Practice English vocabulary for Know Your Customer and Anti-Money Laundering compliance: identity verification, due diligence, suspicious activity, and transaction monitoring.
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What does 'KYC (Know Your Customer)' require financial institutions to do?
KYC is a regulatory requirement for banks and fintech companies to verify client identity (via ID documents, proof of address), assess risk, and monitor ongoing activity to prevent money laundering and fraud.
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What is 'Customer Due Diligence (CDD)' in a KYC context?
CDD involves collecting information like name, address, occupation, and source of funds. Enhanced Due Diligence (EDD) applies to higher-risk customers (e.g., Politically Exposed Persons) and requires deeper investigation.
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What is a 'Suspicious Activity Report (SAR)'?
Financial institutions are legally required to file SARs when they identify potentially suspicious transactions. The report goes to authorities like FinCEN (US) or NCA (UK) without notifying the customer — known as 'tipping off' which is itself illegal.
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What is 'transaction monitoring' in an AML context?
AML transaction monitoring systems apply rules and machine learning to flag suspicious patterns. Common red flags include 'structuring' (breaking large sums into smaller deposits to evade reporting thresholds) or layering (moving money through multiple accounts).
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What does 'sanctions screening' mean in fintech payments?
Before processing payments, financial institutions screen all parties against sanctions lists (OFAC, EU, UN). Payments involving sanctioned parties must be blocked and reported. Sanctions violations carry severe regulatory penalties.