KYC, or Know Your Customer or Know Your Client is a mandatory process of identifying and verifying customers over time. It is a critical term in the advancing era.
Know your customer transaction is a sub-branch of KYC that identifies and checks whether transactions are being made on behalf of customers. Know your customer transaction monitoring ensures secure and reliable customer/client transactions and provides compliant protection.
This article provides a complete guide to know your customer transaction, why transaction monitoring matters, and the role of SARs in KYC and AML and transaction screening system.
What Is Know Your Customer Transaction?
Knowing your customer transaction and suspicious transaction monitoring is crucial. Since financial institutions deal in millions of dollars daily, one wrong transaction can cost their customers a fortune and the permanent closure of their business, costing them their credibility.
Ensure everything runs smoothly on both ends before a transaction. Specifically, before large-scale transactions, banks provide the transactor the same as it claims to be through the know-your-customer transaction monitoring process.
Occasionally, companies may receive a call from the bank asking about everyday activities or confirm if they are making significant online transactions and purchases to verify that the processes are the same and smooth. If they spot any abnormal or malicious activities, they may report or block your account for a while without prior notice.
Why Is Your Customer Transaction Important?
Knowing your customer transaction and having a proper reporting system is paramount, especially when financial credibility is involved. Knowing your customer transaction is imperative for a couple of reasons:
- It assists them in verifying the actual customer and keeps hackers at bay.
- It allows financial institutions to monitor transactions in real-time or daily.
- It minimizes the risk of terrorism funding, money laundering, embezzlement, theft, and loss.
- It provides banks and customers with government and tax security.
- It keeps the process clean and smooth.
- It saves customers from huge losses under full compliance.
- It alerts the accurate hits of fraud, money terrorism, funds embezzlement, and laundering.
- It maintains the credibility of the banking and financial sectors.
- Allow the collection, processing, and secure data storage.
- It allows financial institutions to take a risk-based approach.
Benefits Of Know Your Customer Transaction
Understanding a customer’s transaction is an effective way for financial institutions to combat crimes within compliance with KYC and AML regulations. It can identify:
- Money laundering
- Embezzlement of funds
- Money Theft
- Money terrorism
- Identity theft
- Drug trafficking
Additionally, it imposed heavy fines of more than $200 million on financial institutions that failed to monitor and analyze insufficient financial transactions.
Role Of Transaction Monitoring In KYC
Once the nature of the complexity of the transaction is monitored, it is further allocated urgency and dealt it. For example, a low-risk client will not need many transactions as a high-risk client. Similarly, no matter how small or significant the amount, the risk associated with a transaction will not be the same.
Depending on the geographical presence and basic information about the product and activity, some financial institutes may perform high risk for all clients. To scale the suitable high-low-risk Financial Action Task Force (FATF) has set rules and standards for knowing your customer transaction that is set in regulating KYC and AML.
What Is The Process Of Know Your Customer Transaction Monitoring?
A pivotal aspect of managing your customer relationships and knowing your customer transaction is monitoring deposits, withdrawals, transfers, rude money-related behavior of your clients and customers, and suspicious account activity.
Knowing your customer transaction is also essential for monitoring regulatory requirements set up on many businesses. Several factors determine the learn your customer transaction process, including the business’s uniqueness and the urgency of regulatory requirements.
Transaction monitoring includes:
- A sector of business.
- Size and complexity of the company.
- Having a regional reach and incubating policies.
- Customer product and activity profile.
- Corporate culture and distribution channels.
- Associated operational links.
- Transaction type and volume.
What Is SARs In Know Your Customer Transaction?
SARs is a suspicious activity report crucial to the KYCT or know-your-customer transaction monitoring process. When an illicit transaction is identified, relevant institutions must report it to the appropriate department.
Financial institutions must report suspicious activity and issues to authorities within 30 days of discovering them. In cases of fraud, theft, or embezzlement where proof is needed, it can take up to 60 days.
The SARs report is made in the following cases:
- Huge domestic or international transactions.
- Suspicious account activities.
- Theft reports made by clients or customers.
- Large cash deposits or withdrawals.
- Transactions over a specific limit.
Knowing your customer transaction is vital and critical to preventing significant crimes, thefts, money laundering, terrorism, and other essential crimes before they occur.
Since monitoring client transactions is not widely used, many financial institutions are adopting know-your-customer transaction processes to have complete real-time and day-to-day records. Failing to have such systems can cause damage to the reputation and credibility of financial institutions and cost them heavy fines, sanctions and penalties, and huge losses.
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