Mon. Dec 2nd, 2024
KYC Regulations for Banks

In 2022, the FTC, Federal Trade Commission filed almost 441,882 credit card fraud complaints in the United States. A sum of 57,877 complaints were also then added due to government documents and benefits fraud. The massive number of complaints has highlighted the severity of the issue. KYC Regulations are necessary to legally protect individual and institutional interests.  The company or institution ensures compliance and establishes consistent work standards, rules, and regulations to avoid bank fraud and criminal offenses. Read the article and understand how KYC regulations effectively reduce the rate of bank fraud. 

Key Points of the Article:

  • Understand the KYC Regulations in the US
  • How KYC Banking Regulations reduce the rate of fraud
  • The Fundamental KYC Requirements and Their Importance 
  • The Purpose of KYC Regulations for Banks
  • How KYC works in Worldwide Banking System

What is Know Your Customer (KYC)?

Know Your Customer is a more comprehensive facet containing due diligence and a banking regulation that financial institutions perform with other regulated companies or individuals before making any transaction or opening their accounts. KYC is organized to withstand money laundering, terrorist financing, and other activities affecting the financial system. The KYC regulations apply to companies and institutions that are licensed to make transactions under the Banking Act. Commercial banks and financial institutions are anticipated to obtain and maintain proper identification of customers expecting to open accounts or make financial transactions. The conventional KYC bank used to perform this include only name, birth date, address, and identification number. But now the dynamics of the KYC have entirely changed, as the banks are opting for new verification techniques, that are: 

  • Facial authentication
  • Address Verification
  • Document Verification
  • AML screening
  • Phone Verification2-Factor Authentication

KYC Regulations and Their Significance

The Federal Trade Commission evaluated $5.8 million in fraud losses in 2021, which is 70% higher than in 2020. Thus, KYC Regulations are crucial for financial organizations to uphold, as many businesses have employed online transactions; this gives the fraudsters a tremendous gap in performing their scams. KYC Regulations use innovative ways to tackle these fraudulent scams, including:

  • Customer Identification Program (CIP)
  • Customer Due Diligence (CDD)
  • Ongoing Monitoring.

The Purpose of KYC Regulations for Banks

The rudimentary purpose of Know Your Customer is to keep the financial institutions and the economic atmosphere safe from crimes, including fraud, money laundering, and terrorist funding. In the United States, bank transfer or payment fraud resulted in losses of 1.59 billion U.S. dollars in 2022, resulting in the economy’s plight overall. Here are some severe issues that KYC regulations can preclude, such as: 

  • Terrorist funding: KYC makes it harder for fraudulent accounts to fund terrorist organizations as it ensures that the one creating an account is adequately verified.
  • Identity theft: Financial institutions make it more difficult for someone to steal their identity by requiring and verifying approved KYC documents. 
  • Money laundering: The KYC Regulations can reduce Money Laundering by indicating AML and Identifying suspicious individuals and activities.

KYC Regulations US to Reduce the Fraud Rate

In the United States, the value of fraud losses due to payment methods and bank transfers was 1.59 billion dollars in 2022. The FATF (Financial Action Task Force) is an international organization that sets transnational regulations against money laundering and terrorism financing. The USA has been a member of FATF since 1990 and is trying to prevent all these illegal activities. KYC regulations, established to reduce the fraud rate in the United States, are obligatory for financial institutions and banks. Organizations not mitigating the KYC regulations will be charged heavy penalties and fines. Know Your Customer regulations still need to be appropriately employed in the US, so they need to abide by KYC regulations and secure their financial transactions. 

KYC Requirements to Ensure a Safe Banking System

Know Your Customer (KYC) is the primary requirement for any bank to open an account for a consumer. It is a procedure to authenticate the customer’s identity in order to maintain the economic health of any organization. The optimal use of KYC ensures safe banking systems and legitimate regulations for verification purposes. There are the following reasons why KYC is necessary. 

  • The KYC policy prevents individuals from creating accounts with false and conceived identities. 
  • It recognizes and tracks the pattern of individuals using the accounts. 
  • It determines suspicious activity in the accounts and alarms the system.
  • Protects the unused accounts that need proper observance
  • It creates enduring security with regular re-verification and 2-Factor Authentication. 

KYC Banking Regulations All Over the World 

Many countries worldwide have implemented KYC regulations within their organizations and federal systems. Lamentably, the requirements and regulations vary from country to country, and the differences are significantly higher. That is why money laundering and terrorism financing are more accessible to fraudulents. For instance, Swiss Banks are famous for holding black money and allowing wealthy people in business to avoid taxation through layering. On the other hand, the FATF is a globally present organization that keeps a keen eye on these activities and ensures that KYC regulations are followed legitimately according to law and order. 

Final Statement 

If used appropriately and efficiently, KYC regulation is adequate to help reduce bank fraud rates. The FATF and the US Federal government ensure that financial institutions embody and follow KYC regulations to avoid economic adversity and financial loss. The KYC regulations preventing adversities like money laundering, identity theft, and terrorist funding. 

By RSTech Zone

RSTech Zone, a global collaborative fastening on trends in Technology, AI, Web Development, Digital Marketing and Business. If you're looking for the guest post also communicate at rstechzone67@gmail.com