KYC, while sounding a bit like the well-known brand KFC, is an important aspect of what our financial institutions and wealth management companies should be doing as it is a key ingredient to detecting and preventing money laundering worldwide. KYC stands for Know Your Client and is highlighted in Canada’s anti-money laundering legislation and banks like the National Bank of Canada who make it their number one key control item with the second being verification and identification.
The objectives of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) are to: • implement measures to detect and deter money laundering and the financing of terrorist activities and to facilitate their investigation and prosecution; • provide law enforcement officials with the information required to deprive individuals of the proceeds of their criminal activities, while ensuring that appropriate safeguards are in place to protect privacy; and, • fulfill Canada’s international commitments to participate in the fight against transnational crime, particularly money laundering and the fight against terrorist activity.
Financial institutions have a responsibility to implement robust security measures and due diligence procedures to minimize the risk of fraud and ensure the protection of their clients’ assets.
Knowing the client, often referred to as “Know Your Customer” (KYC), is a fundamental principle in the banking industry. It involves banks verifying and understanding the identity of their clients, as well as assessing the nature of their financial activities. By doing so, banks can gain insights into the source of funds, the intended use of the funds, and the overall risk profile of the client. This information helps banks identify and prevent fraudulent activities.
Moreover, regulatory authorities often require banks to have stringent KYC procedures in place to combat money laundering, terrorist financing, and other illicit financial activities. Financial institutions such as banks and credit unions are expected to conduct customer due diligence to ensure that they are not unwittingly facilitating criminal activities.
They play a crucial role in protecting their clients from fraud by implementing strong security measures, adhering to KYC principles, and actively monitoring and addressing potential risks. Clients entrust their wealth to banks with the expectation that their financial institution will take the necessary steps to safeguard their assets and ensure the integrity of the financial system.
To help battle against the multi-trillion-dollar financial crime industry, firms themselves take steps toward solving the problem. One way organizations have responded is by expanding their “Know Your Customer” (KYC) efforts.
The regulations put in place over the years have required firms to monitor client behavior regularly. And there is no exception for not complying. Any company—including banks, insurance companies, and creditors—with exposure to client risk must develop a KYC strategy for engaging with customers.
Other things to look for as part of KYC due diligence work to detect and prevent money laundering are determining whether a third party is giving instructions to your client (e.g., wire instruction sheet) and to determine your relationship with client and to provide ongoing monitoring especially during vulnerable times and life stages such as retirement.
More information on KYC can be found at these links.
https://www.trulioo.com/blog/kyc
https://www.swift.com/your-needs/financial-crime-cyber-security/know-your-customer-kyc/kyc-process
On leading financial institution which is global in scope and a major US bank is JP Morgan Chase. Chat GPT singled it out as one of the leaders in detecting and preventing money laundering from happening. This was corroborated upon calling this US bank and questioning them about their fraud prevention procedures and how they do follow through on ensuring unusual and /or suspicious transactions brought to their attention are legitimate before allowing them to come to be carried out.
- Education: JP Morgan provides education to its customers, including seniors, about common scams and frauds, such as phishing, romance scams, and lottery scams. By educating customers on the risks and warning signs of fraud, JP Morgan hopes to prevent them from falling victim to these schemes.
- Fraud detection: JP Morgan has sophisticated fraud detection systems in place that monitor customer accounts for suspicious activity. If the bank detects any unusual or suspicious activity, such as a large wire transfer to an unfamiliar account, it will flag the transaction for further investigation.
- Enhanced authentication: JP Morgan may require additional authentication steps for high-value transactions or transactions to unfamiliar accounts. This may include requiring a phone call or in-person visit to confirm the legitimacy of the transaction.
- Transaction limits: JP Morgan may have limits on the amount of money that can be transferred in a single transaction or within a certain time period. These limits can help prevent customers from wiring large sums of money to fraudulent accounts.
- Personalized attention: JP Morgan may assign a dedicated banker or advisor to senior customers who can provide personalized attention and guidance on financial transactions. This can help seniors make informed decisions and avoid potential scams or frauds.
