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AML Compliance – New Guidelines Put Forth by FCA for Customer Onboarding

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The UK’s Financial Conduct Authority (FCA) in its latest findings claims that financial organisations including banks, neo institutions, insurance firms, FinTech companies, and others are failing to ensure AML compliance. The major causes highlighted so far involve manual identity verification and outdated customer onboarding measures. FCA further professes that the majority of mainstream banks do not have adequate Customer Due Diligence (CDD) and Know Your Client (KYC) checks which hinder fraud prevention.

Financial institutions, despite their type, are predicted to face severe legal scrutiny because of their inefficient KYC/AML verification mechanisms. Therefore, to prevent coming under regulatory radar and strict penalties, banks require robust anti money laundering solutions. This article entails guidelines by FCA and how financial institutions can put more effort towards AML compliance.

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AML Security – Revision in Penalties and Regulations

Global regulators such as FATF, FinTRAC, and FCA recognise that fighting emerging financial crimes has become challenging. With advanced identity theft tools at their disposal, fraudsters easel trick authentication checks deployed during manual onboarding. In order to assist banks in their fights against criminals, FCA highlighted glaring spheres that require immediate attention. These majorly involve AML compliance mechanisms, manual data handling, building risk profiles, and customer identification.

Banks are striving to upgrade their AML security systems. Somehow they are unable to fill in all the gaps that criminals may exploit. Obtaining insufficient information, inaccurate data analysis, and false positives are to name a few. Furthermore, banks that do not perform financial background checks, validate income sources, and keep track of transitions for suspiciousness detection are more likely to become a safe haven for criminals.  

Led NatWest Suffered a Major Loss Due to Non-Compliance

Due to inefficient anti-money laundering mechanisms, FCA handed out several penalties to leading financial institutions. One of the major instances is from 2021 when NatWest paid £264.8 million for non-compliance. The penalty was imposed as the company owners did not take necessary actions against suspicious financial activities despite receiving reports from the bank’s employees.

NatWest’s inefficient AML monitoring mechanisms incorrectly marked some of the cash transfers as cheque deposits which led to a huge gap in transaction handling. The loopholes within its anti-money laundering mechanisms not only increased the risk of penalties but also affected its long-held reputation.

Credit Suisse Found Guilty of Handling Money Laundering

In June 2022, Switzerland’s criminal court rolled out a multi-million penalty for Credit Suisse. The compensation was around €21 million and was handed over due to insufficient AML compliance mechanisms. Credit Suisse served as a medium or free pass for illicit transfers of drug money. Furthermore, for facilitating a huge amount of money laundering, this financial services providing company faced severe backlashes. The legal and reputational consequences were so severe that its Chairman had to resign.

FCA’s AML Verification Guidelines for Banks and other Financial Institutions

Considering the increase in money laundering cases, FCA rolled out certain guidelines regarding customer verification. It highlighted manual onboarding as the major cause behind the escape of financial criminals. Even after paying stringent penalties, banks were unable to cope with emerging fraud risks and enact efficient countermeasures. Therefore, FCA came up with two major requirements to enhance anti-money laundering mechanisms.

Read on to know more about these AML screening recommendations.

Collection of Sufficient Customer Data for Risk Profiling

Accurate identity verification prior to onboarding is the first line of defence against criminals. However, the absence of efficient KYC/AML compliance mechanisms can increase fraudsters’ registration. It further hinders banks from carrying out CDD and EDD procedures. Therefore, as per FCA’s guidelines, financial institutions need to upgrade their onboarding process from manual to digital. They should collect enough information and build an error-free risk profile.

According to FCA’s findings, banks fail to validate sources of funds which leads to enough space for money launderers. Hence, integrating AML solutions in their digital onboarding processes can enable banks to counter fraudulent activities.  

Read Also – Chiang Rai Times

Automation of Manual Customer Onboarding Procedures

FCA also emphasizes automating customer onboarding procedures. It highlights manual data handling as a prime reason behind fraudsters’ registration. Therefore, banks require AI-powered AML solutions to analyse documents, perform financial background checks, and conduct ongoing monitoring of transactions. Establishing sufficient anti-money laundering controls leads to ineffective detection of suspiciousness, money laundering, and stringent penalties.

Automated AML systems leverage accurate identity verification, suspicious case investigation, payment tracking, compliance assurance, and trading floor surveillance.

Final Verdict

Banks need to take AML compliance as a topmost priority as highlighted by the FCA. This regulatory authority put forth certain guidelines for institutions failing to build effective fraud prevention mechanisms despite paying stringent penalties. The foremost in this is the automation of customer onboarding. Therefore, banks require AI-powered AML solutions to ensure secure transactions, real-time identity verification, data protection, risk assessment, and suspiciousness detection.

Written by Emma will

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