Know Your Investor – How Investment Firms Can Steer Clear of Fraudulent Entities

While international stock markets are growing at a fast pace, the assets, wealth and investment industry is under the stress of criminal activities, thus becoming subject to regulatory obligations.

Digital client onboarding is most challenging for businesses as well as one of the critical steps in the customer onboarding lifecycle. It’s the first point of interaction between the client and the investment service providers.

However, the first impression says a lot regarding the individuals, but it’s not considered good practice to establish the whole relationship on such attributes.

Therefore, to establish trust, make the onboarding process easier, and prevent crimes, Know Your Investor solution is a viable option for the investment industry.

Overview of the Investment Industry

In past years, the investment service providers were facing numerous challenges, as a result of rising financial crimes, and market volatility.

However, the global financial analyst also made predictions, yet the uncertainty remains the same in 2022. Additionally,  the number of monetary transactions is skyrocketing so does the crimes. According to the research,

there was a significant rise of about 42% in 2021, driven by the increase of 59% in the Ponzi scheme followed by a 57% surge in bond fraud. Thus, the global law enforcement authorities are taking serious steps to regulate the investment market,

while making ties with the Financial Technology (FinTech) businesses to develop fully automated identity verification solutions powered by emerging technologies.

These tech tools are assisting the investment service providers to streamline operations, secure interest and stay put with the ever-evolving regulatory regime.

Types of Fraud in the Investment Sector

The global investment sector saw a significant spike in the number of fraud cases in the last year. In light of the growing concerns due to financial crimes, regulatory watchdogs have come up with strict laws as a countermeasure.

The development of FinTech services and increasing automation for financial services has aided the bad actors in getting away with illicit activities. Even though there are advanced security checks in place, investment scams are still part of the news every now and then.

Therefore, financial institutions struggle to find the balance between the ideal investor verification service and compliance with regulatory obligations.

Simultaneously, financial institutions also have to make sure that the most convenient services are provided to their customers. In this scenario, prioritizing the wrong tasks can lead investment firms in trouble with regulators.

Social Media Investment Fraud

One of the major sources for investment fraud are social media platforms that bring people together to not only interact but share valuable information.

When social media platforms like Facebook, Twitter, and LinkedIn are used by fraudsters to promote fake investment opportunities, they are shared by users who find them interesting.

The lack of Know Your Investor verification in social media platforms allows scammers to create fake accounts and appear as legitimate individuals. The anonymity provided by these platforms is the reason why fraudsters are able to go this far.

However, if social media platforms incorporate a robust investor verification solution at the stage of investor onboarding, this problem can be solved.

Know Your Investor for Fraud Prevention

Advancements in artificial intelligence and the increasing development of identity verification solutions have improved fraud prevention in financial institutions and enabled accurate verification of investors’ identities.

Online investor verification is a process constitutes various checks to identify forgery in the identity documents of the investor, as well as checking for fraudulent aspects during investor onboarding.

Various ICOs have already incorporated investor authentications solutions to effectively protect not only the investment firm’s interest but also the customers.

The Know Your Investor verification process begins with the authentication of the investor’s identity through their personal details as per the government-issued ID document. In a similar process to Know

Your Customer verification implemented by banks and other financial institutions, the investors are verified using a selfie that is matched against their photo on the identity document provided.

The steps followed in Know Your Investor verification are devised by the AML/CFT act to ensure that the financial landscape is free from money laundering.

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Final Thoughts

To sum it up, Know Your Investor services have proved to become one of the most important aspect for today’s investment firms.

These services enable financial firms to secure and optimize services for their clients. In addition to that, Know Your Investor solutions provide the facility of data encryption and make it easier for investors to complete the verification process.

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