As 2024 unfolds, compliance challenges and solutions will also continue to evolve and affect the way businesses interact with customers and regulators.
The good news is that new, powerful technologies are helping businesses shed suboptimal, time-consuming and resource-intensive manual compliance procedures — as well as outdated processes and technologies.
Read on to get acquainted with the leading innovations to secure your business’ KYC/AML compliance credentials — and to understand some of the outdated methods we can definitively say goodbye to in 2024.
It’s time to drop practices such as manual verification that simply require documents such as passports, driver's licenses, and utility bills. These processes are not only time-consuming but prone to human error, and easily doctored.
With the use of manual verification processes and the rise of deep-fake technology, your business will be left vulnerable to an attack with every client transaction.
Biometric verification involves identifying individuals based on their unique biological traits. This method eliminates the need for traditional identification methods such as passwords, PINs, and ID cards which can be stolen or forged. Instead, biometric verification uses characteristics that are difficult to replicate such as fingerprints, hand and earlobe geometries, retina patterns, voice prints and written signatures.
This technology has been widely used in various industries for security and authentication purposes, and it has also gained prominence in AML efforts.
With the increasing prevalence of financial crimes, governments and financial institutions are constantly looking for ways to combat money laundering activities. Biometric verification offers a reliable and secure way to verify the identity of individuals, making it an important tool in AML efforts.
Liveness is a form of biometric authentication that uses facial recognition technology to verify the identity of an individual. It works by analyzing the unique features of a person's face, such as their facial structure, eye movement, and blinking patterns. This solution is used in AML and KYC processes to ensure that the person being onboarded or carrying out a transaction is actually who they claim to be, and not someone using stolen or fake identities.
One of the main benefits of Liveness in AML/KYC is its ability to prevent identity fraud. As criminals become more sophisticated in their methods of obtaining fraudulent identities, traditional methods of identity verification such as passwords or PINs are no longer effective. In parallel, simply submitting a scanned copy of an ID document is no longer sufficient for many onboarding scenarios, as these can be easily doctored, and the rise in deep-fake technology makes it possible for financial criminals to use fabricated presentations to pretend to be a person depicted on an ID document.
Liveness adds an extra layer of security by requiring a live face to be present during the authentication process, making it nearly impossible for fraudsters to bypass.
The Single-layered Defense Approach involves a single layer of defense against fraud and other financial crimes. This approach relies on a single barrier to access a system, such as simply asking for a single password or PIN number, which as noted above, can be forged or stolen.
The Single-layered Defense Approach also has other limitations. One of the main disadvantages is that it relies heavily on technology and automated systems for detecting suspicious activities, such as when a password is entered incorrectly several times. When it comes to the authorization of financial transactions, this can lead to false positives and false negatives, resulting in the misinterpretation of legitimate financial transactions as suspicious. This approach may not be effective against sophisticated money laundering schemes that can bypass these automated systems.
Your business needs to be ready for anything going into this new year. Therefore, a more comprehensive and layered approach is required.
Multi-factor authentication (MFA) is a security measure that requires users to provide multiple forms of identification before they are granted access to a system or application. It plays a crucial role in protecting the sensitive information and transactions involved in financial institutions.
MFA typically involves a combination of something the user knows (such as a password or PIN), something they have (such as a smartphone or key fob), or something they are (a biometric factor like fingerprint or facial recognition). By requiring multiple forms of identification, MFA reduces the risk of unauthorized access to sensitive information.
Currently, many businesses use rule-based systems to detect fraud, which are often manual and time-consuming. With the ever-growing amount of financial transactions taking place globally, it has become challenging for compliance teams to manually analyze every transaction and flag potential risks.
AI-based systems can process vast amounts of data quickly and accurately, reducing the burden on human analysts and allowing them to focus on more complex cases. This not only makes fraud detection more efficient but also reduces the time it takes to identify and respond to fraudulent activity.
AI uses algorithms and machine learning techniques to analyze large sets of data and identify patterns. This makes it an ideal tool for detecting fraud, as it can quickly detect anomalies in data that humans may miss.
One of the biggest challenges in fraud detection is separating legitimate transactions from fraudulent ones. Traditional methods often result in a high number of false positives, which can be costly and time-consuming for businesses. AI can help improve the accuracy of fraud detection by continuously learning from past data and updating its algorithms accordingly.
AI-powered systems can also analyze multiple data points simultaneously, allowing them to detect patterns and trends that humans may not recognize. This results in a more accurate and comprehensive fraud detection process.
One of the most effective fraud prevention strategies is — unsurprisingly — KYC. Put simply, the first step to trusting someone is understanding who they actually are.
KYC involves verifying the identity of customers and assessing their potential risk for money laundering. This can include collecting personal information, such as identification documents and proof of address, conducting background checks, and understanding the nature of a customer's business or financial activities. By implementing KYC procedures, financial institutions can better identify and mitigate potential risks associated with their customers.
Cutting-edge KYC onboarding platforms now offer specialized features that make onboarding clients more seamless than ever. Last year, KYC-Chain added powerful new features to our onboarding toolkit such as our Multi-Scope KYC platform and Multi-Approval with Manager Permissions. These help to streamline fraud detection, increase security and oversee implementation of KYC checks that are specific and unique to each business’ particular areas of operation and activities. You can read more about them here.
The start of a new year always brings feelings of excitement and anticipation for what lies ahead. It is also a time for reflection on the past year and setting goals for the future. As we enter into this new year, we can look forward to continued advancements in the field of anti-money laundering (AML) with cutting edge technology and programs at your fingertips.
Here at KYC-Chain, we’re always looking ahead and developing the tools to help businesses meet the compliance challenges of both the present and the future. Get in touch with us or book a demo to learn how to better protect your business and stay compliant in 2024.
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