What you Need to Know about AML and KYC in the Banking Sector

1. What you Need to Know about AML and KYC in the Banking Sector What is AML? AML stands for “Anti-money Laundering." It is a set of procedures, laws, or regulations created to stop the practice of generating income through illegal actions. Many cases, there are money launderers hiding their actions through many steps that make it look like money coming from illegal or unethical sources portrayed to look earned legitimately. What is AML in the simplest definition? AML is Anti-money laundering. They curtail the money laundering and criminal use of financial institutions by the creation of a set of rules. The rules are called the Anti Money laundering process. The main goal of the AML process is to find the risks connected with customers who are associated with money laundering, terrorist financing, corruption…. leading to an evaluation of them to decide whether to work with the client. This process can be done by office staff or be automated by a technology system. AML includes reporting risk and performing certain aspects of due diligence as a necessary requirement.

2. Who enforces AML? From years of growing concerns over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit (which happened in Paris in 1989). The Financial Action Task Force was given the responsibility of examining money laundering techniques and trends. They review the action or criminal activity which had already been taken at a national or international level… followed by setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a full report containing a set of Forty recommendations, which provide a comprehensive plan of action needed to fight against money laundering. The FATF calls upon all countries to take the necessary steps to bring their national systems for combating money laundering and terrorism financing into compliance with the 40 new FATF recommendations, and to effectively implement these measures.

3. Now mostly every financial institution and regulated companies are responsible for the implementation of internal AML policies that take recommendations from the set of forty recommendations the FATF made. This responsibility leads to the creation of strategic policies in place for aml and kyc. What is KYC? Know your customer (KYC) refers to due diligence activities that financial institutions and other regulated companies must perform to grasp relevant information from their clients for the purpose of doing business with them. KYC is also a term used to refer to the bank regulation which governs these activities. Know Your Customer processes are also employed by companies of all sizes for the purpose of ensuring their proposed agents’, consultants’ or distributors’ anti-bribery compliance. Banks, insurers and export credit agencies are increasingly demanding that customers provide detailed anti-corruption information by due diligence in order to verify their identity & integrity. Doing this ensures the safety of the financial company and the client themselves. What is KYC in the simplest definition? KYC stands for Know Your Customer. The process of obtaining information about the customers regarding their identity, address and other details in order to avoid misuse of banking services like money laundering activity, terrorism financing, and etc. Knowing Your Customer is a standard process of identifying and verifying customers. In order to exactly estimate the risk on AML-guidelines, a person must be identified and confirmed as the person who he or she claims to be with known facts about the customer including phone number, email, address, and etc.

4. Who has to enforce KYC? Know your customer (KYC) falls under the responsibility of each financial institution or regulated company. The regulations in countries require these entities to adopt KYC procedures. It assists them in understanding the customers and their financial dealings better to monitor their transactions for identification, and as well as preventing any form of suspicious transactions. KYC Recommendations KYC controls typically include the following: - Collection and analysis of basic identity information (referred to in US regulations and practice a "Customer Identification Program" AKA CIP) - Name matching against lists of known parties (such as "politically exposed person" AKA PEP) - Determination of the customer's risk in terms of propensity to commit money laundering, terrorist finance, or identity theft - Creation of an expectation of a customer's transactional behavior - Monitoring of a customer's transactions against their expected behaviour and recorded profile as well as the customer’s peers

5. AML Jurisdiction and Locality AML regulations are also local, and differ from country to country. Some countries choose a top- down approach, inheriting much of their AML policies from the FATF, while others go for a bottom-up approach and then have to reconcile both policies. KYC Jurisdiction and Locality KYC regulations are local, and differ from country to country. Jurisdiction is also, on a country to country basis. Visit Mphasis to know more about AML KYC service.