In an ever-evolving digital world, cybercriminals find new ways to fund terrorism and launder money by illegally accessing financial transactions. Due to the surge in unauthorized transactions, companies face identity-related challenges of document forgery and identity theft. Financial institutions must track financial invoices to protect information from unauthorized access. They need to incorporate a more advanced approach to monitor customer transactions efficiently. One such approach is the implementation of know-your-transaction procedures.
What is Know Your Transaction (KYT)?
KYT solution provider is the process of tracking customer’s transactions against criminal activities. KYT procedures aim to secure the company’s operational services from financial crimes, such as money laundering and terrorist financing. It analyzes the data from all individual financial actions to identify the presence of possible warnings. The KYT procedure analyzes customer’s transactions based on risk profiles and financial histories.
3 Steps of KYT Procedure
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Data Analysis
KYT service can monitor the location from which the transaction is conducted. It can analyze the parties involved in the transactions by reviewing their risk profiles and available data in the company’s database. The KYT service providers use artificial intelligence tools to analyze all the transactional data to highlight unauthorized activities and protect the company’s information.
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Risk Assessment
After analyzing the data, if any suspicious activity is found, KYT providers conduct detailed transaction monitoring. They investigate the purpose, origin, and nature of the potential transaction to detect the occurrence of malicious transactions.
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Reporting
Once illegal activity is identified, financial institutions are required to report it to a higher authority, such as suspicious activity reports (SARs). SAR deals with this transactional crime with an appropriate regulator to mitigate these criminal issues.
How KYT is Used to Prevent Money Laundering
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Mitigate Financial Crimes
The primary feature of KYT service is the identification, protection, and prevention of financial crimes, including terrorist financing, money laundering, and fraud. Businesses can create a framework for transaction monitoring against malicious activities. By incorporating artificial intelligence into the KYT program, risky transactions can easily be mitigated, protecting businesses from financial losses, and improving their reputation.
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AML Compliance
Knowing your transaction is a critical component for meeting AML regulations. Organizations must track all the transactions and keep this record secured in their database. The surety of proper KYT service ensures compliance with the AML regulations, which eradicates the threats of money laundering and provides security from the fines related to non-compliance with AML regulations.
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Operational Efficiency
KYT can be used to optimize the company’s workflow because of the technologies that can efficiently track suspicious transactions. It protects the transactions from human error, which reduces the risk of money laundering.
Things to Consider While Implementing KYT
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Investment Cost
Before implementing KYT services, companies must consider the cost of installing a new KYT framework. They need to install data collection and risk assessment options in their system to improve its work quality. It should be considered that investing in this service will ultimately be beneficial for the business as it is used to detect and prevent transnational crimes. The KYT solution is a cost-saving strategy because it protects businesses from financial crimes.
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Data Quality
Companies can streamline their operations by ensuring that their KYT program invests in reliable data warehouses and management systems and hiring trained staff to improve the quality of their service.
Why Should Businesses Use KYT Procedures
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Enhanced Risk Management
KYT allows businesses to mitigate the presence of risky transactions because it provides detailed information about customer’s financial transactions. These services can rule out maliciousness. Transaction processing using advanced technologies which helps in the prevention of money laundering, terrorist financing, and identity fraud.
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Improved Customer Due Diligence
Know your transaction service provides the company with detailed information about customer transactional activities, which enhances the customer due diligence. Using the transactional histories of customers, companies can enhance the customer’s risk profiles. It provides an additional security layer against transnational crimes.
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Regulatory Compliance
Financial institutions are prompted to comply with the counter-terrorism financing and AML laws. KYT complies with these regulations by following its rules and implementing policies that will mitigate the presence of money laundering activities.
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Prevention of Financial Crimes
Companies use KYT services to protect their services against financial crimes. It helps detect and prevent malicious transactional activities. It reduces the risk of money laundering, which protects them from financial losses and improves their reputation.
Summing It Up
KYT procedures are crucial for protecting a company’s transactions against the threats of money laundering and terrorist financing. This service enables businesses to comply with the AML regulations, improving their reputation and providing a streamlined customer experience. It is used to enhance the risk management process and provides better customer due diligence as well. The company’s operational efficiency is enhanced because it uses advanced technologies to detect and prevent financial crimes.