New technologies have helped accelerate the expansion of the current economic sectors in today’s interconnected digital world. But it has also enabled fraudsters to exploit industries through sophisticated deceptive techniques. For this reason, professionals want to use innovative approaches to discourage fraud and stick to international guidelines. Following KYT compliance, enterprises can easily discourage money laundering & terrorism financing while avoiding hefty fines or bans. 

The following article discusses the significance of KYT compliance and how it can help Financial Institutions (FI) discourage fraud actively. 

Know Your Transaction Services – A Quick Overview

KYC transaction screening helps financial businesses identify and discourage suspicious activities from customers. In other words, following KYT compliance enables firms to detect fraudulent exchanges by associating clients’ profiles with respective monetary trades. 

According to Mordor Intelligence, the transaction monitoring market will flourish at a CAGR of 14.6% during the forecast period (2021-2026). 

Significance of KYT Compliance for Financial Businesses

Applying KYT regulatory protocols facilitates corporations to execute transaction monitoring on financial exchanges by customers. To streamline the onboarding process, financial institutions rely heavily on KYC services. Nonetheless, know your customer services are insufficient in the modern digital world. Only implementing both KYT compliance and KYC protocols can empower businesses to identify suspicious activities from clients and discourage fraud instantly. In this light, high-risk transaction monitoring services can help corporations extract meaningful insights from customers’ monetary transactions. 

KYT compliance offers an analytical approach to identifying patterns in transactions. Several know your transaction operators have various approaches to executing transaction monitoring procedures. The transaction screening system can empower financial institutions to track millions of monetary exchanges simultaneously whilst evaluating the risk associated with a customer’s profile. 

Complete Procedure Behind KYT Services

There following are four phases in the transaction monitoring procedure:

• Performing Identity Verification

Before establishing any business partnership, all financial firms need to calculate the risk associated with each corporate entity. This can happen by following the latest risk analysis framework from the international regulatory authorities. The advanced strategies must empower all financial businesses to calculate the risk score linked with each customer’s profile. All businesses must monitor customers’ profiles at regular intervals.

• Following the Risk-Based Approach

The second stage of the KYT protocol is performing risk-based calibration. In this light, financial firms need to personalize the transaction monitoring system to deal with the specific risks faced by the organization. This can only happen when the given parameters are correctly implemented. It will allow experts to identify suspicious activities with high confidence.  In any case, financial firms must perform ongoing transaction monitoring according to KYT compliance. This is also known as backtesting, which is about calculating and mitigating risks before spending a company’s capital. 

With backtesting, corporations can quickly examine if there is any necessity to adjust the transaction monitoring system. This way, financial firms can easily upgrade the database and facilitate accurate monitoring of user monetary exchanges.

In the context of the Risk-Based Approach (RBA), financial firms must consider the user’s data integrity, which is overall accuracy and consistency in consumer information. Financial Institutions (FI) can implement checks for the abovementioned purpose and monitor data accuracy in transaction monitoring systems. This way, firms can quickly identify and examine fraudulent activities because of data integrity issues. 

• Streamlining the KYT Procedure

With transaction monitoring systems, a significant challenge for firms is to ensure the training of all the employees who deal with TM alerts. Businesses need to train workers properly so employees can perform their responsibilities. To follow KYT compliance, firms can efficiently execute pre-transaction checks and deal with fraud alerts effectively. 

• Reporting Suspicious Activities to Authorities

In the 4th phase of transaction monitoring, when firms learn about suspicious exchanges, experts are responsible for reporting abnormalities to the Suspicious Transaction Reporting Office (STRO) immediately. 

After filing the report, financial firms can remain in contact with the particular business relationship, but experts must mitigate the risk associated with user accounts. Finally, financial firms must conduct Quality Assurance (QA) to ensure the accuracy of transaction monitoring procedures. 

Concluding Remarks

Following KYT compliance can help modern-day financial firms to detect money laundering & terrorism financing cases in monetary exchanges. This way, enterprises can discourage financial fraud and stick to international regulations to avoid fines and bans. Thus, it empowers businesses to secure a competitive advantage and attract only genuine clients worldwide.