Businesses that operate online need to ensure that they’re compliant with financial and data regulations. Failing to adhere to them can lead to significant problems, such as bankruptcy and the termination of operations.
To achieve compliance, it’s essential to implement processes that ensure you adhere to AML and data regulations. Some of them can be easily implemented with minimal costs, while others require extensive work.
This article explores how to streamline the process of financial verification and stay compliant with the relevant regulations for your business.
Compliance refers to the adherence to laws, regulations, and industry standards that ensure ethical and secure practices. Financial regulations are there mainly to prevent fraud and money laundering.
For example, they enforce policies that require your business to have proper security measures that protect your customers from being victims of fraud. In a similar manner, anti-money laundering regulations require that you have the necessary protocols to prevent criminals from exploiting your platform.
Data regulations, on the other hand, ensure that companies do not intrude on users’ privacy by collecting and selling their data. GDPR, CCPA, PIPEDA, and other data regulations all work similarly and are usually applied to businesses that have customers from the countries in which they are enforced.
When it comes to data regulations, companies must implement transparent banners that ask the users whether they’re okay with their data being collected. Furthermore, the users must be informed about the ways in which the data will be used, and they need to be given a choice to decline.
Failing to comply with either of these can lead to:
- Legal penalties: Heavy fines, license revocations, and potential legal action.
- Reputational damage: Loss of customer trust and investor confidence.
- Operational disruptions: Increased scrutiny, audits, and business restrictions.
Ensuring compliance in financial processes
To ensure compliance with financial regulations, we’ve created a list of key methods and solutions you must implement. They range from industry standards to innovative options that could help you prevent the latest fraud methods.
AML verification process
Anti-Money Laundering is a regulatory framework designed to detect and prevent illicit financial activities, such as money laundering and terrorist financing. When businesses recognize suspicious activities, they’re obliged to send Suspicious Activity Reports (SARs), to the necessary regulatory bodies.
Anti-money laundering checks also involve the evaluation of all customers based on the level of risk that they might pose. Along with verifying the user’s identities, an important part of AML verification is PEP screening which we’ll cover below.
KYC Process
The KYC process is mandatory to comply with AML regulations. KYC stands for know-your-customer, and it revolves around verifying the user’s identity in order to understand whether they’re involved in criminal activities.
Furthermore, this process ensures that the person who’s making the account isn’t using stolen credentials and information. The process starts with the user entering their basic information, such as full name, address, and age.
But beyond that, it also includes the verification of identification documents, such as IDs and passwords. Financial businesses that are targeted by fraudsters also implement biometric authentication, which ensures that the person making the account is the same individual listed on the submitted document.
PEP Screening
Politically exposed persons, or PEPs, are high-profile individuals who hold political or public sector roles. They pose a higher risk of being involved in corruption or money laundering, which is why it’s essential to confirm whether your customers can be classified as them.
After the KYC verification is completed, the user’s identity is checked against global databases. This can be conducted automatically or manually. In both cases, it’s important to ensure the risk that the customer poses.
If a customer is identified as being a risk, it’s possible to prevent them from continuing their involvement in the platform. On the other hand, you can also monitor them more closely and observe their status periodically.
Methods to be compliant with document security.
When you’re gathering user data, whether we’re talking about financial or personal, you need to ensure that it’s stored properly. The options below should help you protect data and ensure compliance with data regulations.
Encryption
All businesses store some amount of data in some form. However, it’s essential that the data is encrypted through advanced protocols, such as AES-256, ensuring that no one is able to read them.
Encryption prevents hackers from stealing your customers’ and company’s data even if a breach happens, as they won’t be able to read the data itself without the key. The documents and data that’s shared internally and externally must be encrypted in-transit and at-rest.
As a part of suggestions made by regulations, such as GDPR, encryption is one of the best ways of preventing data breaches.
Secure storage and cloud
When storing and sharing documents, it’s essential that this happens in secure networks. If a business is leveraging cloud storage, it’s important to ensure that the provider utilizes the proper cybersecurity methods.
Furthermore, it’s important to pick cloud storage that’s secure and compliant with relevant data regulations that apply to your business. You can be potentially fined if the data that you collected isn’t stored by a compliant partner.
A similar principle can be applied to any third-party service and software that you rely on. Besides encryption and partnerships with secure cloud providers, you need to ensure security within your network.
This includes the use of firewalls, anti-virus software, and other internal cybersecurity measures that minimize the risk of data breaches.
Paperless solutions
Physical documents have been the foundation of businesses until we’ve got computers and the internet. While the majority of operations are nowadays conducted online, paper documents are still around.
While they’re obviously not convenient enough, they can also be stolen or destroyed. In these cases, you also might be eligible for fines by regulatory bodies. Going paperless can provide a lot of advantages. For example, you’ll be able to handle the documents more easily and store them securely.
Digital documents can also be integrated more easily with other processes. Going paperless might not be easy at first, but it streamlines many processes, including finances, in the long run.
Access control and authentication
The reason behind many breaches is the lack of proper authentication measures and access control. Companies must enforce the necessary password requirements for both customers and employees.
In both cases, this protects their accounts from being attacked by brute force and social engineering attacks. Suggestions for strong passwords include the use of 12 or more characters, which include upper and lower-case letters, numbers, and symbols.
Furthermore, the practice of using meaningful words and names of recognizable family members should be abandoned. It’s best that your employees finish a short cybersecurity training that covers the basics of password creation and to understand how they could be attacked.
When it comes to verifying the identity of the employee or a customer, multi-factor authentication is one of the best ways to ensure security. Along with password and credentials, you must require that the user’s identity is confirmed through biometrics or a one-time token sent to their email or sms.
Access control should be limited as per the principle of least privilege. This refers to the practice that no employee or customer has more permissions than they require to fulfil the necessary tasks.
Compliance is essential for business continuity
Regardless of the industry that you’re operating in, you’ll have to satisfy certain regulations and requirements. We’ve covered some of the key methods to make your operations compliant.
Of course, there are always unexpected situations, such as internal threats or unexpected bugs in software, that could lead to data leaks and other problems. However, you should ensure that the measures that you can take are implemented.
