e Sign or Digital Signature Solution: For Digitally Signing Documents

eSign Services | Digital Signature Service Providers | E Signature Solutions

e Sign or Digital Signature Solution: For Digitally Signing Documents

With the ongoing COVID-19 pandemic, concepts like social distancing, digital transformation have surfaced. The majority of the businesses are shifting from the conventional method to digitalization. No physical contact, paperless transactions are now becoming a reality and people need to abide by them. Amidst such occurrences, a new notion of digital signature solution or eSign has been prominently recognised. Some businesses have already implemented Electronic Signature or e Sign services. There are various firms providing digital signature certificate services as well.

 

A wet signature is legal consent given by a person thus, assumes a lot of significance. The KYC based eSign is equivalent to this wet signature. Like the wet signature, it also ensures non-repudiation and legally binding.

 

What is e Sign?

 

eSign is an abbreviation for Electronic Signature. As technology evolves, new methods of signature are evolving. The Legal definition for Esign: “The term ‘electronic signature’ means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” — Electronic Signatures in Global and National Commerce Act (ESIGN).

 

In layman’s words, digital signature or e Sign services is a way of digitally signing the document. It is a paperless method by which a person or business entity can enter into an electronic contract. The Information Technology Act, 2000 introduced the concept of Electronic Signature but no one paid any major heed to it until now. In India, eSign will soon be changing the face of online transactions. Though an alternative for wet signatures, we need certain documents in place to avail of this service. For digitally signing a document, we need to possess a Digital Signature Certificate from the Central Authorities of the country.

 

A notable feature of eSign is its execution anywhere, anytime without much hassle. It uses digital signature technology to sign a said document. eSign is legally binding and highly regulated. And like the wet signatures, it is now held as a valid identity of the proxies.

 

What is a Digital Signature?

 

Digital Signature is a mathematical sequence used to authenticate and verify the document or a message. It is an algorithm that the receiver of the document can use. The person can check and verify if the document or message received by him/her is not modified and is in its original format. It makes use of Public Key Infrastructure (PKI) which provides both entities with the highest level of security. PKI is an universal accepted format that allows inter-country transactions. It helps to minimize the risk of false identity.

 

The interchangeable use of a digital signature and an electronic signature is common. This makes it difficult to understand their true meaning as they are two different fundamental concepts. An eSign or electronic signature is the image or representation of the original wet signature in different formats or a combination of them. It can be the original signature, DSC signer certificate or biometric signature. A digital signature is a mechanism behind e Sign. It is one of the technology to authenticate document validity. It is also known as a digital certificate which is the cryptography behind an electronic signature.

 

Both, digital signature and electronic signature have one fact in common. They allow you to sign the documents and authenticate the signer but differ on various bases. They differ in technical implementation, legal acceptance, geographical use and purpose. The digital technology used for eSign significantly varies between countries. The United States, Canada, United Kingdom, Australia follow open, technology-neutral laws. Whereas countries in South America, Europe and Asia follow tiered e Sign models. In the tiered e Sign model, local standards define the digital signature technology.

 

What is eSign Aadhaar?

 

We know that Aadhaar has weighing importance for KYC verification and earlier, it was an irksome task. But the eSign technology makes it more simple and nimble. It facilitates the digitally signing of the document by an Aadhaar holder using the Aadhaar EKYC services. It is an integrated service that issues a Digital Signature Certificate (DSC signer service) for e-signing the document. A person must have an Aadhaar card for availing e Sign services. If you are a registered Aadhaar user, you can automatically use the e Sign services with no prior paperwork.

 

For instance, if two parties or entities want to enter an agreement. If they have a 12 digital Aadhaar number and registered Aadhaar mobile number, then it is possible for them to sign the document without physical presence. It is an initiative by the Indian Government to allow a person having an Aadhaar to instantaneously sign & verify a document anywhere, anytime. Hence, saving a significant amount of time and costs. Under the provisions of The Information Technology Act, eSign or Electronic Signature assumes equal value as a wet sign. It is a recognized form of a signature that holds legal validity.

 

In India, every individual who has an Aadhaar card can do a digital signature using Aadhaar eSign and this is equivalent to a wet signature. There are various providers of digital signature services with many variants of eSign.

 

The working of e Sign Services

 

The digital signature process may seem simple to the end consumer but the mechanism behind is more sophisticated as it is a highly regulated service. The Application Service Provider sets up the framework of the system and creates an application interface when a user accesses the e Sign services. The user can access the services of the ESP (eSign Service Provider) entity using the API. ESP is a government-approved entity providing e Sign services. Once the user and ESP connct, the user provides authentication of their identity. For this, the users access the data saved on their Aadhaar profile using fingerprints or an OTP verification code sent on the registered Aadhaar mobile number/registered Email ID.

 

Soon as the information provided by the user matches the KYC database of the Indian government; a certified, government-regulated authority issues a temporary Digital Signature Certificate. This generates a PKI and creates an audit trail with the authentication response. The ASP will then receive the signature from the ESP in the form of an attachment to the document. As the user makes the signature, the key gets destroyed automatically after one time of use. There are many firms that provide digital signature certificate services. But the institution needs to choose the one which is compliant with all the mandates.

 

Benefits of E Signature

Interwoven into the globalised world, eSign is a welcome step for revolution. Many countries are implementing it due to its noteworthy benefits:

 

  • E Sign has brought big effects by opening up more global trade opportunities.
  • There is no need for physical presence for signing the document is no more required.
  • It saves a lot of productive time due to the instant signing of documents.
  • eSign eliminates the cost of enormous paperwork, printing, scanning and travelling.
  • It produces a legal and valid document managed by licensed Certifying Authorities ensuring that there is no identity theft.

 

In India, there are some exceptions where e Sign is not applicable. Here are the classes of documents where the application of e Sign is not possible:

  • A negotiable instrument as defined in section 13 of the Negotiable Instruments Act, 1881

  • A power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882
  • A trust as defined in section 3 of the Indian Trusts Act, 1882
  • A will as defined in clause (h) of section 2 of the Indian Succession Act, 1925 including any other testamentary disposition by whatever name called
  • Any contract for the sale or conveyance of immovable property or any interest in such property
  • Any such class of documents or transactions as may be notified by the Central Government in the Official Gazette

 

By now, most of the countries have adopted digital signature technology and are improving their compliance regulations. The country and industry-specific regulations are evolving, a prominent example is a regulation recently adopted by the European Union known as Electronic Identification and Trust Services (eIDAS) regulation.

Video KYC: A Monumental Step towards Digitalization

Video KYC Services | VCIP Solutions | eKYC Service Providers

Video KYC Process or VCIP Solution: A Monumental Step towards Digitalization

A commonly heard term in the banking industry is KYC (Know Your Customer). KYC is the process or step in which there is an assessment of the customers’ profile. It evaluates the risk associated with the customers of a bank or financial institution. This process ensures that they comply with the Anti-Money Laundering (AML) laws. With emerging technologies like AI, UIDAI Biometrics, machine learning, facial recognition, the concept of Digital KYC took birth. EKYC or Digital KYC verification was able to surpass the issues that the manual KYC process faced earlier. But this method is still lacking complete digitalization. The prominent technology which is helping us to go fully digital is Video KYC verification. This brought a sudden rise in firms offering video KYC solution or VCIP solution for banks.

Background

Though the KYC process is imperative for Regulated Entities, yet past years haven’t proved to be beneficial to bring out novel developments in this field. But as complications began to arise, the process of identifying and authenticating customers got exposed to the risk of frauds. It came under the great threat of money laundering. This has impelled some developments like the video verification process to tackle the ever-rising problems of REs.

 

With the recent amendment in The Prevention of Money Laundering Act (PMLA), the regulators allowed several modes of capturing customer details electronically. This led to various developments of technology across industries including the KYC process in banks. The regulators recognized the downside of the physical presence of the customer and sheer data handling in the KYC process even if it was for EKYC. Digital KYC solution is also known as video KYC verification process. It existed before and is not new. But still, customers find the video KYC bank account opening process cumbersome because they even require to provide the documents in the physical form.

Earlier this year, the Reserve Bank of India (RBI) released an amendment on 9th January 2020 for Video KYC. It added Video based Customer Identification Process (VCIP solution) as another option for KYC verification in the financial community. By this, it intends to reduce the cost of customer acquisition, the errors in KYC documentation and adherence to the AML regulations. Due to COVID-19, in-person interaction has not remained a feasible option. It is no more viable way for verifying documents in the KYC process. Hence, the Video KYC process has become a viable option in background verification.

What is Video KYC?

Video KYC (VCIP) or video verification is the process of digitally authenticating the customers. It overcomes the difficulty of physically examining the documents. KYC verification involves checking all the documents submitted by the customers. And in the absence of technology, it was a tedious and daunting task for humans. The Video KYC solution has surmounted such a huge hurdle. It has brought efficiencies by reducing the expensive customer onboarding cost in the KYC process. This proved to be mutually beneficial for the banks as well as customers.

VCIP solution or digital KYC verification has gained a lot of attention majorly from banking and financial institutions. They experienced an increase in productivity due to minimal human interventions. It also helped in speeding up the authentication process.

The Video KYC process leverages the video call technology in onboarding the customers. This video KYC verification and authentication process has proved to be the most significant development in the field of KYC. It is a simple, seamless and scalable way by which the institutions can acquire customer details and documents before onboarding. It is a reliable system with AI-enabled technology to prevent frauds and check errors.

Steps in Video KYC Process

Video KYC verification is the game-changer for the industry. It has cut down the extensive time-consuming process of document examination from a few days to a couple of minutes. This involved the following, hassle-free steps for the customers –

  • Registering and filling up the details on the online form on the website or mobile app of the Regulated entities (RE).
  • Consent to be obtained from the customers to fetch Aadhaar details, PAN number and other official documents to conduct E-verification. Meanwhile, allowing the bank to access the real-time location of the customer using geotagging software.

  • Scheduling a date and time for the customer onboarding process where banks send a link to the customers to the webpage for video call.

  • The bank official initiates the conversation by asking to display the documents on the video call. The software will grab the details from the documents and verify them with the uploaded documents. 

  • Using the facial recognition technology, the bank will verify the customer on the video call with the photograph on the documents.

  • The bank official will ask randomized questions as per the banks’ internal policy to ensure it a live interaction.

  • After assessing the answers, the bank official will decide whether the customer application should be approved or disapproved. Also, the video call interaction is stored by the official to ensure non-repudiation.

 

The Benefits of Video KYC

  • This type of Digital KYC solution drastically reduces customer onboarding costs.

  • Video Verification services streamline the complex process through automation using Artificial Intelligence.

  • Video KYC solution helps to detect frauds and malicious activity and safeguards the investors.

  • Adoption Digital KYC can help keep a check on criminal activities majorly money laundering

  • VCIP solution utilizes cost-effective technology involving minimal paperwork

 

Conclusion

 

The technology used in Video KYC verification or VCIP solution is robust, secured and encrypted. It ensures the prevention of data leak which, otherwise, might be a data privacy concern. Each and every step in digital KYC verification is done in real-time. This process uses AI-enabled techniques of automated data extraction, machine learning and face matching.

 

Video KYC is monumental but just a mere step in the financial sector. Furthermore, developing impeccable experience in the e-commerce, telecom and networking industry.

Benefits and Features of a Compliance Management System

Compliance Management Software | Automated Compliance Technology | Regtech

What is a Compliance Management Software?

An organization’s adherence is necessary to professional and government regulations and standards as per their industry. GRC tools such as the compliance management software help with the automation, centralization, consolidation and streamlining processes, data and communication for the above. This compliance management system provides strategies that help with managing risk, deployment of optimized workflow and empowerment of staff. The compliance risk management system ensures a greater flow of information and insights regarding the compliance to avert hefty fines or the worst, shutdown. Such GRC platforms assist significantly in efficient operations.

Irrespective of the type of industry, the business has to adhere to regulatory government policies. Non-compliance is always detrimental as the business may suffer terribly.

To ensure that non-compliance doesn’t impact your business, one can use compliance management software. This is a technological solution that helps you and your company become more legally competent.

Benefits of compliance management software

Benefits of Compliance Management System:

Firstly, let’s get into the necessity of compliance and what are their requirements. Compliance is fundamentally a legal, social, ecological, and financial compliance benchmark that aims to preserve a business’/industry’s ethics, liability and overall performance in a particular sector. It can also be defined concerning regulatory perquisites to protect employees from harassment.

The compliance officers lose their time in the search of data ensuring the company’s adherence to compliance. Therefore, GRC tools are the most efficient way to manage such things. The compliance and risk management solution does the automation of the repetitive and tedious processes of gathering data, communication and knowledge sharing, decision making and staying up-to-date with the changes in compliance requirements and integrating it into the whole system. 

Why should businesses need to invest in and use compliance software?

  • Reduction in legal complications: 

As we know all businesses need to abide by various compliance regulations. They can be social, legal, corporate, environmental, government and financial compliance and framework. If not adhered to, it will attract fines, penalties and lawsuits. The management software ensures full implementation of the operations in the organization and prevents complications to cascade from loopholes into crisis. The administration and execution of policies to the fullest extent ensures the policies gain power. This is one of the biggest advantages of software.

  • Efficient operations and processes:

In the spirit of prosperity and success, organizations need to aspire for transformation and advancement. Feedback solicitation and timely evaluation in the form of internal and external audits help to point out irregularities to enhance the quality of discharge of workflow. Therefore software ensures proper documentation of audits, checklists, evaluations and improvements and their communication teams, globally and globally.

  • Expedite compliant and well-informed decision-making:

In the case of irregularities in the system with the help of a compliance software solution, the flag can be put up. Pass it on to the delegates so they can resolve the issues immediately. In a nutshell, it helps in safeguarding the organization’s financial and legal uprightness.

  • Productive cooperation and correspondence:

In any organization or business, employees and officers are in the frontline of facing inconsistencies. The risk and compliance system ensures they overcome this challenge and fulfil the compliance requirements. Therefore, centralization and simplification of the communication of these fallacies so that they are detected, assigned and executed efficiently. Hence, compliance management software ensures frictionless and tangible modus operandi for recording and transmit the complications and occurrences among groups of people.

Compliance Management Software

What are Popular Features of Compliance and Risk Management Solution?

We have discussed the benefits of investing in compliance management software. Let’s look into the elements of features of it.

  • Easy-to-use user interface:

The Compliance management software must provide a good and simplified user experience and must be intuitively easy to use. The software’s front-end like design finishing, layout, features and the relevance of it explains the functioning.

  • Top-notch analytics:

With the advent of industries big data, compliance management software provides methods to visualize and display trends. Before being referred to upper management, the answers to complications are available.

  • Control over documentation:

The software expedites document control which includes dedicated management of records, forms and documents that the business transacts. Document controlling is a major want by ISO 9001.

  • Managing fraud:

An account of dubious activities, the software ensures reporting and resolution of anomalies regarding financial compliance and potential frauds like payments and bribes.

  • Managing processes:

In the spirit to strive for excellence, owning, managing, remapping and dissecting processes while making the management process streamlined by becoming seamless, integrated and collaborative. Visualization of modus operandi through flowchart tools and mapping is a must so that everyone is on the same frequency while operations.

Some more features of innovative compliance management system:

  • Managing incidents:

The Compliance and Risk Management solution should have a well-designed communication algorithm. This can help in the simplification and streamlining process of raising the red flag of incidents and events.

  • Capacity Development:

Onboard learning is a must for compliance officers so that they are up-to-date with the compliance set by regulatory bodies and commissions.

  • Online system for compliance requirement:

The software should have a centralized system for gathering reports on compliance, new regulations and requirement changes and firm integration with the business process.

  • Reporting compliance:

Compliance Risk Management system is able to manufacture a lineup of data extracts and compliance reports. These reports are representable as well as customized for the management to take action. 

  • Workflow and Task management:

Time-saving, efficient resource and compliance task management for end-to-end workflow across different points of interaction are a must from GRC tools.

  • Risk Management:

Productive management software provides methods managing, monitoring and analysis of risks throughout the stakeholder hierarchy and other key business processes. It eases the process of governance risk management.

  • Data security:

The software must provide uncompromising data security across all levels of the value chain. It does so by using encryption, advanced security systems, transfer of data and easy integration. The implementation of GRC tools can secure the data of users.

  • Offline competence:

Management software must provide options for collections and processing data being offline. Such a feature empowers businesses to operate smoothly without paying much attention to their initiatives in businesses.

  • Integration competence:

The compliance management system must be capable of integrating with the third party and supporting systems e.g HR, CRM, trading, research and many more. Automation provides efficiency and saves time, money and resources. The management software must be capable of providing more time and energy for policy formation and compliance strategy and management comprehensively.

© 2020 PiChain Innovations Pvt. Ltd. All rights reserved.

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BMI Securities Limited breaches anti money laundering regulatory requirements, gets severely fined by SFC

Automated AML Compliance Management | Regulatory Technology Solutions | AI in Banking

BMI Securities Limited (BMISL), a Hong Kong based financial securities investment firm, got a penalty of $3.7 million by Securities and Futures Commission (SFC). They failed to comply with the anti-money laundering (AML) and counter-terrorist financing (CFT) regulatory requirements. (#1)

BMISL’s responsible officer, SFC did suspend Ms Maggie Tang Wing Chi for five and a half months from 11th February 2020 to 25th July 2020. (#2)

The shares of two listed companies placed were subscribed through BMISL in 2016. Using the bought and sold notes in off-exchange transactions the clients transferred most of their placing shares to third parties for the substantial amounts ranging from $4.4 million to $855 million. (#3)

These transactions showed suspicious features like:

  • The shares placed were disproportionate to the subscription amount with the client’s financial profile.
  • No transactions were done in BMISL accounts. Apart from acquiring and disposing of the shares placed.

Findings by SFC are as follow:

  • Inadequate implementation of controls alleviates the risk of money laundering and terrorist financing associated with bought and sold notes via suspicious transactions.
  • No distinguishing, proper inquiry and insufficient scrutiny on suspicious dealings. No consideration for reporting them to Joint Financial Intelligence Unite where appropriate
  • Neglecting proper customer due diligence and keep customer-related information updated and relevant.
  • Absence of adequate and effective framework for identifying politically exposed persons and singling out terrorists and sanction designations.

From SFC’s point of view, BMISL’s conduct was breaching the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML guideline) and Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). (#4)

SFC’s investigation further resulted in the findings and the BMISL’s breaches because of Ms Tang’s incapability to discharge her duties as a responsible officer and as a member of BMISL’s senior management. She failed to identify, conduct appropriate inquiries and implement effective AML/CFT systems to subside the risks of money laundering and terrorist financing.

Factors in consideration so that SFC could decide sanctions against BMISL:

  • The message that AML/CFT is intolerable, is propagated in the market.
  • Tang and BMISL’s cooperation for resolving the concerns from SFC.
  • The remedial actions by BMISL to better its AML/CFT systems and controls.
  • An independent reviewer will prepare a report to log the successful rectification of identified concerns. BMISL will submit this report to SFC within twelve months.
  • BMISL’s financial situation.
  • Clean disciplinary records of BMISL and Tang with the SFC.

 Notes (#)

  1. For carrying out Type 1(transactions in securities) regulated activities, Securities and Futures Ordinance (SFO) did provide the license to BMISL.
  2. SFO provided the license to Tang for carrying out Type 1(transactions in securities) on behalf of BMISL and Type 9(asset management) regulated activities on behalf of BMI Funds Management Limited since 17th February 2016.
  3. SFC reported suspicious activities to the Joint Financial Intelligence Unit. The focus of the investigation was on the adequacy and effectiveness of BMISL’s AML/CFT systems and controls.
  4. The licensed corporations must implement appropriate internal AML/CFT policies, procedures and controls to ensure compliance with relevant regulatory and legal requirements. Every reasonable measure is undertaken to ensure proper safeguards to palliate the risks of money laundering and terrorist financing.
(Image Source:- Riskscreen.com)

Top Concerns in Regulatory Compliance Management

Compliance Concerns | Compliance Management Services | Regetch Services

Top Concerns in Regulatory Compliance Management

Banks and Financial Institutions have many complex compliance requirements. The companies involved in financial services need to be particularly vigilant on compliance concerns. Hence, the introduction of regulatory compliance management system is seen as a big leap forward.  Regtech solutions introduced in the market have developed robust compliance system technology for financial services. Penalties and fines, legal proceedings, loss of income and damage to reputation may be the consequences for neglecting or downplaying compliance. But the compliance management technology comes to the rescue. Regtech companies offer varied compliance risk solutions.

But in order to address the challenges of compliance in financial services, it is fundamentally important to understand them. Here’s a list of the top compliance concerns for financial services and how you can address them:

Keeping Pace with Changing Regulations

Staying updated on the rules (which are often changing) is extremely important to keep a competitive edge in any financial services. If you fail to do so it may lead to incurring penalties and legal issues. This would potentially cause a dent in your bottom line. This is intact the top compliance concern any bank or financial services provider will have.

The regulatory compliance and risk management framework for financial services would be guiding your broader strategy. Thus, it is important to periodically refresh your systems and incorporate what is changing. If you keep an eye on the regulatory surroundings each could help you pay big time in the end, saving your time, money and brand reputation. 

Controlling Compliance Costs

Duff & Phelps did a survey on the financial services sector and found out that compliance costs in the financial sector are set to double by 2022. Most financial institutions and financial services provider pour roughly 4% of their revenue into compliance which unfortunately is going to grow to 10% over the next five years.

So, What is causing this increase in compliance spending?

Complying with rules is fundamental but budgeting for the salaries, regulatory penalties, and cases of individual liability on the part of high ranking executives guilty of misconduct are the likely factors. All of these add up-to a need for companies to use advance technologies and compliance management solutions to better manage compliance costs.

The Fintech Factor

Often referred to as ‘fintech’, financial technologies such as mobile e-commerce, digital currency and wallets, and web-based businesses in general has introduced newer and larger risks. For financial institutions and financial services providers, it is mandatorily necessary to master a balance between risk, security, consumer protection and bottom line. The compliance risk solutions have proven history in assisting in the same.

Expensive Compliance Management Technology

The financial services providers need to adhere to the changing banking compliance regulations which becomes manually difficult.  Hence, big institutions opt for compliance technology. But the small and medium institutions face challenges in implementing such compliance management solutions. The mounting costs discourages them to do so.

Choosing the Right Platform

To absorb changing regulations, avoid unnecessary penalties, a mandatory regulatory audit needs to to conducted from time to time. It has become important for banks and financial Institutions to choose advanced, convenient, affordable, accurate, and easy to implement systems for the same.

Hence in this Digital Era, Advance and Automated Compliance Products Powered by AI and driven by Block-chain allows safe, easy KYB (Know Your Business) for any Business or Financial Institution. The compliance system technology is build on these aspects to ensure regulatory and compliance management adherence. 

Regulatory Compliance Management Solution

One of the best way for the institutions to deal with compliance challenges is implementing various regtech solutions. The regtech companies are developing compliance system technology to suit the changing needs of the regulatory environment. Seamless compliance risk solutions can keep institutions on a par with dynamic regulations in a cost-effective way. Evolving GRC technology eases the process of compliance risk management in banks.

PiChain’s compliance management solution ‘DeepPi’ typically is a cognitive and proactive compliance solution that in an automated way handles compliance. 

At PiChain, we understand how important KYC and KYB is for business.  To support all our customers and businesses during these challenging times of COVID-19, we have made our fully digital contactless AI/Blockchain driven COVID proof eKYC and eKYB solutions completely free this year. We do real-time eKYC and eKYB along with AML checks for more than 40 countries. We provide affordable and efficient regulatory compliance services as well.

Please email us at [email protected] for queries.

© 2020 PiChain Innovations Pvt. Ltd. All rights reserved.

Transaction Monitoring in AML (Anti-Money-Laundering)

Transaction Monitoring Services | AML Compliance Software | Compliance Management System

Transaction Monitoring in AML (Anti-Money-Laundering)

As the volume of transactions continues to increase, money laundering techniques become ever more sophisticated. Financial institutions face fundamental challenges in the AML screening process, suspicious activity monitoring, transaction monitoring in AML. It makes monitoring of transactions in KYC an increasingly expensive task and requires a lot of efforts. Hence, the introduction of KYC screening tools has proved a blessing for the financial industry.

What is Transaction Monitoring?

In simple words, Transaction monitoring is an Anti-Money Laundering and fraud prevention security process. It reviews and analyzes suspicious financial transfers or commercial transactions in digital and fiat currencies, ultimately exposing the origins. Various tools have made the transaction monitoring process flow much easier than before.

Why is Sanction Screening in AML important?

The companies employ are various KYC screening tools to prevent terrorism financing, financial fraud, evasion of taxes, and other types of money laundering. Screening in KYC process has gained significance in recent times due to a sudden surge in fraudulent activities. A vital part of any bank or Financial institution is to monitor the client’s profiles and their transactions.

The AML screening process monitoring undertakes to monitor transactions in KYC. It includes:

1. Deposits
2. Transfers between accounts
3. Withdrawals
4. Exchanges of currency
5. Extensions of credit
6. Any monetary instrument or investment security;
7. Any other payment or transfer, etc.

Transaction Monitoring Process Alerts are:

1. Monitoring of cash deposits,
2. Withdrawals, wire transfers that exceed statistical thresholds
3. Complete assessment of money transaction history of the Customer
4. Blacklist screenings
5. Sanctions screening
6. High-risk transaction regulation and exposure.

The 5 Real-time Indicators of Transaction Monitoring in AML

1.Suspicious Activity Monitoring Report

This is the final result of an investigation, and broadly indicates the meeting of the objective of the Transaction monitoring system related to the suspicious activity. There is a need to make sure the case categorization and other details are available to assist the investigation.

2.Quantum of False Positives

A well-performing AML monitoring system makes sure that the number of false positives is greatly reduced which accounts for about 87%. One of the most important aspects here is the screening of sanctions in KYC verification process.

3.Changes in Regulations

Understanding changes will drive investigative activities. The current transaction monitoring systems are oblivious to the current regulatory changes which need to missing suspicious transactions. A robust transaction monitoring will have the changes in the regulations incorporated and ensure that suspicious transactions are tracked in real-time.

4.Different Monitoring scenarios

Lack of proper customer and account segmentation, new products will need more scenarios to be created. Transaction monitoring systems have to be well aware of the above and note differences in their operations.

5.Operational costs

The cost of the Operations teams used to complete investigations and systems tasks needs to be taken into account. The system infrastructure has to support this as well as the transaction monitoring system.

Conclusion

There are various transaction monitoring tools that are used in PEP sanctions screening, name screening in KYC and more. Sanction screening in AML forms an important part to ensure that the organization is not involved in any illegal activities.

At PiChain we understand how important KYC and KYB is for business. To support all our customers and businesses during these challenging times of COVID-19 we have made our fully digital contactless AI/Blockchain driven COVID proof eKYC and eKYB solutions completely free this year. We do real-time eKYC and eKYB along with AML checks for more than 40 countries.

Please email us at [email protected] for queries.

© 2020 PiChain Innovations Pvt. Ltd. All rights reserved.

AI-based Risk Management Process

Artificial Intelligence in Banking | Banking Technology | AI in Financial Industry

AI-based Risk Management Process

Developed countries with AI and cyber capabilities have a clear head start in establishing the control mechanisms. This provides security to their citizens and eases the risk management process. Unfortunately, maintaining that comparative advantage requires a significant ongoing commitment from a plethora of resources. Installing an enterprise risk management system and maintaining it is expensive. But the growing number of financial technology companies have made credit risk management systems accessible. Even Small and Medium Enterprises are now able to implement a financial risk management system. The risk management solutions have gained importance today and it is on a constant rise.

Types of risks

The first of the 3 specific risks include hidden biases, not necessarily derived from the part of the designer but from the data provided to train the system. For example, if a system learns to select job applicants by using a data set of decisions made by human recruiters in the past, it may unknowingly learn to perpetuate racial, gender, ethnic or other biases. These biases may not appear as an explicit rule but embedded in interactions among the thousands of factors considered.

The next risk is that unlike, traditional systems, neural networks deal with statistical truths rather than literal truths. Thus, it makes it difficult to prove with complete certainty that a system works in all cases. It becomes tough to prove its capability particularly in situations where it is not represented in training data. Limitations to verifiability can be a concern in mission-critical applications. Hence, risk identification technology has emerged as a proven method in fraud risk management.

The third risk is errors made by the learning systems when diagnosing and correcting the precise nature of the problem. There can be a complicated way towards solution, and the solution may be far from optimal. The system development happens in trained conditions. If these conditions change, the appropriate benchmark is not the pursuit of perfection. 

Role of Risk managers in Compliance Risk Management

Risk managers are more prone to integrate unknown unknowns into their risk calculations. But this presumes that they do have a firm grounding in the subject matter. For instance, as cyber risk evolved, many risk managers had the opportunity to become more familiar with what the risk is. The insurers have had time to develop new insurance products to address these risks which helped to develop insurance risk management strategies.

Risk managers need to become more knowledgeable about the threats from developing AI. Some organizations devote resources to develop systems such as operational risk management internally. But there are only a few who develop a comprehensive risk analysis framework. Quite a few recognize the need to anticipate the threats and allocate resources specifically designed to address such threats.

Risk managers have a vital role to play in the risk analysis framework. They ensure that management is well aware of the potential threats while proposing solutions to neutralize the threats. They must be also trained in risk mitigation technology which avoids huge damages caused by various risks. The systems developed by financial technology companies are correct steps in developing a wholesome credit risk management system.

AI in Banking – Risk Management Tool

The AI world that gets created is kinder to organisations that excel at embracing the technology and anticipating its impacts. The organisations that attempt to maintain a wall between humans and machines are going to be at an ever-greater competitive disadvantage. In comparison with their rivals, the use of Artificial Intelligence in banking and other financial sectors can uncover system vulnerabilities. Those who prefer to break the barrier will make use of AI in every possible way by integrating its capabilities with those of humans effectively.

The organizations that can quickly sense and respond to opportunities will acquire the opportunities in the AI landscape. In the near term, AI isn’t replacing risk managers, but risk managers who use AI are going to replace the rest. They will be in a position to better handle the enterprise risk management system. This technology will ease the risk management process of organizations and bring great efficiency in their operations.

Conclusion

There are several risk management strategies to address credit, financial, enterprise and operational risks. The capabilities displayed by AI in risk control strategies are making them the most favoured option of financial institutions.  Financial technology is setting a newbench mark for risk management in the banking industry by opening new prospects of innovation.

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