Where the local and global regulatory authorities found it necessary to formulate. The Know Your Customer regulations for the business sector’s prevention against fraud. They observed the need for a stronger system for the banks and other financial institutions as well. Since financial institutions deal with huge amounts of funds transferred on a daily basis. Criminals find it easier to exploit them with their disruptive strategies. Concealing the original source of their funds and posing their illicit income to be legitimate has become a common practice. For this purpose, a stronger system than KYC was need that would monitor the transactions diligently. This is exactly where the Know Your Transaction (KYT) limitations save the situation.
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What is Know Your Transaction?
Know Your Transaction solution performs a function very similar to KYC with the exception that the latter focuses on the identification of the client’s of a business and assess risks while the former is more about having a diligent check on the transactional information of the banks. Millions of financial transactions take place every day in the name of the customers, some of them are list below:
- Card Transactions
- Cash Transactions
- Bills and LC Transactions
- Cross-border Transactions
- Remittances
- Trade Finance
Apart from the aforementioned types of transactions, several others also take place quite frequently. This is where the criminals swoop in with their illicit intentions of concealing the original source of their funds and generate profits by posing their income to be legitimate. Since the banks process millions of transactions, regularly, that too, every minute, it becomes relatively difficult for them to locate the illegal funds and report them. The criminals take advantage of this situation and successfully exploit them. Therefore, KYT services must be implemented to protect a bank from such frauds and assess risks through the transactional data and you can also use document verification service.
The Technologies used in the Implementation of KYT:
Banks and other financial institutions that are AML and KYC compliant, implement the Know Your Transaction solutions with the help of the following technologies:
- Machine Learning: A branch of artificial intelligence that is a combination of information, analytics and computer science. The banks benefit from machine learning in a way that enables them to create data models on multiple dimensions such as classification and regression etc. A transaction monitoring system that works on machine learning algorithms, speeds up the process and provides accurate results in real-time.
- Blockchain Technology: The blockchain technology assists the banks in preventing fraud in a way that it keeps the customer as well as the transaction data scattered in its network instead of compiling it at one place. This is particularly done to ensure that no one can access it all at once and manipulate it. Moreover, the Distribute Ledger Technology of the blockchain enables the banks to store the data in encode form which can be utilized in each transaction update. This makes KYT verification across the specific blockchain network, easier and accurate.
How does Transaction Monitoring Work?
The detailed analysis and verification of the transactions take place via an extensive and thorough transaction monitoring process that does not let any suspicious transaction go unnoticed. The following steps are covered during the verification process;
- Identifying suspicious transactions
- Fast implementation
- Automated processes
- Increased effectiveness
Why do AML Compliant Organizations have to Follow the KYT Verification Protocols?
Any organization dealing in the transfer of funds is prone to money laundering, hence mere AML compliance will not save them from the criminal’s fraudulent attempts. Adequate procedures for the implementation of transaction monitoring software’s must be follow. Considering the rapidly increasing rates of money laundering in the present era, transaction monitoring has become mandatory for every business. The KYT solution provider coils either be a simple process, following a traditional and a rule based approach or an extensive artificial intelligence integrated process that instantly detects any suspicious transaction.
If during the transaction monitoring process, any suspicious activity is detected, instant precautionary measures are adopt to prevent fraud. The suspicious tractions are direct to Enhance Due Diligence where the Suspicious Transaction Reports (STR) are create. The respective authorities then deal with these suspicious matters according to the set standards and prevent further illicit activities.
The Growing Transaction Monitoring Market:
Keeping in view the surge in terrorist financing and money laundering, the businesses have eagerly implemented the transaction monitoring software’s in their security processes. In this regard, a study generated the finding that, considering the increase usage of the TMS. The transaction monitoring market is predict to experience a boom with an annual growth rate of approximately 15.1% till 2023.
