As financial institutes and banks try to adopt the enhancements in Fintech, digital banking has improved its services exponentially. COVID-19 epidemic assisted the banking system in digitizing at a different pace, to get operations digital. In 2020, there are 65% of banks around the world, have done customer onboarding with the online method. However, in past few years, digital banking services have become more careful and precise, and so do cybercriminals try harder to penetrate the banking system.
In a growing and evolving finance sector, organizations need to prioritize compliance for their digital banking sector and ensure that these compliances can identify and avoid suspicious activities such as terror funding, money laundering, and other monetary activities.
Anti Money Laundering Regulations and Digital Banking
The technology enhancements in the banking sector are causing banks to deal with problems such as money laundering and other risks related to money laundering. These risks may invite new crime methods which include malicious software, a digital currency for money laundering, and phishing scams with new digital banking services. Though digital banking systems are not fully developed, digital services are famous with money launderers.
Regulatory authorities around the world are focusing on improving digital banking services to address these threats and fill in the regulatory gaps. In the United States, the FinCEN has published a set of protocols and guidelines for organizations dealing with digital currencies. European Union’s 5th regulation for anti money laundering, is a bundle of regulations for crypto service providers and digital financial sectors. So as FATF has also introduced guidelines for digital identification and AML compliance.
Compliance with AML regulations in Digital Banking
Financial organizations and banks need to ensure that the services they are offering with AML compliance, to overcome the money laundering risks. Financial institutions need to adopt a risk-based approach under the Financial Action Task Force (FATF) to combat anti money laundering.
Here are the compliance programs that need to be integrated:
- Customer Due Diligence (CDD): all regulated industries including financial organizations need to comply with the CDD solutions for the verification of customers’ identity, those who are using digital banking.
- Continuous Monitoring: For KYC compliance, it is not ample to check your customer only once. You must have a system to monitor your customers’ transactions and other activities on regular basis, in order to keep updated their profiles with the latest information.
- Screening of Politically Exposed People (PEP) List: Potential customers are monitored for involvement in adverse media stories, PEP (politically exposed persons) lists, and international sanction lists.
Financial organizations to get permits for the exchange of cryptocurrency or properties like wallets need to comply with concerning rules and regulations. AML programs are supposed to be reviewed by a compliance officer and employees are expected to undergo training as well.
AML Solutions for Digital Banking
To battle digital banking and money laundering risks, banks and other financial organizations need to implement new techniques to keep up with regulatory compliance. Organizations must need to replace their methods for collecting and verifying customer information. Some of the digital AML solutions are:
- Identification Remotely: Digital ID systems include biometric verification such as fingerprints and retinal scans. Customers and banks may both benefit from customer onboarding systems that are fully equipped with smartphones. CDD can be more effective and more efficient during onboarding as well as throughout the business relationship if you utilize digital identities. Online verification of the customers is possible by verifying their residential address, utility bills, and bank statement if required, with the help of different verification technologies.
- Artificial Intelligence: improving anti-money laundering and KYC compliance with artificial intelligence (AI) helps organizations enhance the verification process. Artificial intelligence helps to monitor transactions and prioritize information collection. As a result of AI-based technologies, banks have been able to detect suspicious online activities more quickly. It decreases the amount of time and effort they spend manually detecting suspicious behaviors during online transactions.
- Blockchain: Cryptocurrency is growing gradually, so blockchain is getting more famous in the banking sector. Transaction records are stored and verified on the blockchain, which is publicly distributed entries. Blockchain plays an essential role to store and encrypt customers’ information blocks.
For years, digital banks and other financial institutions have detected laundered money being kept or hidden somewhere. Money launderers have to keep themselves updated, on the enhancements in the banking security system and AML solutions, to keep their illicit money safe and undetectable. AML solutions are helpful for organizations to keep such culprits away.