PREVENTIVE LEGISLATIONS FOR AML KYC EXAM
In this article, we will read about the Preventive Legislations for money laundering activities for banks. As the Certification Course of IIBF – Anti-Money Laundering & Know Your Customer (Remote Proctored mode) go, we will be publishing many other articles from the prescribed Syllabus for latest attempts this 2024. Before AML candidates start with these Legislations, we would like to refresh you with the basics of AML & KYC and after the topic, we will also discuss about the latest KYC AML Study material 2024 available at the Learning Sessions platforms for latest exams.
Every year, a large sum of money is paid in the form of fines are paid by banks around the world in respect of AML compliance. It was one of the five highest fines of the year for Dutch investment bank ABN AMRO, which paid $574 million for criminal activity of its customers in 2021.
Anti-money laundering regulations contain measures that companies must take to detect and prevent the concealment of illegal financial activities. All these regulations are aimed to prevent money laundering through policies.
The reason for why the Banks need to be Careful with Money Laundering is:
Banks are the largest financial institution. Considering that even a single local bank mediates thousands of financial transactions throughout the day makes banks attractive as sources of finance for criminal gangs and individuals.
According to reported data, criminals conduct 97% of money laundering through financial institutions where they generally divide the money into small parts with different accounts in different banks to avoid suspicion and then withdraw or send it- effectively making “dirty money” looks legal.
Mediating millions of financial transactions every day exposes banks to a significant risk of financial crimes. For this very reason, banks must identify risks by fulfilling their anti-money laundering obligations and take preventive measures against them.
READ ALSO-> AML KYC EXAM PROCESS
AML IN BANKING
The Anti-Money Laundering Guidelines are anti-money laundering rules, regulations and obligations to detect and prevent money laundering and other financial crimes. It is impossible to determine the exact amount, but financial crimes in the billions of dollars are committed annually.
Because of this, RBI like other local & global regulators are fighting this financial crime via regulations, recommendations, anti-money laundering policies and obligations for organizations operating in potentially risky areas. For the banking sector, AML policy requires having the personal data of its customers right at the beginning of the customer journey.
So, vetting customers and their counterparties is critical in catching attempts at illegal activity. When transacting through the bank, every person must be scanned. Monitoring each client’s transactions is another requirement of the compliance procedure as it is necessary that abnormal actions and suspicious transactions get detected.
Finally, banks must co-operate with the authorities and report any suspicious findings.
READ ALSO-> AML KYC STUDY MATERIAL
AML COMPLIANCE PROGRAM FOR BANKS
A compliance program should be fully operational from the outset to effectively combat financial crimes and have anti-money laundering principles in place. The first step to creating a comprehensive compliance program is to fulfill all required AML obligations. Deficiencies in the AML compliance program will result in penalties from regulators and the payment of both material and reputational costs. Therefore, banks must set up a compelling AML compliance program to meet the regulations they are required to comply with.
Know Your Customer in Banking:
Know Your Customer (KYC) is a step to collect personal data of customers like name, ID, nationality etc. during registration. It is decisive as the first control mechanism applied in the AML program. Since an error at this stage renders the entire AML program inoperable, KYC procedures are mandatory for banks.
At this stage, banks check the accuracy of the collected customer information to ensure that the customer and the information provided match. The KYC process can be done using ID verification, face verification and billing address proof. In recent times, digitization has brought many improvements regarding KYC, while at the same time increasing the risk.
Customer Due Diligence in Banking:
Customer Due Diligence (CDD) is a screening process that banks put in place to identify potential money laundering and terrorist financing risks posed by customers. Although these procedures are not all over the world, the purpose is to identify risks. Customer information is checked against the required databases according to the location of the institutions. These databases generally consist of sanction, PEP, banned and wanted lists. People on these lists carry a high risk of money laundering and terrorist financing. In banks that provide global services, the customer’s nationality and past financial transactions also affect the level of customer risk.
Screening of transactions:
Banks generally have a wide portfolio of clients. In addition, transactions mediated by banks are not limited to their customers. Customers of a bank can make payments and transfer money to a customer of another bank – an average large bank facilitates thousands of money transfers in a day. Banks are obliged to check the buyer and the sender during these money transfers.
It faces major sanctions if the bank mediates a payment sent to a prohibited or sanctioned person. The consequences of crimes caused by the recipient and uncontrolled income of the sender are associated with high administrative and financial fines. Banks are also losing their reputation in the eyes of customers and the market. In today’s technology, manual control is a waste of time and inefficient. Banks therefore need an automated transaction screening tool to process customer transactions according to AML regulations.
Independent AML audits:
Independent AML audits enable banks to manage an AML compliance program from start to finish. Even though banks have their anti-money laundering departments, it is vital that they carry out independent audits. It is necessary to eliminate any missing points of their compliance implementation.
Deficiencies identified by independent audits can protect banks from millions in fines and prevent loss of reputation. In addition, according to independent audit reports, banks are compensating for deficiencies in anti-money laundering compliance programs and further developing the AML program. Therefore, banks should have their AML program verified by an independent audit
We will continue to publish the notes from the latest study materials on KYC & AML. You can check out our other articles, here: Learning Sessions
PASS IIBF’s AML KYC 2024 IN 1 ATTEMPT
If you are preparing for the latest attempt for your Certification Course of IIBF – Anti-Money Laundering & Know Your Customer in 2024, then you must check out the AML KYC classes prepared by Learning Sessions Expert faculty.
The classes are in hindi mix english & are as per the latest prescribed Syllabus for 2024 exams of KYC AML.
The material wholly online – app & website & you can check it out here:
- Android App: LS PRO
- Website for Exam Materials: iibf.info
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