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KYT Verification in Unusual and Frequent Transfer of Funds

by Naveen Agarwal
KYT verification

There is a fine line of difference between the words “Best” and “Perfect”. A financial institution or platform can be referred to as comparatively better than other competitors in the market but perfection is something one can not really achieve. Many global financial entities strive to get ahead and beat the rival firms by expanding their client portfolio with genuine and profitable businesses and individual clients where (Know Your Transaction) KYT verification performs a significant role in managing and observing monetary transfer activities consistently to combat financial offenses.

The real-time transaction reporting system comes into implementation after the successful onboarding of a client where the withdrawal and deposit activities of customers are fully analyzed to confirm their legality and compliance of the concerned financial firm with AML (Anti Money Laundering) regulations.

Working Mechanism of KYT Verification

The transaction monitoring software is incorporated with specific threshold limits of different clients that are calculated on the basis of results of KYC (Know Your Customer) authentication and AML screening.

Post the customer identification program, the financial entity assigns every client profile a particular risk rating, which is calculated by accounting for numerous variables being authenticated via AI-powered solutions.

Although, according to US regulations, the daily threshold limit of an account is $10,000. However, the solutions for KYT verification flags a particular funds transfer activity on the basis of risk rating and the initial figures described by the account holder himself/herself.

At the time of opening an account, a financial institute asks the client to specify the amount client would deposit on the annual basis? How many withdrawals will be made in that specific time period? The amount figures are also confirmed so the solution for KYT verification can identify the transaction crossing those figures in no time and so the authority gets well informed.

For instance, a client mentions depositing 200,000 per annum into his/her account and the volume of transfer activities is set to be 20, which means that on average, an amount of a single transfer is going to be around $10,000. The solution for KYT verification will highlight the transaction which will be much greater as compared to the calculated one.

KYT Verification in Preventing Money Laundering

AML Scenario in the UK

The transaction monitoring software is a constantly performing system in the ongoing AML screening of high-risk clients. In the UK, there are certain obligations a financial institute is supposed to follow for avoiding money laundering and other offenses. The regulations include having a compliance officer for standard KYT verification and performing EDD (Enhanced Due Diligence) practices for clients that are either settled abroad or come from a bureaucratic background.

KYT verification on account holders going beyond the threshold limits. Despite all defined standards, financial enterprises are somehow lacking in complying with all of these rules. In the UK, a whopping amount of $134 billion is lost to money laundering per annum.

The need for systematic KYT verification is neglectable in such a delicate scenario. The Prime Minister, Mr. Boris Johnson has been written by members of parliament to pass the new money laundering legislation to control such violations in the future.

AML Regulations of US

According to the regulatory standards, the KYT verification in monitoring transactional activities must point out transfers above $10,000. FinCEN should be informed about the transfer with all details in the form of a SAR (Suspicious Activity Report) of the client’s account. The set of all those reports should be preserved for a period of five years.

Consequences of not Performing Standard KYT Verification

The transaction monitoring system in AML screening of accounts keeps the financial institute aware of every doubtful shift pattern in the transfer activities of monetary funds. If a firm is found guilty under the charges of poor KYT verification and AML screening, the concerned financial firm not only pays enormous sums as a penalty for their insufficiency but also loses its market share. The entity might also have to face after-effects in the form of a ban for a limited period of time or even permanently. The authorities can prohibit the enterprise from dealing with foreign resident clients or restricting their services, which would give a considerable competitive edge to other firms in the market. So, Document Verification is used to verify the user identity effectively with unmatched global coverage.

Conclusion

The KYT verification provides advanced acknowledgment of the possibility of money laundering by filtering out over-limit transactions and conducting standard due diligence processes. If the evidence and justifications provided by the client are insufficient, the concerned financial entity can freeze the transactions. The next step is to report to the relevant financial watchdog on time to avoid any negative consequences like FATF or FCA.

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