Overview
Newsworthy challenges have appeared in the recent past especially after the global pandemic of COVID-19. To be more specific, the financial crisis & current inflation has pushed the working class to the limits where the organizations & individuals are also facing the serious challenges in terms of finances and compliance to KYC/AML.
Impact of COVID-19 on KYC/AML
The global pandemic has had both positive and negative effects on the financial industry. On the one hand, it has led to the acceleration of digital financial services. On the other hand, it has also led to the evolution of new fraud methods and channels. As fraudsters become more technologically proficient, it is expected that the fight against financial crimes such as money laundering will become more difficult in 2023. In order to address the compliance needs of the financial industry, it is expected that regulatory requirements will become more stringent in the coming years. In addition to changes in the digital world, geopolitical tensions between the US, Russia, and China will also likely impact the compliance landscape in 2023.
Self-Regulation & Cooperation to Authorities
Fraudsters often use the dark web to share experiences and information, making it easier for them to carry out successful fraudulent activities. The dark web is also a common place to sell and use personal and financial data for crimes such as identity theft. To combat these new threats in 2023, cooperation among different industries will be necessary. In particular, the role of financial regulators is crucial as they have the power to enact laws. In the EU, the Anti-Money Laundering Authority (AMLA) recognizes the importance of cooperation among law enforcement agencies in fighting money laundering and ensures that Financial Intelligence Units (FIUs) are in close contact with Financial Institutions (FIs) and central banks.
In the US, regulatory changes in 2023 will also focus on improving collaboration and data-sharing methods among agencies that have the authority to define anti-money laundering (AML) requirements. In addition to cooperation among financial stakeholders, self-regulation will also be important for banks in 2023 to maintain their reputation and avoid government intervention. Some FIs and bank groups have already formed alliances to work on best practices for compliance with AML requirements.
Cryptocurrency in 2023
As the price of Bitcoin falls, which is considered the best cryptocurrency till now, the trend might continue further. Previously, the price of cryptocurrencies as a whole kept falling in the last year to $50000. Bitcoin currently stays at $16834. By far the Cryptocurrency has survived well and more users are expected to buy different cryptocurrencies. This might depreciate the dollar and other paper currencies around the world as the backing of cryptocurrency is still undefined in real terms.
As for the money laundering through cryptocurrency, It is expected that cryptocurrencies will continue to exist in the coming years, but only in a more regulated environment. In 2023, the digital asset management industry is likely to face stricter regulation for anti-money laundering (AML) and countering the financing of terrorism (CFT) purposes. The Financial Action Task Force (FATF) will require crypto and digital asset management companies to implement customer due diligence (CDD), transaction monitoring, know your customer (KYC), and other AML requirements. These new regulatory measures, combined with targeted technological solutions, are expected to make it more difficult for criminals to use digital assets for money laundering purposes.
Resource: Fraud and AML Trends and Predictions for 2023
Decentralization in Cryptocurrency
According to Bryan Gross, network steward at crypto platform ICHI, decentralized finance (DeFi) and decentralized autonomous organizations (DAOs) are expected to be the fastest growing areas of the cryptocurrency market. DeFi aims to provide traditional financial services without intermediaries, while DAOs can be thought of as new internet communities. In 2021, deposits into DeFi services exceeded $200 billion, and demand is expected to continue growing in 2022. Carol Alexander added that investors seeking opportunities in smaller areas of the cryptocurrency market should watch Ethereum, Solana, Polkadot, and Cardano coins in 2022.
Further Improvements in KYC/AML
Internet of Things (IoT) will grow further
The Internet of Things (IoT) is a rapidly growing area that involves a wide range of gadgets, machinery, sensors, and other devices that are connected to the internet. It is projected that there will be 15.9 billion connected devices by 2030. These devices are able to track and record data, which can provide a more comprehensive picture of a customer when combined with other information. As IoT devices continue to grow, the data they collect, when combined with artificial intelligence (AI), can provide valuable insights into customer behavior, identity, transactions, and ongoing risk assessment and categorization.
Cloud Data Management will dominate other Data Sources
Currently, 69% of businesses have already moved at least 60% of their infrastructure and apps to the cloud. This allows enterprises to be more adaptive and flexible. Traditional know your customer (KYC) solutions are not sufficient for the needs of the modern world. By using cloud-based Software-as-a-Service (SaaS) apps, financial institutions can move away from on-premise hardware and shift KYC processes to the cloud.
Perpetual KYC will be normalized
Perpetual KYC reduces risk by narrowing the window of opportunity for fraudsters to launder illegal assets. As a result, more financial organizations are expected to adopt continuous KYC and move away from fixed annual review cycles.
However, regulators are increasing pressure on financial firms, leading businesses to shift from traditional periodic checks to dynamic or continuous know your customer (KYC) processes. Automating changes in customer profiles, including risk level and scoring, can help reduce the complexity of remediation and the outdated project-based remediation strategy. Regulated businesses must understand the potential risk posed by certain clients. Many financial firms have received fines for failing to conduct periodic high-risk customer assessments. Clients with high risk are typically examined annually, while those with medium risk are assessed every 3 years and those with low risk are evaluated every 5 years.
Concerns related to KYC/AML in 2023
- Opaque ownership shall remain a concern for the KYC regulatory authorities as still many businesses practice to provide insufficient information & due to which the enhanced KYC might face challenges in 2023.
- Global regulations for the KYC will surely become tighter as the financial system is actively looking for ways to streamline & secure the entire global monetary system.
- Countries' economies might also face challenges due to the apparent decentralization of funds.
Resource: Identity Verification Forecast: How Will KYC Evolve in 2023?
Conclusion
Through this article we come to an understanding that KYC/AML has its own benefits and drawbacks. Moreover, people around the world have a right to conceal their private information which the regulatory bodies of KYC/AML need to recognize as the right of privacy of every human on earth. There are several ways to improve the KYC/AML system while staying private for eradication of the Money Laundering and other Fincrime.
Please read further: AI in Blockchain, KYC and AML
