KYC AML Guide: the Clock shows the average reeding time of the blog07 min Read


KYC AML Guide: the Clock shows the average reeding time of the blogJuly 4, 2023

KYC in Cross-border Transactions: Challenges & Solutions

Cross-border trade is becoming increasingly important in today's global economy, facilitating global trade and investment. However, as these transactions become more common, stringent Know Your Customer (KYC) procedures are required to combat money laundering, terrorist financing, and other financial crimes. In this blog post, we'll examine cross-border payment challenges and discuss possible solutions to ensure compliance and mitigate risks.

Belal Mahmoud

KYC Product Consultant

What are Cross-border Transactions?

Financial activities involving members from different countries are referred to as Cross-border transactions. International payments, international wire transfers, foreign investment, and business activities are all examples of these transactions. They are crucial in facilitating global trade relations and economic growth.

In 2020, the G20 requested the Financial Stability Board to create a plan for improving cross-border payments. Despite advancements in payment technologies, compliance, and other operational expenses can hinder the realization of fast, affordable, transparent, and inclusive cross-border transactions. The road map proposes that the greatest improvements can be attained through the coordinated implementation of all enhancements.

Cross-border payment companies like SWIFT are actively pursuing modernization efforts, as evidenced by the upcoming switch to the ISO 20022 messaging format. Furthermore, new players such as Wise and Ripple are emerging to provide better customer experiences, while alternatives such as Visa B2B Connect are entering the market as well.

KYC in Cross-border Transactions:

KYC is a critical process that financial institutions and businesses must follow to verify their customers’ identities and identify risks to their operations. KYC is becoming increasingly important in the case of cross-border payments, as there can be serious risks such as money laundering, terrorist financing, and illegal activities. AML and KYC verification will be required regardless of the technology used or the destination of the payment. Preparing for these requirements in each market can improve cross-border payment systems and remove barriers to international growth.

Also Read: KYC Outsourcing vs in-House KYC

Cross-border Payment Challenges

1 Delayed Payment:

Transactions are subject to delays and fees as they pass through multiple banks, creating a lack of transparency and impeding the movement of critical KYC information. Customers face payment delays and uncertainty as each player and regulator along the payment chain requires this critical data.

2 Diverse Regulatory Landscapes:

Each country has its own set of KYC requirements and regulatory frameworks, making it difficult for businesses to navigate and ensure compliance across multiple jurisdictions such as The Federal Financial Supervisory Authority (BaFin) and the Federal Ministry of Finance (BMF) regulate KYC in Germany whereas The Financial Analysis Unit (UAF) of Chile is the primary regulator for AML and KYC issues.

3 High Compliance Cost:

The significant cost of compliance is a major factor. Because of the difficulties in accessing nested accounts and identifying the ultimate customer, banks were unable to meet compliance obligations within their risk thresholds, significantly impeding cross-border transactions. According to a new Juniper Research study, spending on Regtech platforms will surpass $115 billion by 2023.

4 Language and Cultural Barriers:

Dealing with customers and partners from different countries creates language barriers as well as differences in business practices and cultural values. This can make it difficult to implement an effective KYC process and understand the nature of the business.

5 False Positive Results:

Banks have difficulty distinguishing between legitimate and fraudulent transactions. This issue frequently arises from an inability to conduct thorough enhanced due diligence efficiently, owing to a lack of transparency at the transaction’s inception.

6 Data Security and Privacy:

Sharing customer data across borders raises privacy and data security concerns. It can be difficult to comply with data protection regulations when exchanging information between companies in different countries.

7 Foreign Entity Verification:

When dealing with cross-border transactions, it can be difficult to verify the identity and legitimacy of foreign entities, such as foreign companies or financial institutions, due to differences in documentation, registration processes, and transparency.

Cross-border Payment Solutions

1 Comprehensive Checks:

A comprehensive investigation process can be created by conducting a thorough investigation of all those involved, whether individuals or legal entities. These cross-border payments reports include not only identity verification but also search results, checklists, criminal records, malicious advertisements, and network risks associated with threats.

2 Transaction Monitoring:

AI-based pattern recognition can be used to improve transaction monitoring. These safeguards provide detailed information to all parties involved, instilling trust in the transaction’s validity and authenticity. It can identify suspicious transactions, and finally, an effective system to remediate suspicious transactions promptly.

3 Enhanced Due Diligence:

Implementing robust due diligence procedures tailored to cross-border transactions can assist in identifying high-risk transactions and entities and ensuring that adequate risk mitigation measures are in place.

4 Legal and Regulatory Frameworks

Understanding different countries’ legal and regulatory frameworks is critical for cross-border payments and meeting Know Your Customer (KYC) requirements. Each country has its own set of rules and regulations in place to govern financial transactions, customer identification, and anti-money laundering measures.

5 Global Payments Platform

Such platforms frequently have their payment experts and established relationships with regulators, which streamlines the compliance process. McKinsey & Company predicted that by 2025, the revenue from global payments would have grown at a rate of 6% to 7% annually.   Embedded finance platforms provide comprehensive tools and resources for efficient cross-border transactions, staying up to date on country-specific regulations and currency exchange rates, and reducing the need for constant monitoring by businesses.

For example, ISO 20022 marked the beginning of a major transformation in the cross-border payments industry.

Bottom Line

KYC in cross-border transactions is critical for protecting the global financial system’s integrity and mitigating the risks associated with money laundering and terrorist financing. Businesses and regulatory authorities can ensure secure and compliant cross-border payments by prioritizing effective KYC measures and facilitating global trade and economics.


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Belal Mahmoud

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Belal possess over 8 years experience in the KYC Identity Verification industry. He has consulted KYC solutions for over 20 new economy companies at DIFC and ADGM while ensuring a seamless technical integration and helped in jurisdictional compliance audits.