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KYC Bank: A safety measure against Money Laundering and Illegal Transactions

All the banks are required to deal with customers regarding cash, transactions, account opening, maintaining credit, and debit. So the banking industry must have access to their authentic customers. There have been several fraud cases happening in the form of illegal transactions and money laundering where banks also have to suffer heavy fines, reputational damage, and sanctions. In 2023, money laundering risk in Honduras is at 5.6 out of a maximum score of 10.

Advanced AI-based verification methods used in KYC process help filter authentic and legal customers while avoiding security breaches. KYC is the only way to reduce anonymous bank accounts and monitor suspicious activities which helps to combat financial fraud and money laundering. This can only be done by knowing the customers through KYC processes. 

What is Customer Due Diligence(CDD)?

This process allows the collection of customers’ basic data and information to access their identity.  Banks use CDD to protect themselves from financial crimes at the hands of fake customers. Financial institutes have to authenticate everyone who owns 25% or more of any legal entity.  

Customer Due Diligence includes further processes based on levels of risk of money laundering and financial terrorism. 

If a customer is supposed for a low level of money laundering and financial terrorist risk then simplified due diligence is carried out. But if customers pose a high risk of crime related to transactions then an enhanced due diligence process is carried out. 

What is Enhanced Due Diligence (EDD)?

Enhanced Due Diligence is applied for the person who is politically exposed or subject to sanction. EDD looks to establish a higher level of identity assurance by obtaining the customer’s identity. A high-risk customer is identified by using the enhanced due diligence process 

After applying EDD, banks have access to customers’ risk categories which helps further the digital documentation process. CDD also plays an important role in the regulation of audits for proper transactions and working in banks. It requires information like the source of funds, the purpose of the transaction, documents registration, official records, transaction histories, information about board members and beneficiaries, and some knowledge about relationships with other financial institutions as well. EDD is applied to situations where there is a high risk of Ml.

KYC Rules for Banks

Bank sectors need to follow the process of KYC. It helps to eliminate the risk of money laundering and black transactions to work effectively and become safe from reputation loss and fines. Clients have to be verified before opening an account to know their authenticity and to make the bank safe from any kind of risk. 

For KYC, banks must have documents including name and address, so an ID card, license, and utility bill can be used regarding this information. Banks have to abide by KYC to make sure that their clients are genuine and do not have any fake IDs that can be used for any illegal action such as illegal transactions and money laundering.

Scammers use various techniques to breach data to perform illegal actions, AI technology eliminates the risk of scammers and makes the bank sector safe from any kind of data leakage and data insecurity. KYC banking is a revolution in the banking industry as it protects customers’ data and bank financial information.

KYC Guidelines for Banks

To meet the KYC process, it is crucial for banks to have papers that contain a piece of clear information about the address and name of the customer. This information is extracted with OCR which can detect any kind of data. These digital models have helped to bring a kind of trust between the organization and its clients by minimizing the risk of any kind of data violation. It is very significant for banks to know their clients while opening accounts or making transactions to avoid any kind of risk that is connected to money laundering and illegal transactions. It is obligatory for banks to carry out KYC processes in order to deliver successful financial services.


KYC bank are using AI-based digital technologies to support their prestige, avoid legal penalties, and guard the financial system’s probity. KYC, EDD, and CDD techniques have been operated to verify clients to avoid any kind of risk. There has been a kind of uprising in bank sectors with the help of KYC assurance processes as it has decreased the financial risk rate. Banks are using these processes to protect them from fraud and criminals. 

KYC and EDD have brought a variety of transformations in the banking assiduousness. It has reduced the chance of money laundering and unfair transactions by having access to permitted and genuine clients.  

In banking, KYC feeds multiple layers of authentication, protected onboarding, and customer data protection which automatically enables to elimination of ML and illegal dealings.

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