Identity Verification of the customers in every industry is mandatory for secure transactions. Most importantly, the prevention of Money Laundering is the key to building customer trust in industrial growth. High Risk Industries in KYC need to stay updated with the latest Industry Regulations of KYC/AML. This article is a knowledge-based guide on the top 8 industries regulated by KYC.
8 High Risk Industries In KYC
Before moving to the actual list of High Risk Industries in KYC, we must know that the KYC Onboarding is done through a Risk-Based Approach. This approach entails three levels of the Risk Identification and Verification process that are:
- SDD (Simplified Due Diligence)
- CDD (Customer Due Diligence)
- EDD (Enhanced Due Diligence)
Ultimately, this approach identifies the risk level of entities and so the industry is categorized as High, Medium, or Low Risk. Following is the list of the top 8 high risk industries as per KYC regulations.
1. Banking & Finance Sector
Firstly, the Banking & financial industry is among the top KYC regulated industries. Since the largest amount of cash flows through banks and financial institutions, it is the most risk-prone area amid Money Laundering. Mostly, criminals use bank accounts for the placement of money which is the first stage of money laundering. They deposit smaller amounts of money in different bank accounts under different names, shell companies, and relatives. In this way, it is difficult to trace the money trails to the exact owner, and exhausts time and cost. So, KYC and AML regulators always prioritize banks and financial institutions on the top while executing anti-money laundering procedures.
2. Government Agencies
Secondly, government agencies are also one of the prime targets for Money Launderers. Bribing government officials, hiding money in their accounts, and having influential back are serious threats. Therefore, government agencies are subjected to strict KYC and AML regulations. Indeed a risk-based approach is the best way to mitigate the risk of Money Laundering in any industry. So, a Due Diligence process will be the best way to do so.
3. NPOs and NGOs as High Risk Industries In KYC
Outrightly, Non-Profit Organizations and Non-Governmental Organizations are the safest hideouts for Money Launderers. As sympathy rules over all and most people ignore the funding of orphanages and old homes. So, High Risk Industries in KYC are subjected to stringent and fair regulations to ensure their compliance. However, it is done in a respectful manner to maintain the element of humanity. But regulators cannot take risk of letting the suspicious money trails go and allow Money Launderers to escape the law.
4. MSBs (Money Service Businesses)
MSBs are Money Services Businesses that include Money Transfer Services, Currency Exchanges, and Cryptocurrency exchanges. These are subjected to the latest KYC and AML regulations for the prevention of online fraud and Money Laundering. Besides, criminals are using Crypto assets as a cover for their illicit money. Numerous cases have been reported of crypto investors being involved in high levels of crimes and Money Laundering. Therefore, MSBs are strictly regulated with KYC and AML regulations worldwide.
Additionally, the Telecommunication sector has been used for serious crimes like Terrorism Funding and Money Laundering. Regulatory authorities are committed to fully regulating the Telecom sector so that criminals can be caught well before they communicate with each other. That’s why KYC and AML regulatory compliance is a basic requirement in Telecommunication Industry. Now, every customer needs to prove his identity and nationality before activating a SIM card. Nowadays, Biometric Verification is also a mandatory requirement in Telecommunication KYC regulatory compliance.
6. Retail & E-commerce
Factually, retail & e-commerce is another sensitive area posing a threat of Money Laundering. From the store owners to customers, everyone needs to contribute and cooperate with authorities to mitigate Fincrime. To mitigate the threat, all customers, clients, walk-in customers, owners, employees, and other parties need to stay compliant with KYC and AML regulations.
7. Real Estate
Money Launderers often place their criminally earned money in real estate investment. They buy luxurious residential properties or invest in commercial real estate. So, to identify such money trails, KYC and AML regulators have included Real Estate in the High Risk Industries in KYC list.
One of the main industries where Money Launderers lurk around is Healthcare. They can invest in charitable hospitals or public healthcare and hide their money. Similarly, doctors can be involved in money laundering for tax evasion purposes. Mostly, senior surgeons, health care professionals & dentists tend to practice Money Laundering for tax evasion. So, KYC and AML Regulations are strictly applied to document the data of patients, doctors & other associated people.
Overall, High Risk Industries in KYC are subjected to regulatory scrutiny. The reason is the serious threat of compromising the customer’s identity. Ultimately, it can hurt the firm’s trustworthiness and public image. Therefore, it is mandatory for firms to stay compliant with KYC AML Guidelines and follow government policies. Also, industry-level compliance will help firms grow faster and expand internationally.