By 
Money laundering therefore means by which through a very large amount of money earned out of the illicit business is tricked through the legal framework and passed as clean money.This is one of the worldwide emerging financial crimes and statistics indicate that flow of between 2-5% of Global GDP is annually laundered in circulation and may in future lead to damaging financial inclusion. For the purpose of discouraging and controlling the threats of money laundering, jurisdictions at all levels and international organizations have formulated systems of banking rules, requiring effective implementation from the institutions in banking.
Quick Insights into AML Banking
AML (anti-money laundering) banking is an organized method, policies, and rules which are followed by the banking systems and the online banking companies to identify and combat money laundering to maintain the sanctity of the banking sector. Measures against money laundering in banking are required to prevent forces that threaten banking services from using them to their advantage. Elements within AML banking include CDD, transaction monitoring, SAR, adhering to banking legislations and other banking norms, and courses for banking employees.
Applying effective CDD and EDD goes a long way in helping the banks to effectively identify their customer and prevent the organization from being associated with risky customers according to the color of their preference.
Overview of Customer Due Diligence
Customer due diligence (CDD) which is part of the AML banking procedure refers to identification of the customer, the examination of the transaction history and establishment of the risks that may be present in the context of the particular customer. Depending on the level of risks they present, customers are categorized as low risk and high risk customers and as such go through procedures of assessment and monitoring depending on the risk level. The steps that facilitate the efficiency of anti-money laundering in the process of banking are a few and include;
- Customer Identification Program: To validate the credibility of the customers, banks verify their identity by evaluating government-issued documents like driver’s licenses, IDs, or passports. The claimed identity is matched against the official documents to drive accurate authentication of customers and make sure the customer is who they claim to be, proactively preventing upcoming threats.
- Risk Assessment: By evaluating the customer’s occupation, transaction patterns, type of business if they’re running any, or geographical locations, banks evaluate the significant risk level. This facilitates financial services to determine the level of monitoring and scrutiny required to proactively detect threats and mitigate them in real-time.
- Continuous Monitoring: Beyond the question, customer due diligence is not a single-step process, banks continuously monitor the activities of their customer to timely suspicious activity or unusual patterns of money laundering and other types of financial crimes.
Contextualizing Enhanced Due Diligence
Enhanced due diligence (EDD) is a continued process of CDD and banks implement this strategy to continuously monitor the activities or behavior of customers who are deemed to pose serious risks to the integrity of the financial world. Influential people like politically exposed persons (PEPs), high-net-worth customers, or non-residential customers fall under the umbrella of high-risk customers. Banks conduct a thorough investigation of the customer’s background like what’s the source of income or transaction patterns.
EDD refers to scrutinizing the transaction details and patterns of high-risk customers to identify and detect suspicious activities and to ensure the customers are not involved in any kind of criminal activity. An additional layer of oversight is added to evaluate the usual and unusual patterns and behavior.
Significance of Effective CDD & EDD in AML Banking
To stay ahead of criminals and their illicit activities, it’s crucial to effectively adhere to AML regulations, preserving the integrity of the financial world. As financial crimes are continuously evolving and presenting harm to the financial world, it’s more paramount than ever before to deploy robust AML solutions for banking systems to automate the evaluation process.
- Most importantly, CDD and EDD facilitate financial institutions and digital banking systems to thoroughly understand their customers and assess the risk levels associated with them. This identification of customers and risk assessment aids in the timely mitigation of criminal activities and dismantling of criminal networks.
- International watchdogs and jurisdictions globally mandate financial services to adhere to AML regulations to curb the potential threats of distribution of illegitimate money into the financial world. Implementing robust CDD & EDD protects the financial systems from being exploited and helps to preserve financial inclusion.
- The two valuable resources of the businesses; trust from the customer and the long-term loyalty go side by side with the growth of a business. CDD and EDD play a crucial role in preventing threats of financial crimes as it’s made sure that the financial institutions are implementing the right measures to do so.
Step Forward
The tools and strategies to fight against financial crimes must be advanced and sophisticated enough to stay ahead of the criminals. Talking further, CDD & EDD are time-consuming, document extensive endeavors and require extra labor force, stressing the need to develop robust AML solutions for banking, enhancing the efficiency of the process. Integration of artificial intelligence and sophisticated machine learning forms the bedrock of anti-money laundering in banking, automating the customer evaluation process and offering a more rigorous assessment of the risk level.
Comments