Role Of Artificial Intelligence In KYC and AML Compliance

Artificial Intelligence | 14-10-2019 | Harris Mason

know your customer

While Artificial Intelligence (AI), is making an impact in automating the world, experts are predicting that automation of industries is on the verge. The economic sector remains among one of the first sectors adopting AI.

FinTech, a new industry that emerged from a synergy between Finance and Technology, is a highly profitable industry. In last year, 26 of the FinTech Unicorns, worth $147.3 billion. One of the main features of FinTech is assisting businesses around the world to stay in compliance with stringent Know your Customer (KYC) and Anti Money Laundering (AML) regulations, regardless of the sector they belong to.

Before looking at the impact of technology in KYC compliance, we need to know what KYC compliance is.

What is KYC and AML Compliance?

The world has seen a rise in criminal activities like money laundering, identity theft, online transactional frauds, and terror financing. Especially businesses using internet technology for financial transactions are more vulnerable to these crimes. To address this issue, Global and National transaction regulatory authorities in the world make rules and regulations.

Businesses dealing in international markets need to comply with these regulations else they may face fines and ban, in some circumstances. Furthermore, developed areas like the US, European Union, and Australia have theirs on regulatory bodies. Some of these regulatory bodies, such as FINCEN, FINRA, FINTRAC, and FATF, are worth mentioning.

Any business, which implies a financial transaction, come under the jurisdiction of these regulatory bodies had to comply with the rules and regulations and must have powerful KYC verification and Customer Due Diligence checks.

It would be difficult to individually mention regulations imposed by each authority. But all of them have the same purpose, to stop fraudsters, Money Launderers, and Terror Financers.

Here are four major components of the KYC process step that have become more strong by utilizing AI:

Customer on Boarding

Customer on Boarding is a critical process that requires a robust KYC for a background check. Knowing your Customer before onboarding is necessary to make sure who the person on the other side of the transaction is. While in the house scenario, it is simpler to ask the customer for authentic documents like government-issued documents or driving license to prove their identity.

However, when it comes to online business, the onboarding process might become vulnerable to criminal activities. But AI is making this process more robust by automating the manual process and verifying the customer against a list of data points. Other than this, adding details manually takes a lot of time and makes customers exhausted. NLP powered OCR technology has made this process time-efficient. The customer uploads or scans a picture of the document and OCR extracts the required detail from the document.

Customer Screening

The purpose of customer screening is to verify that the person you are doing business with is not directly involved or linked to any entity that is involved in criminal activities. Artificial Intelligence matches the identity of a person against a list of databases issued by different countries and authorities.

Transaction Monitoring

The KYC process is not only required during customer onboarding. Companies should also place on-going KYC checks to monitor the transactional activities of the customer. Using AI, companies could automate the monitoring process and create insights into the level of risks associated with an individual.

Payment Screening

Payment screening refers to the process of making a compulsory assessment like background information and source of income for the person. It also includes verifying the purpose of the transaction. While manual or human-based check could make the process more lengthy and time-consuming. To err is human but this process may not afford errors. AI has made this process error-free and time-efficient by performing a deep background check, which involves screening of customers as well as their assets in real-time.

Although these are some prominent uses of Artificial Intelligence in the KYC process, the FinTech sector needs to perceive and realize the true potential of AI in the finance industry. This way, a powerful global transaction system could be made without worrying about fraudulent activities.

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Harris Mason

Harris Mason is a tech enthusiast. He is a content writer, by profession, who loves to make boring stuff more interesting. He works as a freelance and is making his mark in blog writing. Other than writing, he has a passion for photography and book reading. Being a tech enthusiast, he plays video games in his free time and sometimes plays cricket to keep himself fit.