What is the AML Check Process for Banks?
Money laundering remains a critical concern for financial institutions worldwide. The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global GDP is laundered each year. That is between EUR 715 billion and 1.87 trillion each year. To counter this, banks and financial service providers implement stringent Anti-Money Laundering (AML) checks, with identity verification (IDV) playing a crucial role. Effective ID verification ensures compliance with AML regulations, reduces financial crime risks, and enhances customer trust.
Understanding AML Checks for Banks
Anti-money laundering refers to a framework of laws, regulations, and procedures that financial institutions must follow to prevent, detect, and report illicit financial activities. Regulatory bodies such as the Financial Action Task Force (FATF) and regional authorities enforce AML compliance to curb money laundering and terrorist financing.
In addition to money laundering, banks must follow Counter-Terrorism Financing (CTF) regulations, which seek to prevent terrorist organisations from receiving funding. CTF and AML compliance have many similarities, with identity verification playing an important role in detecting and preventing potential terrorist financing activities.
A key component of AML & CTF efforts is Know Your Customer (KYC), a process requiring financial institutions to verify the identity of their clients before they can access services. KYC and AML work in tandem to assess risk and monitor transactions for suspicious activities.
The Role of ID Verification in the AML Process
Identity verification serves as bank’s first line of defence in the AML check process. By verifying a customer’s identity at the point of account opening and during ongoing transactions, banks can prevent fraudulent activities and comply with regulatory requirements. The ID verification process involves several steps:
- Customer Identification Program (CIP)
Banks must collect specific personal information, such as name, date of birth, address, and identification numbers (e.g., passport or driver’s license). Digital advancements have enabled real-time identity verification through biometric authentication, AI-driven document scanning, and secure databases.
- Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)
CDD involves assessing a customer’s risk level based on their identity, financial behaviour, and transaction history. For customers with a high-risk rating, Enhanced Due Diligence (EDD) is conducted, requiring additional scrutiny, background checks, and ongoing monitoring.
- Transaction Monitoring and Ongoing ID Verification
AML compliance extends beyond onboarding. Financial institutions continuously monitor transactions for unusual patterns, including large, frequent, or cross-border transactions that do not align with a customer’s typical activity. Automated systems flag suspicious transactions, prompting further investigation. In tandem with digital tools, solutions like Keesing DocumentChecker, which is a reference database for manual ID checking, add a strong layer of security.
- Regulatory Reporting and Record-Keeping
When a financial institution detects unusual or suspicious activity, it must report it to the relevant authorities through Unusual Transaction Reports (UTRs) or Suspicious Activity Reports (SARs). These reports are made to national financial intelligence units, which work together with law enforcement authorities to act against money laundering. Additionally, banks must maintain ID verification records and transaction logs for several years to comply with legal obligations.
Challenges in ID Verification and AML Compliance
Despite advancements in digital identity verification, financial institutions face challenges in keeping pace with evolving financial crimes. Some of the key challenges include:
- Synthetic Identity Fraud: Criminals use a combination of real and fake personal information to create fraudulent identities, making detection more difficult. Criminals evolve sophisticated money-laundering techniques continuously, meaning financial institutions often struggle to keep up with new money laundering techniques. As a result, financial institutions must collaborate with regulatory bodies and other institutions to share threat intelligence, as well as investing in advanced identity verification systems. Choosing an organization that specializing in trusted identity verification, such as Keesing Technologies, is essential. These vendors provide robust, reliable IDV solutions whether manual, automated, or training-based.
- Regulatory Variations: AML regulations differ by region, requiring institutions operating across borders to adapt to multiple compliance frameworks. While laws and regulations have been harmonized and adopted on a European level, national implementation of AML laws widely varies. Regulatory differences have an impact on identity verification (IDV), with varying requirements for customer checks, document validation, biometrics, and data protection. Some regions require thorough checks, such as enhanced due diligence, while others allow for simpler procedures. Choose companies that can provide scalable tools to support compliance across multiple jurisdictions.
- Balancing Security and User Experience: Verification processes must be robust yet seamless enough to provide a smooth customer onboarding experience. Non-user-friendly IDV process during an AML check can often frustrate customers and result in customer service issues and complaints.
Going Forward with ID Verification in AML Compliance
With the rise of AI and machine learning, ID verification is becoming more sophisticated and secure. Biometric authentication and real-time verification allow banks to prevent money laundering.
To further strengthen AML measures, integrating Keesing DocumentChecker, the most comprehensive online ID & banknote verification solution, enhances fraud detection by ensuring their authenticity.
By implementing robust ID verification measures, financial institutions can not only comply with AML regulations but also build trust with customers while safeguarding the global financial system from illicit activities.
Finding the right IDV service provider can be challenging, but we are here to help. Contact us below or via sales@keesingtechnologies.com to discuss how we can help your institution navigate compliance challenges and strengthen fraud prevention measures.
