Gone are the days when consumers had to visit offices to undergo financial operations. These days, every little task from opening a new bank account to carrying out transactions of any limit, customers do everything digitally. Every individual belonging to any age group can benefit from the automated services of banks. To provide better customer services and to keep their standards high, financial institutions are deploying advanced technologies. These tech-driven services have also facilitated fraudsters to commit money laundering. EDD banking can prevent money laundering and other monetary crimes that could otherwise harm the reputation of businesses.
Repercussions on Non-compliance with EDD Banking for the Finance sector
Non-compliance with EDD banking can negatively impact the finance industry. The inadequate shortcomings in the regulatory landscape permit the imposters to manipulate the security system of banks to engage in illicit activities.
Financial institutions that do not follow the EDD banking put them into having a non-astringent security system. They lack the data protection protocols and pave the way for imposters to data breaches and identity theft. In addition to this, it also affects the regulations imposed on banks. Due diligence financial services are the solution that can save consumers’ information.
Financial institutions when fail to comply with EDD banking can ultimately lead the roads towards facing heavy penalties. The fines are confirmed based on the limit of transactions and the extent of non-compliance.
Being involved in identity theft, information breaches, money laundering, and terrorist financing not only damages the overall working operations of banks but also adversely affects their reputation. The institutions, when compromising their security protocols, have to face hard times to regain the trust in the eyes of consumers.
The damaged reputation further leads the banks towards experiencing revenue loss. Moreover, involvement in criminal acts can cause financial institutions to lose their consumers, ultimately causing them to face revenue loss.
KYC and EDD banking checks
For banks, KYC compliance (Know your customer) can be ensured by carrying out CDD (customer due diligence) and EDD (Enhanced due diligence) to stay compliant with anti-money regulations. It also saves them from fraudsters.
EDD banking is a part of the KYC process due diligence that offers a high level of examination of potentially high-risk profiles and ultimate beneficial owners. EDD banking is the next step in CDD that is deployed to undergo a deeper level of identity authentication by acquiring the customers’ data and analysing their risk category.
Traditional ways of carrying out KYC were inadequate therefore, e-KYC is the service that banks intended to. the e-KYC solution ensures that the identity verification process is carried out authentically to prevent banks from facing any financial scams.
FATF’s Risk-Based Approach For Finance Sector
Financial institutions often deal with consumers that must have to go through EDD banking. FATF advises a risk-based approach that includes “the kind and limit of information collected, the amount of data verified, must be practised when the customer threats are greater.”
The benefits that EDD banking provides are:
- It can be easily integrated
- It identifies the consumers and the threats linked with them
- Convenience to adapt it
EDD Steps Advised by the FATF:
- Collecting additional data to verify identities in a seamless manner and using that information to create the consumer threat assessment
- Carrying out searches (for example, IAM) to show the customers’ risk approach
- Developing a report on the consumer to express if the individual is engaged in any fraudulent activity
- Identifying the sources of money entered by the consumer to check if they are acquired through legal means
It is not adequate to perform identity verification just once and then forget it for the rest of the customer-business association. A risk-based measure that regularly monitors the process that verifies doubtful activities is yet another recommended recommendation from FATF that shows, “enhanced checking of transactions are needed for higher-risk situations, but banks might decide on minimising the level of monitoring when the threats are rather minimized.”
Summing it up
Banks are sensitive to experiencing financial scams because of the nature of their work. Compliance professionals have developed laws to aid financial institutions in combating money laundering while maintaining regulatory measures. EDD banking is the regulation that assists financial institutions to undergo AML/kyc Compliance protocols on high-risk profiles. FATF has created protocols to run identity checks to mitigate the prevalence of financial crimes.