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AML Compliance – Korean Crypto Exchanges Join Hands to Fight Money Laundering

Richard Marley
January 30, 2019
3 minutes read
1891

Cryptocurrency has been notoriously criticised for money laundering and other illicit activities ever since its inception. But with the increasing crack down on money laundering activities globally by organizations like FATF, financial regulators have been urging crypto exchanges to comply with anti-money laundering measures.

Owing largely to its decentralised nature, the crypto industry has been more often than not used for illegal activities by all sorts of criminals. Be that as it may, it is also true that Bitcoin or any other cryptocurrency for that matter was not created for this purpose. If anything the whole blockchain structure is supposed to keep all transactions completely transparent.

Nevertheless, after constant urging from various regulators, cryptocurrencies have been scrambling to meet all AML compliance measures. In light of regulating crypto companies and exchanges, three crypto exchanges in Korea have teamed up to address the issue.

Leading Exchanges set up a Hotline to Combat Money Laundering

Four leading exchanges in South Korea i.e. Coinone, Upbit, Bithumb and Corbit have recently set up a hotline that will receive any information regarding money laundering, or any other illicit activities, in real time. Crypto has been known to be used for many cyberscams including online identity theft, phishing or Ponzi schemes.

Read: KYC and AML Compliance can help cryptocurrencies to earn legitimacy

An official explained that any illicit activity would instantly be reported on the hotline and the required actions would be taken immediately. This he hoped would increase the credibility of the industry as a whole and would be productive in protecting the users as well.

With an increased focus world over to restrain money laundering activities in every form, every major country has asked crypto exchanges to implement anti-money laundering (AML) compliance measures. And it is true that many exchanges and crypto companies have been doing their best to comply with such measures put forth by each of their governments.

Effective Fraud Prevention Solutions for Crypto

Pursuant to the regulatory measures, cryptos have also been setting up fraud detection and prevention techniques to fight scams and frauds. One of these measures is Know Your Customer (KYC) verification and AML checks. They use identity verification through document and face verification to authenticate the users in order to gauge their legitimacy. Where steps like the ones taken by the South Korean exchanges are laudable, there is a dire need for more robust fraud prevention measures.

Shufti Pro is a leading SaaS product providing such fraud prevention measures through identity verification to more than 230 countries across the globe. It implements KYC verifications through an AI-based authentication procedure, allowing businesses to verify their users in real time. Shufti Pro also offers AML checks from all major regulatory authorities operating across the globe. It is seamless and can be easily integrated into a web-based interface of any given business.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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Lawyers in Malta Lag Behind in Complying with AML Measures
Leading Exchanges set up a Hotline to Combat Money Laundering
Effective Fraud Prevention Solutions for Crypto
Malta obliged the various sectors to comply with risk assessment measures. According to the Financial Intelligence Analysis Unit, the legal industry is lagging behind in complying with these measures.

Only 57 per cent of the legal businesses had a system for business risk assessment (BRA) in place the previous year which places the legal industry at the bottom of the list of sectors for compliance requirements including credit institutions, gaming companies, service providers, auditors and accountants.

However, FIAU is driven to gain more compliance management measures from the listed sectors. The overall results indicate that the improvement was seen in every sector as Malta continues to focus on its fight against money laundering terrorism funding.

Business Risk Assessment is a tool through which the members of the financial services can analyse the risks attached to a client and which measures can ensure minimized risks. This tool is a part of anti-money laundering compliance.

FIAU reported a significant improvement among real estate agents that shot up to 73% from 40% in a year regarding the Business Risk Assessment.

Credit institutions made it to the top of the list with a 100% increase in having the Business Risk Assessment in place and the financial institutions made it to the second with 94%.

“The FIAU acknowledges the subject persons’ commitment to engage consultants to assist them in carrying out certain anti-money laundering and financing of terrorism obligations. However, subject persons remain solely responsible for the BRA and most importantly should ensure that they have knowledge of both the content and result of it,” the FIAU said.

The FIAU highlighted that the BRA must not be a side document that the operators are required to fulfil. It must be tailored to represent the business operations, scenarios, and models.

The financial watchdogs revealed that a number of operators took the help of consultants to carry out the risk assessment and they were responsible and understood the importance of the exercise.

FIAU analysed one risk assessment and discovered that “An operator listed the application of client due diligence (CDD) measures as a safeguard against risks arising from exposure to politically exposed persons (PEPs).” FIAU added, “This is not sufficient given that CDD measures are to be applied in all circumstances irrespective of the risk level. In cases PEPs, subject persons are expected to define in more detail the type of enhanced due diligence measures to be applied.”

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Periodic to Perpetual KYC — The Changing Landscape in Banks
Leading Exchanges set up a Hotline to Combat Money Laundering
Effective Fraud Prevention Solutions for Crypto
The employment of effective Know Your Customer (KYC) procedures has long been a challenge for financial institutions, resulting in investments worth billions of dollars and numerous non-compliance penalties for major industry leaders. To counter the complexity and inconvenience of conventional methods of identity verification, KYC procedures must evolve in a way that lowers down the cost for a company while also maintaining regulatory compliance.

The Current State of KYC in Banking

In a traditional set-up, KYC processes are implemented on a periodic basis, with the frequency of the reviews varying between every financial institution. However, a significant amount of deficiencies within the traditional periodic KYC process have reinforced the need for a transition.

But before we get to that, let’s take a look at what happens in a periodic KYC review process.

What is KYC Periodic Review?

Periodic KYC involves the simple procedure of submitting the latest identity and address documents to the bank. This is initially done when the customer opens a bank account and the information is then updated at periodic intervals.
The Periodic KYC Process

Typically, compliance officers review the following elements during the periodic AML and KYC process:

Review of the customer’s information: This includes collecting and verifying their full name, date of birth, address, ID number, and the collection of the customer’s original ID documents to identify any material changes

Screening of the customer against global and country-based watch lists and sanctions

Reassessment of risk ratings in case of substantive changes in the ID documents (e.g. a different residential address)

Periodic review of the customer’s transactions and comparing it against forecasted account activity (this is generally performed via fully automated identity verification and screening tools)

Detection of potentially suspicious activities

Pinning Down the Problem

Responding back to periodic KYC data requests made by the bank drives customers crazy if handled incorrectly. At times, customers are even required to show up in person to have their documents verified. For most businesses, the emergence of artificial intelligence-backed identity verification solutions has eliminated the need for such manual methods of document verification. Nevertheless, a high amount of inefficiency still remains.

KYC experts are often caught up between the expectations of the bank and the customers. Repeatedly requesting for additional documents results in unsatisfied and frustrated customers — a situation that can prove to be detrimental to the financial well-being of a company.

With the bar on compliance being globally raised, the costs and resources associated with secure customer onboarding and periodic KYC checks have increased exponentially. Because of this, KYC procedures are often placed at the bottom of to-do lists, which ultimately harms the bank in the form of hefty non-compliance fines on top of reputational damage.

Is There An Alternative?

A basic solution to overcome the above-mentioned problems is to analyze the KYC process from the perspective of the customer i.e., the KYC procedures within a bank must be designed in such a way that the experience of the customer is optimized.

With the help of digital strategies – such as online customer portals, support for multiple channel communication, and direct engagement with bank branches or relationship managers, the inherent friction in obtaining the necessary customer documentation can be substantially reduced.

Further improvements in the efficiency, productivity, and customer experience can be gained by shifting from periodic KYC reviews to perpetual KYC.

What is Perpetual KYC?

In the perpetual “know your customer” process, also known as ongoing KYC, the information of the customer is updated based on specific triggers or events, rather than on the specified amount of elapsed time. Triggers for perpetual KYC can be determined by the bank’s internal KYC policies. Typically, it includes any event that indicates outdated information.

Once combined with robust KYC verification tools, customers can be engaged in the KYC process in a manner that makes sense to them and is not deemed as burdensome.

By gathering updated customer data on an ongoing basis, risk profiling can be enhanced which allows a bank to particularly focus on the customer accounts where the information or circumstances are changing. Additionally, whenever minor non-material changes occur, AI-powered automated processes will be updating records continuously.

What Makes Perpetual KYC Standout?

Due to ever-increasing AML and KYC regulations, having accurate and up-to-date customer information has become more crucial than ever. If banks aim to sustain themselves in a highly competitive market, they need to adopt a data-driven approach and perform ongoing KYC verification on their customers. The benefits of perpetual KYC include but are not confined to:

Mitigation of Friction in the Customer Relationship

For periodic KYC, relationship managers act as the middlemen. They are responsible for requesting current information and additional paperwork from customers and communicating this information back to KYC compliance officers. Repeated requests and resulting transaction delays, however, cause customers to feel dissatisfied with the bank’s customer service. This can result in long-lasting damage to the relationship.

Moving towards perpetual KYC procedures can eliminate this friction by greatly minimizing requests from clients. Customer information is updated based on event-based triggers, rather than a pre-defined period of time.

Risk Reduction

Imagine a scenario where a bank has onboarded a low-risk customer. In periodic KYC, their information is refreshed once every five years. After one year has passed in the five-year review period, this individual is nominated as the director of a firm and becomes a UBO. In addition, that firm’s parent company is domiciled in a high-risk territory. Unless the customer communicates this change to the bank, it may be left undetected for another four years. This can potentially increase the risk of financial crime exposure of the bank.

On the other hand, if this same bank had shifted towards perpetual KYC, the change in the customer’s circumstance would have been identified in mere seconds. Consequently, it would have initiated an immediate review and an updated risk assessment.

Key Takeaways

In a traditional set-up, KYC is implemented on a periodic basis

Periodic KYC has now become insufficient due to higher costs and lower levels of customer satisfaction

Perpetual KYC has the ability to fill these gaps and provides an edge in the form of risk reduction and elimination of friction

AML Compliance – Korean Crypto Exchanges Join Hands to Fight Money Laundering

Leading Exchanges set up a Hotline to Combat Money Laundering

Read: KYC and AML Compliance can help cryptocurrencies to earn legitimacy

Effective Fraud Prevention Solutions for Crypto

The Current State of KYC in Banking

The Periodic KYC Process

Pinning Down the Problem

Is There An Alternative?

What is Perpetual KYC?

What Makes Perpetual KYC Standout?

Mitigation of Friction in the Customer Relationship

Risk Reduction

Key Takeaways

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.

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Cyprus

United Kingdom

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Add to your Homescreen!

AML Compliance – Korean Crypto Exchanges Join Hands to Fight Money Laundering

Leading Exchanges set up a Hotline to Combat Money Laundering

Read: KYC and AML Compliance can help cryptocurrencies to earn legitimacy

Effective Fraud Prevention Solutions for Crypto

The Current State of KYC in Banking

What is KYC Periodic Review?

The Periodic KYC Process

Pinning Down the Problem

Is There An Alternative?

What is Perpetual KYC?

What Makes Perpetual KYC Standout?

Mitigation of Friction in the Customer Relationship

Risk Reduction

Key Takeaways

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.

Add to your Homescreen!