Category: Banking

On September 20th, the International Consortium of Investigative Journalists (ICIJ) released the “FinCEN Files” to the world in collaboration with Buzzfeed News. These were the same reporters who brought us the “Panama Papers” and the “Paradise Papers”. This latest data leak of the FinCEN Files delivered a stunning blow to law enforcement and regulators across the globe. As we have seen from similar past incidents, releasing such highly confidential data into the public domain has serious consequences for the businesses and authorities involved.

2 Important Terms In Connection To Fincen

FinCEN stands for the US Financial Crimes Enforcement Network. It constitutes the people at the US Treasury who counter financial crime. Any concern about transactions made in US dollars is sent to FinCEN, even if they occur outside the US.

Suspicious activity reports (SARs) are the documents where the above-mentioned concerns are recorded. A bank must fill up one of these reports if it has a suspicion against one of its clients. The report is forwarded to the relevant authorities.

The Suspicious Activity Reports (SARs) have established that most banks often moved funds for companies registered in offshore tax havens. Ex: the Cayman Islands and the British Virgin Islands, where the owner information was unavailable.

Banks could have denied proceeding with these transactions. But in most instances, the transactions were carried out and a SAR report was later filed to fulfill their reporting obligations.

The Fincen Files — What Are They

The so-called FinCEN Files constitute 2,657 documents leaked from the Financial Crimes Enforcement Network (FinCEN). The FinCEN files were leaked to Buzzfeed News in 2019 who promptly shared them with the ICIJ. For the last 16 months, 400 journalists across 88 countries have sifted through the leaked records. They conducted a number of their own investigations to verify the data.

 

The documents contain 2,121 SARs sent to the US authorities. These are regarding transactions that took place between 1999–2017. The leaked SARs allegedly provide “some of the international banking system’s most closely guarded secrets”. They cover 200,000 suspicious transactions Which are at over USD 2 trillion that occurred over two decades.

Key Revelations Of The FinCen Files

• HSBC enabled fraudsters to move millions of dollars of stolen money around the world,. This was done even after it learned from US investigators the scheme was a scam.
• JP Morgan assisted a fraud company to move more than $1bn through a London account. They did not even know without knowing who owned it. The bank later discovered the company owner to be a mobster on the FBI’s Top 10 Most Wanted list.
• Recovered evidence from the files hint that one of Russian President Vladimir Putin’s closest associates used Barclays bank in London to avoid sanctions that were meant to stop him using financial services in the West. Some of the cash was used to buy works of art.
• The husband of a woman donated £1.7m to the UK’s governing Conservative Party’s. According to the files, he was secretly funded by a Russian oligarch with close ties to the Russian President.
• The UK is called a “higher risk jurisdiction” and compared to Cyprus. This is according to the intelligence division of FinCEN. The number of UK registered companies that appear in the SARs has over 3,000 UK companies. These are named in the FinCEN files — more than any other country.
• Chelsea owner Roman Abramovich once held discreet investments in footballers not owned by his club. These investments were made through an offshore company.
• The UAEs’ central bank did not respond to warnings against a local firm which was helping Iran evade sanctions.
• Deutsche Bank was involved in money laundering for organized crime, terrorists and drug traffickers.
• Standard Chartered Bank mobilised funds for Arab Bank for more than a decade. This was even after their clients’ accounts at the Jordanian bank had been funding terrorism.
• In North Korea, a host of shell companies were used to mobilise millions of dollars through U.S. banks in New York. The funds were routed through China, Singapore, Cambodia, the U.S. and elsewhere. This is based on the suspicious activity report filed by the Bank of New York Mellon and JP Morgan Chase.

 

In another instance, JPMorgan Chase, alerted the Treasury Department in January 2015. This was about suspicious financial transactions linked to North Korea. In its report, JPMorgan Chase said that it oversaw $89.2 million in transactions from 2011 to 2013. These transactions benefited 11 companies and individuals with ties to North Korea. The bank said it had previously flagged those companies in its own suspicious activity reports for sending funds to North Korea.

The Indian Involvement

The Indian Express joined 109 media organizations in 88 countries at the International Consortium of Investigative Journalists (ICIJ) as the Indian representative. They coordinated tracking of the Indian entities and the banks mentioned in these SARs filed with FinCEN from 1999 and 2017.

Suspicious bank transactions of Indians are red-flagged by FinCEN. They are suspected for money laundering, terrorism, drug dealing or financial fraud.

The investigation also revealed transactions of a range of individuals and companies. The list includes a jailed art and antique smuggler, a global diamond firm owned by Indian-born citizens named in several offshore leaks, a premier healthcare and hospitality group, a bankrupt steel firm, a luxury car dealer who allegedly duped several high net worth individuals, a multinational Indian conglomerate, a sponsor of the Indian Premier League (IPL) team, an alleged hawala dealer who became the reason for a massive fight within the Enforcement Directorate (ED) and a key financier of an Indian underworld crime boss, among others.

Not The First Incident, But How Is It Different?

There have been a significant number of big leaks in the financial world in recent years:

• 2017 Paradise Papers — This event marks a bunch of leaked documents from an offshore legal service provider Appleby and corporate services provider Estera. The two were partners in operation together under the Appleby name. This was until Estera became independent in 2016. The documents divulged the offshore financial dealings of politicians, celebrities and business leaders
• 2016 Panama Papers — The infamous incident marking the leak of documents from the law firm Mossack Fonseca. These documents showed in detail how wealthy people were using offshore tax regimes.
• 2015 Swiss Leaks — The documents from HSBC’s Swiss private bank were revealed in 2015. They displayed how it was using the country’s banking secrecy laws to help tax evasion.
• 2014 LuxLeaks contained documents from the accountancy firm PricewaterhouseCoopers. These documents exposed big companies who were using tax deals in Luxembourg. The deals helped to reduce the tax amount they were having to pay

The FinCEN papers are different because they are not just documents exposing a bunch of fake/offshore companies. They are actual reports which come from a number of well-established banks.

These papers bring to light a plethora of potentially suspicious activity involving companies and individuals. The reports also put up questions about why the banks which had noticed this activity did not address their concerns.

Once a bank has delivered a report to the higher authorities, it is very difficult to prosecute it or its executives. This is despite the fact that it carries on helping with the activities and collecting the fees.

FinCEN stated that the leak could

– have repercussions on US national security

– jeopardize investigations

– place the safety of institutions and individuals who file the reports under risk.

Role of Shell Companies In Money Laundering And Fraud Businesses

A shell company is an on-paper business that is established to hold funds and manage another entity’s financial transactions. Shell corporations don’t have any employees. Their shares/stocks aren’t traded on exchanges. Shell companies neither generate any revenue nor provide customers with any products/services. The only normal business practice that shell companies take part in is managing the assets they hold. This usually doesn’t amount to much money.

• Tax Evasion: Many times corporations set up shell companies at offshore venues. These locations usually have a very lenient tax rate. These places are known as ‘Tax Havens’. Examples of these places are Panama and Switzerland. These corporations dump their assets in the shell companies. This way, they can escape from paying high taxes on their assets. Foreign companies can create shell company law. This is because some tax havens don’t have to report any tax information. This makes it a cakewalk to defer taxes and hide offshore accounts from other tax havens. Ex: include places such as Switzerland, Hong Kong and Belize which have gained public attention.
• Money laundering — The Black & White Game; In India, a lot of shell companies were discovered in 2016 when demonetization happened. This was because they were engaged in making use of black money. Many people and corporations make use of shell companies to store their surplus cash. This is preferable instead of making deposits.
• Ponzi Schemes: People or corporations may create shell companies to defraud people. They do so by offering fraudulent schemes and earning money out of it. By making use of these companies, they save themselves. When the fraud is discovered, it is very difficult to find the actual people behind the scheme. The only thing upon which the blame can be put on is the company (which is not of any use).
• Masked Vigilantes — Hiding The Identities: Finding the real owner of a shell company can be a problematic task. The owners of these companies successfully hide their identities. They cannot be located as usually the registered office of the company or directors is at a completely different place. In most cases, it does not match the address submitted to the registrar.

Can There Be Any Legal Reasons For Setting Up Shell Companies?

There are some legal reasons for which a shell company can be created. These are as follows:

• Hold or store money temporarily. This is mainly when the main company/ owner of the shell company is planning to start a new company.
• If a company wants to conceal its business with another company, which has a bad reputation, a shell company can come into play. This can be solely to deal with the other company.
• A shell company may be created in order to stage a hostile takeover of another company. This happens when a company buys another company. This is usually done without the approval of the management of the target company.
• To protect assets from lawsuits.
• In case a company is working in a dangerous country with rampant terrorist activities. The people may formulate shell companies to hide money. This helps avoid being a target of criminals and thieves.
• Shell companies are often used to receive access to foreign markets.

Why Shell Companies Prefer Offshore banking

Essentially, an offshore bank is just a bank located outside the account holder’s country of residence. Offshore banking services are typically offered by banks with a presence in a low tax jurisdiction. These banks tend to offer financial and legal advantages over domestic banking arrangements.

There are plenty of legitimate reasons for having an offshore account:

When living or working abroad, holding an international bank account can make it easier to manage finances. Also, offshore accounts are often available in multiple currencies. This can be more convenient for someone making or receiving payments across different countries.

Clients like the ones mentioned above may find it more convenient and more economical to direct all of their business through one bank. This makes sense to centralize this in a jurisdiction that is the most tax-efficient. There are several companies that do this without actually having a physical presence in the country where they are tax domiciled. This is not illegal, but it can be stated as highly unethical.

International banking facilities usually offer more flexibility. This helps those who need immediate access to their money or to international financing. They can do so more cheaply, quickly and easily than would be possible with domestic arrangements.

There are of course demerits here as well.

– Such accounts usually require a minimum balance

– These accounts are not protected in the same way as account balances are protected (up to £85,000 in the UK) via schemes such as the UK’s Financial Services Compensation Scheme.

KYC and AML — Need For A New Approach

KYC (Know Your Customer) and AML (Anti Money Laundering) are very popular terms today. They’re basically catch-all procedures designed to prevent all kinds of horrors in the financial world.

The same processes are used for sanctions.

KYC and AML procedures have modernized over the years as international payment volumes boomed through the ages. After 9/11, the prevention of terrorist financing made these processes more refined.

The newly introduced concept KYB is an additional security layer to the above. It requires each bank to formally identify who their customer is. So if the client is a company, the bank needs to know who each Ultimate Beneficial Owner (UBO) is.

This can be a bit tricky. Criminals often build shell companies in offshore jurisdictions. These are usually owned by companies in another country. These shell companies are handy for hiding who the real owners are.

The bank must then engage in a series of Customer Due Diligence (CDD) — and sometimes Enhanced Due Diligence — checks. The bank must also check that the person isn’t on a sanctions list (e.g. they’re not considered a danger by the USA or EU).

Need For KYB — Good For Business

In recent years, combatting money laundering and terrorist financing has ramped up. There are stricter regulations in place to ensure financial transparency around business ownership.

Over the last few decades, the introduction of new regulatory updates like AMLD5, PSD2 and many more have changed the game. Companies and financial institutions are expected to know who they are doing their business with. This requires the detection of the ownership structure and their business relationships.

Use of offshore tax havens, shell firms, investments in cash-intensive sectors like bullion and real estate, Trusts with no specific purpose, layers of shareholding (for instance, through subsidiaries or intermediaries), are some ways fraud and crime are concealed.

Fraudsters utilize fictitious addresses and fake identities to :

– avoid the deposit of annual financial statements

– conceal their identities and get away in the case of investigations.

UBO — The New Weapon

UBO is an acronym for ‘Ultimate Beneficial Owner’, i.e. the person or entity who is the ultimate beneficiary of the company. The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.

Their definition of UBO is as follows:

“the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted.”

The FATF focuses on two types of UBO, based on “ultimate ownership” and “ultimate effective control”. The beneficial owner is thus;

– the person you are doing business with, who may be the legal owner of the entity, or

– the person, or group of persons, who own/s or controls that business.

A company may have more than one beneficial owner or group of owners, to conceal the identity of absolute controlling person or interests.

 

The UBO compliance law applies to;

– Financial transactions, financial institutions (commercial banks, investment banks, insurance companies, brokerages and investment companies), and companies that deal with money (credit unions, money transfer businesses, payment services, online marketplaces, gambling and gaming companies).

– Other companies, like real estate and bullion trading, where transaction above threshold limits, may trigger the requirement of UBO reporting.

– Jurisdictions where regulators have explicit AML/CTF laws, and KYC rules.

Regulated entities are required to retrieve, maintain and disclose such UBO information. Non-compliance can lead to heavy fines and severe reputational damage.

Significance of KYB screening.

KYB screening guarantees fraud prevention and gainful regulatory consistency. It assists organizations with accomplishing believability and generosity in the business network. The better the rating an organization has from the specialists, the more business it draws in.

It helps businesses achieve their share of the worldwide market. Enterprises are developing online connections with others from every corner of the planet. With the limited experience of the prospects, the chances of loss are high due to ambiguity.

This ambiguity leaves a loophole in the B2B relationship. This loophole is then exploited by the criminal entities. It is used to prepare attacks on companies with various types of fraud.

There certainly are a few common scams or fraud which are committed through B2B relations like:

Money laundering.

–black money is channeled through a business with weak security protocols. It is used to launder money and to aid terrorist activities.

Shell businesses fraud.

Fake businesses are set up to wash black money. Black money is incorporated available proceeds and declared as legit revenue. In case a shell company is found by the authorities, the credibility of the businesses conducting business with it is also tarnished.

KYB is significant for global companies to achieve retainable growth in today’s scenario of fraud and increasing regulatory scrutiny.

Conclusion

There are no winners in scandals such as the FinCEN Files — except, perhaps, for the media who can profit from sensationalist headlines. Neither the banks nor the regulators come off well.

This case can, however, be used as a call to arms for positive change. With KYB, bogus corporations and shell companies can be weeded out to prevent further misuse of funds. While SARs are easy to be ignored, mandating KYB as part of the initialization process can easily prevent such fiascos from happening in the future.

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.

 

Digitization has transformed the way customer onboarding was done. With online video KYC, banks are now able to reduce customer friction and automate the onboarding process. Let’s dive deeper to understand more about video KYC

You may already know, but ‘KYC’ short for ‘Know Your Customer,’ coming from the conventional investment world, with ‘detailed information from investors and banks about risk appetite, investment expertise and financial position for their clients.’ For the case, Banks complete this KYC strategy at the Time of opening of a bank account. The bank additionally must keep on upgrading the KYC of each client with Time. KYC formally came into existence in India in 2002. RBI also directed the banks to be compliant with the KYC Master circular by Dec 2005.

Though digitization started quickly, we had a long way to go.

What is Video-KYC? And Everything You Should Know About It

Traditionally, either consumer, or the bank has to be present physically in front of each other. With the acceptance of digital methods in practice, IPV still alluded the customers. Other digital methods restricted the per annum transaction to a certain extent. Right before the COVID mayhem, RBI formally introduced online video KYC as a valid method of onboarding the customers.

Through a video call, the client can straightforwardly chat with a Financier, give all the personality records to confirm who they are, and finish the account opening steps in many minutes. The Video KYC helps you remotely link customers without the need for a physical “IPV” test. A bank officer reaches individuals through a live video call, and they ought to submit identity confirmation virtually in the Video KYC process.

It is also referred to as Video KYC, Digital KYC, or Visual Customer Identification (V-CIP). The recently allowed video-KYC guarantees to supplant the out-dated KYC framework totally, with clients now not required to follow it up with physical confirmation of documents. When both identity and record is confirmed, the outcomes are sent to the back-office. Along with it, Video KYC lets you open an account immediately or take out a loan too.

Future of Video KYC (and finance)

Components like reliability and versatility of Video KYC arrangements have been most talked about and talked about. Online video KYC can prove to be a hassle-free norm in the future even after the battle of COVID-19 too. KYC Video could be a significant benefit to investors, pre-paid wallet players, insurance firms, private and public banks, financial securities, and non-banking entities.

It is a safe way of achieving a clean consumer base for the banking industry and particularly Fintech companies. KYC is the first step in this process, and we hope that will bring you to us as your Video KYC solution partner and be a significant move towards the customer.

Who is offering Video-KYC?

1. The banks said in their press releases that RBL bank and IDFCFirst bank launched video KYC for the opening of savings bank accounts and that IndusInd bank has enabled KYC for the opening of savings accounts and has tied up BankBazaar for applicants for credit cards.

2. According to Deepak Sharma, the video feature of KYC will have its learning curve, chief digital officer Kotak Mahindra Bank. “This offers the user the ability to receive a restricted KYC account that can be transformed into a full KYC account due to network problems or records.

3. And many many more have started using it by Sep 2020. In fact, vendors are even getting replaced while I am writing this.

How Can Video-based KYC Be Beneficial For India?

Why is V-KYC such a big deal? The brief reply is that it serves as a reliable software for social distancing. The recent outbreak of social distance may have been alarming, and our daily financial activities could have been limited. There’s some good news here, no worries! To eliminate the conventional paper-based KYC approach for identifying the consumer, the Reserve Bank of India (RBI) has taken an essential step towards digitalizing the KYC mechanism for the ecosystem. Many banks and financial agencies have begun introducing guidelines for an effective online video KYC operation. That is how V-KYC can serve as a critical success factor:

a) Comfort: The video KYC method can be done with home comfort. You only need a laptop, smartphone, or tablet that is linked to the Internet.

b) Less Time Consuming: The Time for the document review is less. It can be accessible to complete the procedure, which took weeks sooner in a matter of days.

c) Safer: Video KYC test eliminates the need for customers to visit a branch or exchange paper copies or wait for days to complete the account opening process. That will improve the conditions for social distancing, the way bank accounts are opened in the future, and significantly reduce the boarding cost.

d) Reliability: In a nutshell, it enables fraud prevention and error checks. It also stops malicious behavior from occurring and corruption practices such as money laundering.

e) Cost-Effective: For both parties, KYC costs between Rs.50 and Rs.500 while V-KYC cuts cost significantly, allowing more consumers, no matter where they are, to be on board quicker. Video KYC gives customers a more convenient choice when raising their costs during onboarding.

f) Efficiency: The face to face KYC is unpredictable and lengthy due to which only 3 KYCs can be performed a day, but Video KYC comes up with more flexibility and only requires 2–10 minutes for the entire sessions reducing turn-around time while not being limited geographically.

Details Required in the Online Video KYC Process:

The following steps are required to proceed:

1. Fill up the necessary details on the online form.

2. The customer’s picture should be live and not a photo-of-a- photo. Banks can use facial recognition technology to validate the client with an image of the documents on camera.

3. Provision of bank consent to fetch Aadhaar details and enter the PAN number or conduct an e-PAN verification.

4. Live customer locations need to be geo-tagged to ensure that they are located in India.

5. The session requires both the user and the staff of the regulated entity to be present simultaneously.

Bottom Line

Online video KYC serves as an utmost foolproof innovation to set a social distancing and has a long way to go. Customers can now update or complete their KYC process and continue to use the loan service. Considering the current digital pandemic scenario, this is the only way of life. So what do you think of Video-KYC?

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:

Rahul Raj

Sales professional with 12+ years of experience in technology sales, and business consulting.

 

Digital KYC verification has made CASA banking really simple. Let’s understand how….
A current account savings account (CASA) is a combination of the features of savings and current accounts. It enables customers to keep their money in the bank. It provides very low or no interest on the current account. For savings accounts, banks provide an above-average rate of interest.. A CASA functions like a normal bank account where funds may be withdrawn at any time.

Most banks provide CASAs to their clients for free. In some cases, a small fee may be levied, based on certain minimum or average balance requirements. A CASA tends to be a cost-effective method for a bank to raise money. This is a more suited alternative to issuing term deposits like fixed deposits (FD). FDs offer higher interest rates to customers.

Financial institutions prefer the use of a CASA as it generates more profits. The interest paid on the CASA deposit is less than on a term deposit, the bank’s net interest income (NII) is higher. Thus, CASAs can be an effective source of funding for banks.

Banks and regulators have focused on eradicating terrorist funding and money laundering. The objective is to prevent financial terrorism related activities. It’s impossible to transfer funds around the world and within a country without using a financial institution. As such, banks have increased their efforts to prevent, detect and report suspicious transactions. These include financial transactions that are connected with money laundering and terrorist financing. Digital banking KYC verification is a critical component to anti-money laundering efforts.

Need For KYC In CASA WorldWide

India

As per RBI regulations on KYC, the objective of KYC/AML-CFT guidelines is to protect banks or Financial Institutions (FIs). This prevents them from being used by for money laundering or terrorist financing activities. KYC procedures also enable banks and FIs to know and understand their clients. This helps in their financial dealings better, and so manage their risks prudently.

KYC is a fundamental part of the banking process. KYC regulations are non-negotiable and non-optional. This applies to retail banking as well as corporate banking,

In simple terms, KYC in CASA involves four essential steps:

• The customer identity: This can be Individual, Partnership, Sole Proprietorship Firm, Company, or LLP
• The business’ address: The registered address where business activities are being carried out. For instance offices, factories, depots, or warehouses
• Statutory registration: The business is compliant with various statutory registrations under RoC, Income Tax, GST, etc
• The legality of the business: Whether the business is legal as per Indian laws.

The KYC process in banks is elaborate and time-consuming. This is because it involves a lot of documentation, compliance checks, and background verification. The process can take 2–3 weeks to be completed and also imposes an enormous cost to banks and FIs.

Although it is a legal mandate for banks and FIs, conventional KYC methods provide a miserable experience for customers. Banks and FIs have switched to technology to enhance the KYC processes. Ideally, customer interaction and contact is barely needed for KYC. This is due to the fact that most data are available on the public domain. Asking the customer to submit the same data inevitably delays the process.

USA

In 2016, the U.S. government passed a rule which mandates banks to verify the identities of beneficial owners of legal entity clients. These include corporations, LLCs, partnerships, unincorporated non-profits and statutory trusts. Beneficial owner information is necessary for an individual. This is applicable for individuals with an ownership stake of 25 percent or more equity interest.

If you’re a beneficial owner of a legal entity, the following personal information must be furnished that includes:

• Full legal name

• Date of birth

• Current residential address

• Social security number (SSN) or other government issued identification number for US citizens

Banks and other financial institutions must procure this information. This is because it’s a regulatory compulsion. It attempts to prevent, detect and report money laundering and terrorist financing activity.

For instance, while opening a new account and collecting key KYC information, a bank may find through open source record checks that an individual/business had defrauded innocent investors previously, or was part of a global criminal network. This information may hint that this potential client could be an elevated money laundering risk.

Europe:

Over the past few years, there have been several high-profile cases of alleged money laundering. These have increased the attention of the general public and regulators alike. This has subsequently been a result of the penetration of illicit funds and fraud into European societies. Existing AML requirements are continuously adjusted to better prevent such tactics.

The evolution of customer expectations is adding higher imposition on organizations. Delivering seamless, fully digital and mobile experiences is becoming compulsory. The unprecedented situation that has been inflicted by the coronavirus pandemic in 2020 is an added setback. This is also setting new standards on the pace of digital transformation in KYC compliance.

To address these challenges, the EU has introduced a number of more stringent financial regulations over the last few years. This is to potentially tighten the enforcement powers across the bloc. — the European Commission’s Action Plan released in May 2020.

The extensive penetration of money laundering practices can be seen in European societies. News stories such as the Panama and Paradise Papers is critical in this context.

A number of regulations have been mandated to address the general issues. This is done on the basis of the challenges which the financial sector had undergone for the previous ten years. In particular:

• The Fourth, Fifth & Sixth Anti-Money Laundering Directive (AMLD4, 5 & 6) are aimed at counteracting the extensive penetration of money laundering in the societies. This can be done by introducing more thorough checks. Moreover, better cooperation between countries, as well as harsher criminal liabilities are crucial.
• The Payments Services Directive (PSD2) entices customer-centric innovation in the banking world. The focus is on preventing payment fraud and misuse of electronic financial tools;
• The updated Markets in Financial Instruments Directive (MiFID II) is another important regulation. It is driven by the necessity for more transparency in financial investment operations;
• The General Data Protection Regulation (GDPR) was the EU’s response to the general public’s request. It was passed to regain control over personal data and identity.

KYC Methods In CASA For Banks

For framing KYC policies, banks must follow the RBI guidelines. Every bank, has to consider the following major aspects:

a) Customer Acceptance Policy–

To make sure that explicit guidelines are applicable to the acceptance of customers.

b) Customer Identification Procedures–

To efficiently identify the customer. This helps to verify his/her identity. This can be done with reliable, independent methods of documents, data or information.

c) Monitoring of Transactions– This policy observes the standard activity of the customer. It can then mark transactions that fall outside the regular pattern of activity.

d) Risk management– Establish appropriate protocols as well as implicate their effective implementation.

As part of the Know Your Customer policy, a Customer/user may be defined as:

• A person or entity that possesses an account and/or maintains a business relationship with the banking institution
• The person on whose behalf the account is maintained (i.e. the beneficial owner)
• Beneficiaries of transactions which are carried out by professional intermediaries. These can be stockbrokers, Chartered Accountants, or solicitors etc.
• Any person or entity involved with a suspicious financial transaction. This can have significant impact on reputation or other risks to the banking institution. For instance, a wire transfer or issue of a high-value demand draft as a single transaction.

Going paperless — Digital KYC verification

The immediate benefit of a paperless form of KYC is the decreased costs for performing KYC. Video KYC brings in the additional benefit of being completely remote. This is because digital KYC still requires a visit either to the customer’s doorstep or a touch point.

Video KYC in particular thus presents a significant advantage for achieving scale. It has become a crucial factor in the success of fintech initiatives for financial inclusion. This is primarily because it delivers a cheaper method for achieving compliance even in remote locations.

Several fintech companies have introduced new-age digital identity and authentication technologies. They serve the purpose of KYC compliance. These utilize Artificial Intelligence, Blockchain and cloud-based API technology, among many others. Some of these have already been applied in other sectors, like the use of digital KYC verification to open mutual fund accounts.

The amount of data and related analysis projects a scope for new ways in which the data can be leveraged. Some instances include:

– New age risk mapping

– Using machine learning for false positive screening

– Using robotics for dealing with huge volumes of content and unstructured data

The scope for innovation has huge potential. It is a primary reason why the RBI’s regulatory sandbox has specified a focus on digital KYC technology. For starters, the Reserve Bank Of India should mandate digital KYC to become remote as well.

In the US, KYC started with the introduction of the Banking Secrecy Act (BSA) in 1970. This act was developed to control drug trafficking by keeping an eye on black money transactions. Subsequent AML regulations were developed on the basis of BSA in 2001 in the form of the USA Patriot Act which was implemented in 2003.

Later, following BSA, many other regulators introduced KYC and AML Regulations. This was done on regional and international levels.

Digitization of KYC — Major Amendments In Banking Regulations

As a measure to implement digital KYC verification, the finance ministry as well as RBI has introduced several amendments over the last 2 years. The Reserve Bank of India (RBI) acts as the regulatory authority for banking in India. The amendments also ensure that digital KYC verification  meets regulatory requirements.

• In May 2019, RBI announced important amendments to the Master Direction on KYC. This included updating its list of documents eligible for the identification of individuals. The KYC details apply to banks and other regulated entities. It helps them understand their customers and their financial transactions better. This, in turn, helps them better manage their risks. As per the RBI notification. banks can carry out Aadhaar authentication/offline-verification of an individual. This can be done only when he/she voluntarily utilizes his/her Aadhaar number as ID.
• The Ministry of Finance (Department of Revenue) has introduced digital KYC by amending the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. It said in a gazette notification dated 19 August 2019. Digital KYC means capturing live photo of the client. It also captured officially valid documents. It also permits capture of Aadhaar for offline KYC verification. (To know more about the offline KYC rules, click here )
• In January of 2020, RBI amended the KYC norms allowing banks and other lending institutions to use VideoKYC. This move will help them onboard customers remotely. VideoKYC, which will be consent-based, will make it easier for banks and other regulated entities to adhere to the RBI’s KYC norms. (To know more about VideoKYC norms, click here )

Regulatory Authorities Around the Globe for KYC

The following highlights the major regulators around the world. They develop, recommend and implement KYC and AML compliance around the world:

FATF (Financial Action Task Force) is a global authority. It gathers and analyzes money laundering and terrorist financing data from across the globe. It gives regulatory guidelines based on its findings. It has 190 member countries.

FinCEN (Financial Crimes Enforcement Network) is a bureau of the USA treasury department. It collects the financial transactions data. It uses this data for financial crime mitigation and international level.

FINTRAC (Financial Transactions and Report Analysis Center) is a regulatory authority in Canada. It analyzes the financial crime data and works on the detailed implementation of KYC and AML rules in Canada.

FINMA is a financial regulatory authority in Switzerland. It oversees banks, insurance companies, stock exchanges, etc. The authority oversees KYC/AML regulations. This applies to all the institutions liable for regulatory compliance.

Europol is a EU authority that works on anti-money laundering and mitigation of financial crimes like terrorist financing.

Major updates in Global KYC/AML Laws

Amendments in Canada’s PCMLTFA rules

Canada introduced changes to its KYC and AML regimes to collaborate with the global regulations of FATF. It amended its PCMLTFA rules. FinTRAC, is responsible for the nationwide implementation of these rules. Digital KYC will be conducted in the manner of scanned copies of documents that can be used for KYC verification of the customers.

The USA expanding its Counter-Terrorism Powers

The USA has transformed its KYC rules to combat increasing money laundering and terrorist financing. It expanded its counter-terrorism powers. It now targets international financial institutions around the world. These culprits are responsible for aiding the terrorist groups working in the U.S. Recently it filtered three Korean groups. These are namely, Bluenoroff, Lazarus Group, and Andriel. They were responsible for the global cyber attacks on financial institutions.

UK MLA Amendments

The UK introduced amendments to its KYC and AML regulations to expand on an international level. The Money laundering Act (MLA-2017) allowed UK-based businesses to practice the MLA rules in their international affiliates.

The EU 5AMLD and 6AMLD

The EU introduced its Fifth Anti Money Laundering Directive (5AMLD) in 2018–19. 5AMLD limited the transaction and deposit limit on the prepaid cards. If the card holder will deposit or make a transaction of above EUR 150 the prepaid card provider will have to run KYC and AML on its customers. The amount is EUR 50 for online transactions.

6AMLD is an improved endeavour to normalize AML/CFT regulations in the EU region. 22 predicate offences are provided in the official journal of 6AMLD.

FINMA gave banking certificates to Crypto Banks

FINMA and Swiss regulatory authority issued banking certificates to pure-play cryptocurrency banks. Tight KYC and AML regulations are imposed on these banks.

Real KYC & VideoKYC For CASA

At Signzy, we have developed 2 proprietary Digital KYC products. They offer the perfect solution for onboarding savings and current accounts — Real KYC & VideoKYC. Here are some benefits:

• ‘Free of Cost’ Process: RealKYC verification is not liable to charge any extra amount to the customer. A company or institution may need to pay automation costs of installing verification systems for the long-run.
• Faster processing: The RealKYC service is an automated online process. This implies that KYC information can be transferred in real-time and does not require any manual intervention. The paper-based KYC process can be delayed for days and go up to weeks to get verified. Using the RealKYC process reduces this to just a few minutes to verify and issue.
• Account opening in less than 2 minutes: Signzy’s VideoKYC product is capable of onboarding a new CASA account in less than 2 minutes.
• End-to-end encryption for VideoKYC: This feature makes all calls made to officials for verification secure, with zero chance of your data being compromised.

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

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Signzy

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