Know Your Customer – The Prerequisites for Financial Institutions

Precautionary steps shouldn’t be taken at the brink of collapse.

When someone is diagnosed with a disease, they would need a cure rather than prevention. Most of the countries find themselves at loggerheads with money launderers due to the wreckage of the economy they cause. However, it is also for the countries and financial institutions to take the blame for not taking “appropriate” precautionary measures.

The reason why we highlight “appropriate” here is that financial institutions do have measures to prevent money laundering, but they are neither adequate nor functional. This is why launching a robust policy program for any organization is important. Even regulators in many countries have taken a tough stand against organizations regarding the implementation of these policies.

Banking and financial institutions have the Know Your Customer or KYC policy of different levels to examine a customer’s background in various aspects. This inclusion in policies has made data and reporting stronger, especially with the help of technology partners. Not every institution is scaled enough to decide its future course of action, but some steps are evident with respect to fresh challenges.

As of now, organizations can take the support of technology and enforce Know Your Counterpart or Customer details for proper fact-finding, reducing false positives, and assigning credibility to individuals, borrowers, etc. In a positive step, regulators can be invited to test the efficacy of anti-money laundering policies, especially for identifying loopholes, providing recommendations, suggesting improvements, and more. Here, implementation plays a key role.