AML and KYC Guide for Investment Companies

An investment company is a company that invests the accumulated capital of investors in financial securities. Investments are usually made through funding. These mutual funds can also be used by those who want to launder money. Therefore, investment companies have money laundering risks. Investment companies must comply with some regulations to reduce these risks.


Money Laundering Risks for Investment Companies


Financial criminals often prefer financial institutions to pursue money laundering activities. Investment firms are also one of the potential targets for financial criminals to perform money laundering activities. Closed-end or open-end funds provided by investment firms can be used by those who want to launder money. The funds' tendency to launder money is even more severe after the funds have been transferred to a third party. Every financial crime undetected in investment firms causes criminals to operate more. Therefore, investment firms should prevent these activities. To prevent these risks, regulators such as the Financial Crimes Enforcement Network (FinCEN) must comply with the regulations set.


Why Is The AML Compliance Program Important for Investment Firms?


An investment company is a company built on trust that deals with investing in accumulated capital in financial securities. That's why people need to trust investment companies to invest. If investment companies have money laundering risks, or if money laundering activities have already been carried out within the company, this leads to loss of reputation for the company. Investment companies have to comply with the AML Compliance Programs to avoid the risks posed by money laundering criminals through mutual funds. So what is the AML Compliance Program?


The main objective of the AML Compliance Program is to identify and respond to risks related to terrorist financing and money laundering. The Aml Compliance Program introduces a risk-based approach when doing this intervention. Investment banks determine the customer's risk level by conducting a risk assessment during the customer participation processes and aim for an effective AML Compliance Program by creating a control program that complies with these risks. "Customer Due Diligence" and "Know Your Customer" procedures are applied when making Risk Assessments to customers.


Get to know risk assessment more closely.


Importance Know Your Customer Procedures for Investment Firms


Know Your Customer is a standard that enables customers to have detailed information about their risk levels, investment information, and financial status. Both KYC processes and customers and investment firms are protected. The importance of KYC is frequently emphasized in the regulations of money laundering for regulators such as the Financial Action Task Force (FATF) and the European Union (EU). In investment firms, it is necessary to know the basic facts of each customer and identify each person authorized to act on behalf of the customer.


Investment companies are also responsible for knowing each customer's financial status by discovering other investments, liquidity needs, tax status, financial needs, and risk tolerance of new customers. Besides, before opening a new client account, it must provide detailed financial information, including full name, date of birth, address, annual income, investment objectives, and identification numbers. While performing a risk assessment of customers in investment companies, Customer Due Diligence and Enhanced Due Diligence procedures are applied if necessary.


Customer Due Diligence Obligations For Investment Companies


The most important of the risks that customers may pose in investment companies are money laundering and terrorism financing. Investment companies implement Customer Due Diligence processes to deal with these challenges. CDD is one of the most important components of AML / CFT regulation. While performing customer due diligence, firstly basic information about the customer is collected, customer activities are examined, and customers are checked periodically. With these controls, the risks that customers who invest can be exposed are determined and the necessary measures can be taken. CDD procedures are a crucial step for investment companies to comply with the AML Compliance Program.


Some customers or partnerships create more financial crime threats for investment companies. Enhanced Due Diligence is the KYC process that enables the review of high-risk individuals or companies. Investment companies take high precautions during the improved due diligence process. For example, Politically Exposed Persons (PEP), their families or partners have a high level of risk; EDD processes need to be implemented for such customers. 


AML Name Screening Software


AML Solutions For Investment Companies


Investment companies aim to provide fast and safe service to improve customer experience. Investment firms automatically fulfill their AML obligations in customer account opening processes with Sanction Scanner AML Screening Software. Control your customers in global comprehensive enforcement, PEP, and Adverse Media data with our AML Screening Software. Sanction Scanner has flexible and robust APIs, so it easily meets investment companies' Anti-Money Laundering requirements. In addition, investment companies can automatically make AML queries with the Sanction Scanner. Sanction Scanner checks for updated Sanction and PEP lists at fifteen-minute intervals. The Sanctions Scanner's listings comply with CTF and Anti-Money Laundering requirements. Don't hesitate to contact us or request a demo for detailed information about our solutions.

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