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What is Know Your Transaction (KYT)?
Examining both fiat and cryptocurrency financial transactions is known as “know your transaction” (KYT), which is a variant of “AML Transaction Monitoring.” KYT is seen as the future of Know Your Customer (KYC), as simply identifying people and companies is insufficient in the modern world. The requirement to regularly review the transaction activity of onboarding clients is expanding. To identify money laundering, fraud, or other suspect conduct, sometimes as serious as the widespread distribution of weapons or drug trafficking, Transaction Monitoring, also known as KYT, is crucial.
Undoubtedly, the Transaction Monitoring method works with both fiat currency and cryptocurrencies. But it is undeniable that cryptocurrencies gave rise to a greater need for the KYT because, due to the anonymity of cryptographic transactions, fraud investigators must follow the provenance of transactions rather than the identities of the people involved. Therefore, it is undeniable that KYT has replaced KYC.
The Future of KYC is KYT
Know Your Transaction (KYT), in the opinion of fintech and international regulatory experts, is the future of KYC. The increasing use of cryptocurrencies has expanded the reach of KYT by enabling institutions to analyse and arrange bitcoin transactions for AML monitoring and risk reduction.
KYT compared with KYC
Institutions must continuously conduct due diligence on their client base to keep up with the identity world’s ongoing change. Institutions are currently striving to understand why KYC is insufficient to prevent financial crime. And that they should now demand KYT as part of AML procedures. This discussion is taking place on a worldwide scale. Know Your Customer (KYC) is one of the most important AML procedures. As it completes the onboarding process by confirming ID papers, proof of address, and beneficial ownership. Businesses must grasp this.
One could still contend that KYC is insufficient because continual due diligence is required for the procedure to guarantee customer risk levels over the long term. The client experience must be maintained throughout all of these AML actions. As a result, KYT Transaction Monitoring has likely been identified as the most popular technique. Allowing for the real-time monitoring of both personal and business operations without adding to the client’s burden. Only after a transaction raises a red signal are clients contacted.
Basic client profiling is provided for those who are onboarding customers through KYC and screening against PEP, Sanctions, and Adverse Media. However, KYC is a static strategy without a thorough investigation to track customer transactions and gauge their hazards. KYC and screening processes rely significantly on data that is readily accessible to the public. Yet, this data may be inaccurate, altered, or entirely made up. Due to false positives and erroneous red signals, institutions have occasionally even lost potentially lucrative clients.
At the same time, transaction laundering activities that entail illegal or suspicious events are identified using the Know Your Transaction (KYT) approach. The KYT Transaction Monitoring application analyses transactions in real-time and displays the true business activity of the clients.
Which Sectors Need KYT?
Know Your Transaction is a requirement for every industry dealing with mass client onboarding and bulk transaction processing today (KYT). One may say that KYC and screening processes offer identity information. At the same time, KYT provides transaction insights on informational tidbits that could otherwise be challenging to follow without the right methods. As a result, KYC and KYT provide an all-inclusive AML risk mitigation solution. With KYT programmes that are always specifically designed to meet industry standards. According to the kind of transaction—cash or card payments. SWIFT transactions, inbound/outbound remittance, payment utilising trade finance instruments, third-party payment processing, etc.—customization is determined.
Due to the fact that the focus in blockchain and cryptocurrencies is more on the transaction than the identity. The word KYT has recently evolved to be increasingly synonymous with crypto AML. Here, rather than the blockchain clients, the legitimacy is credited to the transaction history associated with patterns. In banks and financial institutions that cater to customers who use digital assets or blockchain technology, KYT has grown in popularity. Since the FATF Travel Rule was introduced and adopted, it is now necessary to combine KYC due diligence with KYT initiatives in order to finish the compliance procedures pertaining to crypto exchanges and VASPs.
Money Laundering and KYT
Online money laundering is referred to as transaction laundering. The method, which uses shell website operations to hide fraudulent activity from AML inspectors, is quite clever. Transaction laundering is the practice of selling unlawful or prohibited goods and services through a website that appears legitimate up front and has advertising that is obviously clean. Banks and credit card networks are duped into processing payments for a genuine website by this type of money laundering scheme because they believe they are. Through the use of KYT Transaction Monitoring. It is possible to uncover illegal e-commerce websites that conceal their goods or services from law enforcement by utilising cunning Transaction Laundering tactics.
Know Your Transaction (KYT) in Crypto World:
It is now clear that Know Your Transaction (KYT) is a subset of KYC. And the customer risk mitigation process can only be finished when the two functions cooperate. The KYT in cryptocurrency, in particular in the Blockchain sector, verifies suspicious wallet addresses, significant purchases or sales of cryptocurrency, anonymous crypto exchange activity, etc.
Since KYT is the Blockchain equivalent of KYC, the crypto AML procedure also includes flagging prohibited individuals or companies. Reporting anomalous asset transactions that exceed thresholds, continuously monitoring dark markets. And putting a stop to any potential scams and cryptocurrency misuse.
