisation is a needed process for stored data that transforms personal data. The resulting data is not attributed to a subject without the use of additional information. Examples include encryption, tokenization, etc. This renders the consumer data accessible while keeping it partially anonymous.

Notification
The data controller must notify the supervisory authority without delay, especially in cases of discrepancies and malpractices. In Normal functioning, there is an exception if the breach is unlikely to compromise the rights and freedoms of the consumers.

Data Protection Officer
The companies must appoint a data protection officer to oversee the processes.

Penalties to Companies
Penalties will be charged from companies for not sticking to the regulations. a fine up to €10 million or 2% of the annual turnover of the company is issued This may go as high as the authority deems necessary under a set guideline.

How Will Unified Data Protection Affect The Us Banking Sector?

The US is a considerable volatile environment for financial data privacy. 71% of all data breaches in the country are financially motivated which means that almost every 3 in 4 data breaches in the US is in the financial sector. The FBI reported that the amount lost to financial scammers is nearly $1 billion per year and the primary reason for this is the easy access scammers have to private data. Banks do not commercialize and misuse personal data like IT giants, but they do overuse it at times. There have been instances where financial institutions sold consumer data to third parties. Such practices need to be stopped, or at the least regulated.

In 2018 more than 67% of financial institutions reported increased cyber attacks. It was also noted that these cyber attacks are 300 times more likely to hit the banking sector than others. 65% of the top-ranked 100 banks failed web security testing in 2017. This was reported by Carbon Black; Markets Insider, Independent, and IBS Intelligence.

A Unified Data Protection Regulation will bring more clarity to the industry and other regulatory bodies will get defined guidelines and protocols. Banks will have a better understanding of consumer databases while maintaining privacy. Overall, the Unified Data Protection Regulation will have a major impact on the financial sector. Let’s look at how it will affect the three different tiers of the 5,177 banks and savings institutions in the country.

How Will It Affect State Chartered Banks?
Relatively, state banks will have to adapt more to the new mechanics. This is especially for banks in states with undefined regulations as they will need additional machinery and manpower. They will also have to dive deeper into automation banking and advanced technology, prima facie making this seem cumbersome. But in the long run, this will help the bank dwell in an advancing industry, and more importantly, this will give the consumer immeasurable authority over her personal data. That is the primary objective of Unified Data Protection.

The overall functioning level of state banks will upgrade with an exceptional increase in the standard of services. This includes more user-friendly online services, on-time notifications, and reduced delays.

Study shows 5,400 banks in the U.S. compete to sustain customer satisfaction. They need to attract new deposits. Local banks must exhibit their advantages in the fields of accessibility, customer service, and financial advice. To an extent, this would level the playing field.

How Will It Affect Federally Chartered Banks (National Banks)?
The capital to be spent on implementation for NationalBanks will be high but in the long term, it will help them establish an international standard in banking. It would make it easier for them to attain international bank status and branching out to Europe will be much easier as they will not have too many regulatory novelties from GDPR.

The biggest relief for National Banks is that they do not have to satisfy multiple regulatory bodies. JPMorgan Chase had reported the extra work going into adjusting data privacy regulation depending on each state. This is reduced with the introduction of a federal system.

How Will It Affect International Banks?
Most International Banks operating in the USA have a considerable presence in Europe and many of them are already following GDPR protocols. A similar system in the US would benefit them. As they have the most number of customers they will contribute the most to changing the financial landscape. International data breaches are most likely to occur and data protection at this level will reduce that risk. Even more dangerous aspects like money laundering and terrorist funding can be limited with such steps.

Banks will be aware of consumer information and will process it with better care as they are not allowed to provide data to third parties. This will give privacy to the consumer while maintaining a keen eye for malpractices. This is essential as the international economy is a sandbox for financial scams and regulations will reduce this.

Banks like HSBC and Deutsche Bank will have a more even battleground while competing with other National banks as they are already under the scrutiny of other international bodies of regulation. With a unified regulatory body, all banks will have to stick to the same rules and compete on the same track. This will benefit the consumer with better options and opportunities.

What Are The Boons And Banes That Follow?

Significant advantages of Unified Data Privacy include:

Improved Cybersecurity- It will directly impact data privacy and security improvements encourage banks to develop better security measures reducing risk.
Standardization of Data Protection– Its compliance will be assessed by state wise agencies cementing the credibility of each bank as they must stick to the same rule book.
Sustainable Reputation- The banks will have a better reputation as a single breach can bring down a financial Goliath. Regulations will render safety not just for the customer, but for the bank too.
Enhanced Trust- It will encourage consumers to genuinely share their data with the bank. They are aware of how safe their data will be handled giving them a sense of satisfaction to be in control.
Loyal Customers- The trust built fuels the customers’ loyalty making them prefer the services of the banks that provide the best service. Sustained credibility enhances loyalty.

Significant concerns may include:

Non-Compliance Penalties- Severe penalties are imposed on non-compliant participants because, without strong consequences, compliance will not be effective. Sometimes the magnitude of fines would be overwhelming but this is an avoidable responsibility for the banks. A good example of this is the fines imposed by GDPR for non-compliance. Google was imposed a fine of €50 million for breach of GDPR protocols by the French regulator CNIl.
The Cost of Compliance- The capital and machinery required for implementation will be considerable for banks. Especially for small banks. Though long term benefits outweigh this, it is still a concern.
Overregulation- If not properly implemented, it will backfire. Overregulation will add more complications to the banking process as too many formalities will tire the consumer and the bank. A delay in time could also occur due to the extra steps added for regulation. All of this is avoided with apt regulatory sanctions. Nonetheless, it is difficult to define them.

Conclusion

There is no doubt in saying that data has become a resource and companies are selling their customer’s data for profit. In such times it is necessary to keep personal data secure. In this perspective, the banking sector to data is what the judiciary is to governance- something that can never be tainted or compromised.

Banks contain a plethora of sensitive information and strict regulation on this is inevitable and precedent. As we are moving towards a global economy, it is only sensible to unify scattered sectors. The innovators in the financial sector should always keep in mind that all the short term discomforts will breed greater benefits for the industry and consumers.

Unified Data Protection regulations will enhance the safety of the consumers’ data. It will build the trust people are losing in companies and their handling of personal data. But furthermore, the significant aspect is that Unified Data Protection is merely the embracing of the coming. We are accelerating our advancements to the future where there is no doubt it holds multitudes of data resources. We are simply trying to protect that future with such strides.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

What Is Automation In Banking And How Has USA Used It To Grow Its Economy?

Posted on December 3, 2020 | by Signzian

Introduction

The banking industry has always tried to stay ahead of the curve in being adaptive to modernization. It was one of the early adopters in the age of information and understood how much technology would incurve into people’s lives. This has enabled its growth as a pioneer and led it to become one of the largest consumers of Information Technology. Automation and AI are the next logical steps.

Automation in banking is the system of utilizing technology to operate banking processes through highly automatic means rendering human intervention to a minimum.

Gartner reported that the estimated expense on IT applications in the banking sector was $487 Billion in 2018. Lion’s share of this expense was for outsourced external companies which primarily constituted Business Process Outsourcing(BPO) companies. This added up to an approximate of $63 Billion being paid to these BPOs. Such precedent expenses can be avoided by evolving with the technology and the easiest way to minimize it is automation.

How has Automation Evolved Through the Ages?

Traditional Automation

Traditional Automation permits and processes machinery to perform tasks. It uses primarily APIs and other methods to integrate systems and developers must be well versed in the functionality of the target system. This may include steps in operational processes and methods.

Traditional automation is limited in some aspects as in application customization due to insufficient software source code. It is also affected by the limitations of APIs. Most of its methods are rather primitive for today’s digital transformation. Nonetheless, it is still prevalent in many places.

RPA

Robotic Process Automation(RPA) focuses on front-end activities and doesn’t need any shifts for backend operations as RPA works across different applications. RPA bots function at UI(User Interface) level and within the system like humans and provide better personalization and easy customization than traditional automation for users.

Some major features of RPA include:

Reliance on easy to program functionality with reduced TAT
Bots execute individual functions- email responses,data extraction,etc.
Works from UI comprehending user actions.

It’s used for data collation, analysis, invoicing, email management, and other customer service functions. Implementing RPA will cut costs for banks on many levels of these spheres as RPA & traditional automation relieve Individuals from tedious tasks.

RPA- Market Revenues Worldwide (2016–2022)-Statista– Source

We must understand that RPA doesn’t replace any existing technology but works in tandem with the prevalent framework. In a nutshell, RPA handles repetitive, rule-based, and monotonous tasks and actions.

A common example of an RPA bot is the ubiquitous Chatbot. As RPA doesn’t have any AI involved, its scope to improve is limited. It doesn’t learn but helps the user. Here we discuss primarily RPA applications and Implementations.

Artificial intelligence

Artificial Intelligence is the latest technology for automation and mimics basic human intelligence, further advancing it. Such AI-enabled systems comprehend, evaluate, and respond to complex problems and situations efficiently by using Machine Learning algorithms. Some good examples of AI applications are NLP (Natural language processing) powered voice assistants such as Alexa, Google Assistant, and Siri.

Approximately 32% of service providers in the industry use AI technology to better customer experience and ease processing. They use technology like voice recognition, analytics, etc. This was reported in a joint research by Narrative Science and National Business Research Institute.

AI has expanded to such an extent that all the previous technologies used now fall under its own umbrella. Even then AI is met with some skepticism as it will completely take over the processing procedures and traditionalists may raise questions on dependability.

What Benefits Does Automation Offer that Makes Banking Better?

Automation provides the process of banking with versatile features that makes the entire procedure easier for banks and customers. Not only does it bring the safety and privacy of the customers to a higher standard, but also does it provide them with a fulfilling experience. Some of the features include:

Better Customer Service- Data management becomes easier with RPA implementation. These include Daily inquiries, information transfer, application status, balance information, and others. This will free employee time for more critical decisions and tasks. An example is the functionality of a Chatbot which saves every involved party’s time.
Improved Compliance- Banks are regulated by legislatures and other government bodies that prescribe many strict compliance guidelines. Accenture conducted a survey in 2016 in which 73% of respondents expected RPA to be a key enabler in compliance. This was because it increased productivity by being available 24 hours a day with immense accuracy.
Accounts Payable- It requires vendor information extraction, validation, and payment processing. OCR(Optical Character Recognition) technology is used to obtain data from any physical form and transfers it for RPA where the rest of the processing occurs, thus making the process far more efficient than manual methods.
Faster Credit Card Processing- Banks process credit cards within hours using RPA which used to take days with traditional methods. Proper data of transactions can be maintained and better evaluations of credit scores can also be done.
Faster Mortgage Loan- Even a minor error can impede loan processing. RPA can accelerate the process by avoiding unnecessary errors and implementing proper checks which would reduce the processing time to minutes from days.
Vigilant Fraud Detection- RPA tracks all transactions that may give out a red alert and recognises any fraud transaction pattern in real-time. This brings a considerable reduction in response time and can block and prevent fraud to a great extent.
More Credible KYC Process- Know Your Customer (KYC) is mandatory for banks for each customer. KYC process compliance alone costs banks more than $384 million per year(Thomson Reuters). RPA can reduce this along with the time the customer would have to wait for a response.
Data Report Automation- RPA helps generate reports without any error for stakeholders providing data in many formats. They can create a report by auto-filling the available report format with minimal errors and time.
Easier Account Closure Process- Customers benefit Faster account closing process. This increases their affinity to the bank.

How is Automation Boosting The US Banking Sector?

Valued at USD 167.1 million in 2018 and anticipated to register a CAGR of 31.3% from 2019 to 2025, the global robotic process automation in the BFSI market size was rather unprecedented.

The advent of advanced technologies and a need for increased productivity of operations in the United States of America lead to the entire BFSI sector in the country to significantly boost its demand for RPA. Since the USA has a rich inventory of legacy systems, the incorporation and advancements of RPA were upstanding. This increased the agility and precision of processing.

Even casual users can check their accounts and set up automatic payments of their bills. Even KYC verification and other numerous functions are also possible in a much easier fashion. Numerous other back-end and front-end processes are automated using RPA.

Source: www.grandviewresearch.com

In the US a considerable level of RPA has been integrated as alternatives for services such as BPO, robot deployments at the enterprise level, etc which otherwise would have been tremendously expensive. Further, the initiative eliminated repetitive and time expending tasks which have been automated. It reduces the cost of such tasks from 25% to 50% and the TAT to a minimal amount.

Artificial Intelligence and RPA funding spent in the banking and finance industry in the United States increased at 82.9% during 2018 to reach US$ 696.3 million. Over the forecast period (2019–2025), spend on AI is expected to reach a CAGR of 28.4%, increasing from US$ 1,094.9 million in 2019 to reach US$ 6,289.1 million by 2025.

USA and Canada dominated the market for RPA in 2018 in the Banking industry. On average, a U.S. bank with USD 10+ billion assets spends approximately USD 50 million per year on CDD, KYC compliance, and onboarding. The increased expense of KYC and AML compliance coupled with the steep fines over regulatory scrutiny are necessitating financial institutions to adopt new technology and automation. This prevents identity theft, financial fraud, terrorist funding, and money laundering.

The USA and Canada are set to dominate the financial market with RPAs for at least the next half of the decade. Banks are targeting to preserve patrons and reduce customer attrition and RPA helps them as the customer data is strategized and used to contact the customer as required. North America valued at $376.2 billion in 2019 is projected to reach $721.3 billion by 2027. The digital payment segment being the largest service segment in the industry is expected to head the market with the increase in banking products and sales through online portals is also a helpful factor. In 2019 the digital sales sector was valued at $609.4 billion.

Top Banks in US Taking Automation to The Next Level

JPMorgan Chase
The biggest bank in the US, JPMorgan Chase, always stood in the first place when it came to technology investments. A tremendous investment of $11.4 billion in AI technology by the bank proves its enthusiasm for innovation and far-sighted outlook(Source-JPMorgan Chase Annual report 2019). The Bank uses it for improving their databases, search optimization, and Contract Intelligence (COiN)- a Machine Learning technology that uses chatbot systems to build vast databases of legal documents in a short time.
Bank of America
They primarily focus on fraud detection, trading functions, and chatbots. The Bank’s AI-enabled chatbot named Erica(Introduced in late 2017) understands texts and speeches. It not only acts as an inquiry bot but advises the user on suitable financial decisions he could take. Erica approximates 6 million users/customers as of March 2019. The $35 billion lender has invested in the past ten years more than $1 billion in mobile banking which is the simplest area of automation for customers. Their own study revealed that mobile customers have increased to 10% annually.
CitiBank
With an agenda to avoid money laundering and fraud actions, the bank is heavily investing in automation in general and AI technology in particular. They even partnered with Feedzai(2016) for detecting fraudulent transactions. They recognize patterns of multiple transactions from multiple locations where the customer usually doesn’t travel to. The bank has a global network of tech giants that take part in its 6 Citi Global Innovation Labs. With multiple advances in automation and technology, $600 million is expected to be saved per year by the bank.
Wells Fargo
Their chatbot system primarily focuses on clarifying the queries of customers without consuming too much time or requiring physical presence. They also developed a mobile app through predictive analytics. It alerts the customers on issues like exceeded bill payments, etc. It even guides the user with their travel plan and to buy flight tickets. In the year 2019 alone Wells Fargo had nearly spent $9 billion on technology and automation.

Conclusion

The global adoption of a digital era is inevitable making Banking and Automation essentially complementary to each other. The automation of the banking industry with the use of Traditional Automation, RPA, and AI have led developed nations like the USA to develop a more efficient and sustainable economy.

The reason why banks and financial institutions swiftly adopted IT is that their operations, when executed manually, consume immense time and effort from their employees as well as making them perform routine duties and actions, and in the process, missing the opportunity to move up the value pyramid. Automation produces a standardized audit trail, ensuring the right people have access to the proper systems and making sure that financial institutions stick to industry standards while decreasing expenses involved.

The necessity of Automation in Banking is precedented. Its implementation has been mostly successful, but as all things do, it too requires betterment. At the end of the day, the adoption of Automation for banks and other financial industries is a matter of ‘When’ rather than If’.

About Signzy

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You can reach out to our team at reachout@signzy.com

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Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

How KYB Would Have Stopped The Laundromat Movie From Happening

Posted on November 28, 2020 | by Signzian

The Panama Papers incident highlights one of the most significant financial leaks in the last decade. It refers to the 11.5 million leaked encrypted confidential documents of Panama-based law firm Mossack Fonseca. These files were made public on April 3, 2016 by the German newspaper Süddeutsche Zeitung (SZ). They had christened the name as the “Panama Papers.”

The documents revealed the active network of more than 214,000 tax havens. These involved people and entities across 200 different nations. A joint effort was made by SZ and the International Consortium of Investigative Journalists (ICIJ) for a year to decipher the encrypted files. The files furnish detailed information about thousands of offshore “shell” companies. These were used by some of the world’s most influential people to conceal wealth or avoid paying taxes.

Mossack Fonseca was established in 1977 by Jurgen Mossack and Ramon Fonseca. The firm was one of the top offshore legal services providers until April 2016.

The Panama Papers allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion. They displayed how influential people around the world use shell companies to conceal assets. They can also be involved in possible illegal activity.

The Source of the Name “Panama Papers”

The files have been given the moniker “Panama Papers” due to the country of origin. However, the government of Panama has vehemently objected to the name. This is because it seems to put some blame or negative association on the country itself. This is despite any involvement of the government in the actions of Mossack Fonseca. Nonetheless, the nickname has become widespread. However, some media outlets that have covered the story have designated them as the “Mossack Fonseca Papers.”

The incident is the greatest disclosed data breach around a law firm. After the incident, founding partner Ramon Fonseca and other public sources stated that the firm’s network had been jeopardized by hackers sometime in 2015. Security researchers identified numerous unpatched vulnerabilities in Mossack’s website and email server. These could have been very easily compromised by hackers. A total of 2.6 terabytes of data — including 4.8 million emails, 3 million database files, and 2.1 million.pdf files — were leaked. including client documents dating back to the 1970s.

Main Highlights

The Panama Papers were a massive leak of financial files from the database of Mossack Fonseca. This firm was the fourth-biggest offshore law firm in the world.
The documents were leaked anonymously to German newspaper Süddeutsche Zeitung (SZ), which released them on April 3, 2016.
The files date back to as far as the 1970s. They shed light on a network of 214,000 tax-havens. These involve wealthy people, public officials, and entities across 200 nations.
The confidential documents were made public by the International Consortium of Investigative Journalists (ICIJ). The body is a non-profit organization based in Washington. It said that the documents contain details of both current and former world leaders. Other important people include businessmen, criminals, celebrities and sportsmen.
A majority of the files showed no illegal activity. However, some of the shell corporations were for fraud, tax evasion, or avoiding international sanctions.
The ICIJ’s website lists banks including HSBC, UBS, Credit Suisse, Deutsche Bank who have utilized Mossack Fonseca. They used the firm to create offshore accounts.

The Truth In Netflix — How The Story Goes Hollywood

The Panama Papers scandal had a multifold impact on nations. It enhanced the national and global focus on the overall harm of money laundering, tax evasion, and terrorist financing. The incident also helped propel the international critique of USA as a potential haven for money laundering and tax evasion. This is mainly due to provisions in the U.S. to form legal entities. Such entities are formed without having to disclose the identity of true beneficial owners. It also showed the world how lawyers can facilitate their clients’ money laundering.

The somber reality sure caught the attention of Steven Soderbergh. he soon went on to direct the recently launched Netflix-original “The Laundromat”. The movie revolves around the main protagonists of the Panama Papers incident

– Jurgen Mossack (portrayed by Gary Oldman)

and Ramon Fonseca (illustrated by Antonio Banderas).

“How do 15 million millionaires in 200 countries stay rich? With lawyers like these — “ The trailer of the movie “The Laundromat” itself hints to a satirical flavor and adds to the point we mentioned earlier. Many people may find knowledge through humor in the movie. But the original characters certainly don’t share that perspective. The movie has been subject to an extensive lawsuit by the original duo. They have cited the grounds of the movie as “defamatory”

The incident and resulting scandal also illustrates another looming threat. The growing frequency, ease, and potentially devastating consequences of data breaches are concerning. Cyber attacks can threaten even the richest and most powerful people. The breach of client confidential information held by a law firm can have serious potential legal consequences. This applies to both the firm and its affected clients.

The Impact On The Indian Subcontinent

The Indian Express was the partner of the ICIJ project on the Panama Paper Leaks. They had revealed the names of over 500 Indians in its report. This came after 8 months of an extensive investigation of over 36,000 files.

The list publishes the names of corporate figures like the DLF owner K P Singh and nine of his family members. Other names include the Indiabulls Sameer Gehlaut, Vinod Adani who is also a businessman and the elder brother of Gautam Adani. India-born Dutch businessman Ratan Chadha who is the founder of Mexx clothing is also mentioned in the list.

The list provides details of big businessmen to celebrities of Bollywood and politicians. Top names from Bollywood include Amitabh Bachchan & Aishwarya Rai Bachchan.
Mohan Lal Lohia, Abdul Rashid and others are also named among others in this context. The list also shows the addresses of businessmen in Panchkula, Dehradun, Vadodara and Mandsaur. It also includes cricket franchise deals. The files indicate linkages of those people who are already under the scrutiny of the CBI and Income Tax department.
The main accusation against Indians is that they propped up their offshore companies long before the rules were changed in 2013. it was with the intention to place foreign exchange in a tax haven.

Violations of Indian Laws Under Panama Papers Leak

There are mainly laws which are being violated in the Panama Papers case which have been found under the investigation,

The Incorporation of Companies Overseas.
Acquisition of the majority shares of overseas companies in contravention of FEMA rules.
Violation of RBI’s Liberalised Remittance Scheme.

According to Indian legislation, Indians could not incorporate companies outside India. This is because remittances to foreign countries were not allowed before 2004. RBI in 2004 introduced a scheme called as Liberalised Remittance Scheme. This permitted individuals to remit upto $250,000 in phases. These remittances could be utilized for different reasons. Examples — medical, gifting, buying shares, etc.

The people were facing a lot of confusion on this issue. So, the RBI issued a notification in the year 2010. This stated that though the Liberalised Remittance Scheme, Indians are allowed to buy shares. However, it specifically prohibits the setting up of companies abroad by individuals.

RBI issued another notice in 2013. It allowed resident Indians to invest in joint ventures through the Overseas Direct Investment route. So, any company overseas by an Indian can be considered legal only if it was established after 2013.

Insurance Swindles, Shares Fraud and Money Laundering — The Stark Realities Of The Panama Papers

Take One (Insurance Fraud):

The Laundromat portrays the impact on individual lives with respect to the business handled by Mossack Fonseca. The first incident revolves around Ellen Martin (portrayed by Meryl Streep) and her husband (played by James Cromwell). Ellen Martin and her husband Joe are on a pleasure boat at Lake George, New York when it capsizes, drowning Joe. Ellen tries to get compensation from the boating company for Joe’s death. But she could not do so. The reinsurance company that the boat company’s owner and son Matthew bought their policy from was sold to another company based out of Nevis. The Nevis-based company is actually a trust of one of Mossack’s shell companies. It was under investigation by the Internal Revenue Service (IRS) for fraud. Several attempts to contact Mossack and the Nevis-based company were unsuccessful. Ellen travels to Nevis to confront Malchus Boncamper, the manager of the trust. Malchus tricks Ellen and escapes to Miami. But on the way he is caught and arrested by IRS-CI Special Agents at a Miami airport.

Take Two (Shell Shock — Bogus Shares)

The second story is about Simone, who is the daughter of Charles, an African billionaire. Simone discovers her best friend is having an affair with Charles. He offers her shares (supposedly worth $20 million) in one of his investment companies to keep her silent. She accepts his offer. But when she with her mother travels to Mossack’s offices in Panama City to claim the shares, they turn out to be worthless. This is because they are actually part of a shell company under Mossack that only exists on paper. The companies individual values turn out to be $100 and $27 each!!

Take Three (Money Laundering)

The third story is a dramatization of the death of Neil Heywood, part of the Wang Lijun incident. Heywood (renamed “Maywood” in the film), is an intermediary for wealthy Chinese looking to funnel money abroad. He visits a Chongqing hotel to meet Gu Kailai. Maywood demands and pressures Gu for a much higher price. This is if she wants him to continue laundering money for her family through a shell company Mossack owns. Gu responds by poisoning Maywood’s drinks. Gu discloses the incident and reports Maywood to Chongqing police chief Wang Lijun. He secretly records the conversation; he then reports her to the Chinese government.

The story ends with the arrest of Gu and her husband Bo Xilai for Maywood’s murder and for corruption in connection to The Wang Lijun incident. It was a major Chinese political scandal which began in February 2012. This was when Wang Lijun, vice-mayor of Chongqing, was abruptly demoted. He had revealed the details of British businessman Neil Heywood’s murder and subsequent cover-up to the US Consulate.

Interestingly, Neil Haywood, was depicted as a shark in the shell company game through the movie but not much details were provided about him. A point to be noted here is that the film is vague about the reasons why the offshore world thrives. It bludgeons its message home as a “haves vs have-nots” narrative. The particular focus is on tax evasion. This misses some of the other reasons that AML practitioners should be concerned about offshore companies.

KYB — Why It Would Have Been The Anti-Laundromat?

Besides legal considerations, there are also social and ethical responsibilities for knowing UBO. It means the ultimate beneficial owners (UBO) of companies you are doing business with. The Panama Papers disclosed over 200,000 shell companies that hid billions of dollars from lawful taxation. These hidden funds go into the hands of already influential people . In turn, it creates a larger tax burden for society.

Implementing Know Your Business (KYB) requires investigating the UBO structure by law. This is part of the customer due diligence (CDD) process.

KYB in Europe

For example the 4th AML Directive is already in effect in Europe and requires:

identifying the beneficial owner and taking reasonable measures to verify that person’s identity. In this way, the obliged entity is satisfied that it knows who the beneficial owner is. UBO includes legal persons, trusts, companies, foundations and similar legal arrangements. KYB takes reasonable measures to understand the ownership and control structure of the customer.

A beneficial owner in the EU is an entity/individual who owns more than 25% of the corporate entity. Currently the EU customer due diligence requirements are:

(a) identifying the customer and verifying the customer’s identity. This can be done on the basis of documents, data or information procured from a reliable and independent source.

(b) identifying the beneficial owner to the extent that the obliged entity is satisfied. It knows who the beneficial owner is.

(d) monitoring of the business relationship including scrutiny of transactions. This includes all transactions undertaken throughout the course of that relationship. It ensures that the transactions being conducted are consistent with the obliged entity’s knowledge of the customer, the business and risk profile.

KYB in the US

In the US, the Customer Due Diligence (CDD) Final Rule went into full effect May 11, 2018. It states that all covered financial institutions must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted). Financial institutions (FIs) includes banks; brokers or dealers in securities, mutual funds; and futures commission merchants and introducing brokers in commodities.

Unfortunately, different jurisdictions have different requirements. Even within the same jurisdictions different regulations are applicable. For example, besides the Bank Secrecy Act (BSA), which covers the CDD rules, US FIs also have to consider Dodd-Frank, SEC disclosure rules, OFAC (Office of Foreign Assets Control), and FACTA (Foreign Account Tax Compliance Act).

Conclusion

The Laundromat may appear entertaining to many a Netflix enthusiast, but the mortifying part is that it is based on true events. Previously we have encountered movies like The Big Short, The Wolf Of Wall Street and many such titles. These have been entertaining and devastating at the same time. You often love to see and hear about the ways that con man take money, but we often forget that in many cases, its YOUR money that is getting taken and it is YOU that gets scammed.

But there is hope — once KYB comes into full sway. The enforcement and regulatory authorities will finally have the trail to follow fake organizations and prevent hundreds of millions of dollars worth of economic offenses in the form of financial fraud. Yes, you might not have an original classic like The Laundromat, but at least your money will be safe — and then you can always turn to Ocean’s Trilogy for a similar experience, only fictional.

About Signzy

Visit www.signzy.com for more information about us.

You can reach out to our team at reachout@signzy.com

Reach us at: www.signzy.com

Written By:

Signzy

Written by an insightful Signzian intent on learning and sharing knowledge.

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Introduction

Process Automation in US Corporate Banking

How Are The Traditional Banks Using Automation?

What Gives The Fintech Startups An Edge In Corporate Banking Automation?

How Can The Giant Banks ace the game with banking transformation?

Conclusion

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Introduction

Why Do People Confuse Ponzi Schemes With Pyramids Schemes And MLMs?

The Necessity For Automated/ Digital KYC check

Recent Ponzi Schemes That Could Have Been Prevented With Automated KYC check

1. Jeff and Paulette Carpoff- 2020

2. Woodbridge Group of Companies- 2017

3. Burton Greenberg and Bruce Kane- 2015

Conclusion

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The Backdrop of E-Stamping — How It Came About

So What Is E-Stamping?

4 Benefits of E-Stamping

E-Stamp Paper And Rental Agreements

How E-Stamping Can Contribute To Rental Economy

Conclusion:

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NPCI — The Driving Force Behind ENACH

Know Your NACH — Its Evolution & How It Helps

Benefits of NACH:

Classification of NACH

NACH Mandate — How It helps Businesses

E-Nach Debit Mandate — The Base For EMI

How NACH Debit improves Customer Experience

Why Do Customers Choose ENACH?

Conclusion

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Introduction

Investment Scams and Financial Fraud From The Past Century In The US

How is Financial Fraud Faring In The Age Of Information?

Top 5 US States Affected By Financial Fraud and Scams

What Is KYC And How Does It Help?

Conclusion

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CCPA — Popularity Of Privacy In California

GDPR — The European Breakthrough In Privacy

What are the common denominators?

DEPA — How Laws Like GDPR and CCPA laid the groundwork?

DEPA — Building From The Data Privacy Blueprint

Conclusion

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What is FinCen?

What is Customer Due Diligence (CDD)?

Why The Fincen CDD Rule?

6 Major Highlights of the Fincen CDD Rule

New Additions — FinCEN Issues New Guidance for Complying with the CDD Rule

The European example

Conclusion

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Introduction

What Is The Current System Of Banking In The US And How Does It Handle Data Privacy?

Is Data Privacy Safe in This System of Banking?

How Has Unified Data Protection Been Implemented In Other Regions?

How Will Unified Data Protection Affect The Us Banking Sector?

What Are The Boons And Banes That Follow?

Conclusion

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About Signzy

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The Source of the Name “Panama Papers”

The Truth In Netflix — How The Story Goes Hollywood

The Impact On The Indian Subcontinent

Insurance Swindles, Shares Fraud and Money Laundering — The Stark Realities Of The Panama Papers

KYB — Why It Would Have Been The Anti-Laundromat?

Conclusion

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