What Is KYT?
Know Your Transaction (KYT) is defined as a software offering crucial analysis for organisations to discover and identify the skeptical fraudulent transactions made by customers against their respective backgrounds and profiles.
In layman terms, an effective KYT system allows financial institutions (FIs) to check for suspicious transactions by linking customer profiles with their personal transactions.
Why Do Businesses Need KYT?
The main and crucial usage for KYT is that it allows businesses to conduct financial transaction monitoring on their customers.
Know Your Customer (KYC) is popular among financial institutions and organisations. It is an essential tool in the customer onboarding process but KYC is not enough. It is the process which ensures that customers are not doing anything against regulations. However, it is not enough to allow organisations to have a better understanding about customers and their transactions. Therefore, KYT comes into play which allows businesses to monitor transactions and further details and insights of customer transactions.
Additionally, KYT has the ability to take an analytical approach to monitor the transactional patterns. Different KYT solutions have varying approaches in conducting transaction monitoring. Regtank’s KYT software comprises cutting-edge technology and combined with CipherTrace’s database, the KYT system can examine the various transaction patterns and track more than 200 risk indicators.
How Does KYT Work?
According to the Monetary Authority of Singapore (MAS) there are four stages in the transaction monitoring process:
Stage 1: Knowing The Customer
At the first stage of TM, before establishing business relationships, it is crucial for financial institutions (FI) to ensure that risk assessment frameworks and the customer due diligence (CDD) measures are aligned with MAS’s AML/CFT Notices. These frameworks should have the ability to identify the risks posed by customers. Having established business relationships, the FIs need to continue be kept abreast of their knowledge of their customers
Stage 2: Risk-Based Calibration
The second stage of TM is risk-based calibration of the system. It means that it is imperative for FIs to customise their TM system to suit their “specific risks, contexts, and needs”. Only when the parameter, threshold and scenario setting are “appropriately configured and implemented”, then FIs can effectively carry out TM to “flag unusual transactions with a reasonable degree of certainty of potential ML/TF characteristics warranting further inquiry”.
Additionally, FIs should conduct backtesting every so often. Backtesting refers to the method of analysing the historical data to “generate results and analyze risk and profitability before risking any actual capital”. Conducting backtesting allows organisations to understand whether they need to make any adjustments to their TM. Doing so ensures that the organisation is kept updated and allows for more accurate monitoring of customer transactions and behaviours.
Lastly, under risk-based calibration, FIs ought to consider data integrity. Data integrity refers to the “overall accuracy, completeness, and consistency of data”. Hence, FIs could implement proper detection control checks to “ensure that data is being completely and accurately captured in the source systems and transmitted to their TM systems”. The checks allow FIs to detect, assess and explain any abnormalities and malfunctions caused by data integrity issues.
Stage 3: Robust Implementation
When operating a TM system, the primary challenge is ensuring the quality, accuracy and consistency of the employees who are handling TM alerts. Therefore, it is important for FIs to provide their employees with proper training and guidance so that they have sufficient knowledge and skills to perform their duties effectively. To strengthen the TM process, FIs could conduct pre-transaction checks, execute proper alerts handling, and documentation.
Stage 4: Resolve and Enhance
In the last stage of TM, when FIs discover that the particular transactions are questionable or look fraudulent, they must file the suspicious transaction reports (STRs) by contacting the Suspicious Reporting Office (STRO) without undue delay. After filing for STR, should the FI choose to retain the business relationship with the customer, the company would need to take suitable actions to mitigate the risks of these suspicious customer accounts. This is called the post-STR practices. Last but not the least, FIs need to conduct quality assurance (QA) tests from a sample of alerts to ensure that the TM process is efficient and effective.
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