Know Your Transaction (KYT)

Monitor Customer Transactions

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For financial institutions, verifying a client’s identity, owners (in the case of a business), and background is an important step in risk management. It helps them predict how likely a client is to commit fraud, money laundering, or some other type of financial crime—or to be doing so already. But it doesn’t directly prove whether or not the client is involved in illegal activity.

That’s why an FI also needs to scrutinize the customer’s actual transactions to see if there is any solid evidence of shady dealings. This is a procedure often called Know Your Transaction. In this article, we’ll cover what “KYT” is, why it’s important for financial institutions (FIs) to conduct, and some emerging financial scenarios that KYT is proving to be critical in handling.

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What is Know Your Transaction (KYT)?

Know Your Transaction, commonly abbreviated as KYT, is the process of a financial institution analyzing transactions to determine if they exhibit suspicious activity, and thereby may be linked to financial crime. Transactions are analyzed in light of participants’ financial histories and risk profiles.

KYT is also sometimes simply referred to as transaction monitoring.

Why KYT is Important

Know Your Customer (KYC) and Know Your Business (KYB) help to assess, based on a client’s personal profile(s) and background(s), the risk that they are or will become involved in financial crime. But either process is an educated guess at best without looking directly at the client’s transactions.

That’s where KYT comes in. It analyzes an entity’s financial behavior for oddities in individual transactions, as well as patterns across multiple money moves. Together with KYC, this gives a clearer picture of whether a person or business is actually engaged in any illegal financial activity.

How to Use KYT for Anti-Money-Laundering

Know Your Transaction procedures are foundational for not only financial institutions but any companies that deal with transactions. In most cases, identifying money laundering and fraud is impossible without following the money—and what better way than to analyze the transactions themselves?

Below, we explore the main uses of KYT when it comes to anti-money laundering and fraud prevention.

Detect and Prevent Financial Crime

One of the main features of KYT is its ability to help teams identify, protect against, and stop financial crime, including fraud, money laundering, and terrorist financing.

Teams can design rules that monitor transactions for abnormal and suspicious behavior, and then alert agents of activity that needs to be investigated. Automated controls can be put in place that entirely stop extremely risky transactions, preventing fraud from occurring in the first place.

This saves the organization significant fraud losses and mitigates the risk of reputational damage caused by weak protective measures.

Maintain Compliance with AML Regulations

Organizations are required to comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations—which prevent criminals from spending criminal proceeds.

KYT is an essential component of meeting AML regulations—organizations are required to monitor transactions and keep transaction records. By having proper KYT systems in place, FIs ensure they meet AML regulations set forth by regulatory agencies, rooting out money laundering threats and avoiding penalties related to non-compliance.

Improve Risk Management

Know Your Transaction solutions help organizations manage their exposure to risk by empowering them to better analyze customer transactions.

The more information FIs have about transactions at their disposal, the greater their ability to mitigate risk associated with those transactions. Analyzing transaction histories and behavior gives companies additional insight into how risky a potential transaction—or customer—could be.

Optimize Operational Efficiency

Managing fraud and AML threats isn’t just about having the right tools to identify and prevent these threats—but tools that allow you to do so fast and efficiently. Fortunately, KYT can be used to improve operational efficiency by optimizing workflows and case management.

Teams are no longer strapped with managing workflows manually, instead having tasks prioritized based on value and risk—allowing teams to address the issues that matter most. These systems are far less susceptible to human error, drastically improving operational efficiency and saving organizations time, resources, and money.

Enhance Customer Due Diligence Checks

While KYT is more commonly associated with fraud prevention, it can actually be a useful tool in performing proper customer due diligence. KYT solutions offer a wealth of information on customer transactions—information that can be used to assess the risk profile of a potential customer.

Transaction histories and other transaction data can be an additional tool that helps with customer due diligence, potentially identifying risks that would otherwise go unnoticed.

Empower Investigations into Cryptocurrency Transactions

As virtual currencies gain traction as alternative methods of exchange, an area of growing importance for financial institutions is Know Your Transaction for crypto. This is because these types of transactions often involve little identifying information besides the participants’ crypto wallet addresses.

With a lack of identity credentials to work off of, KYC and KYB are of little help in predicting suspicious activity in crypto transactions. Only by looking directly at groups of transactions, and drilling deep into the transactions themselves, can financial authorities determine if crypto is being used for fraud or money laundering.

Download Transaction Monitoring Product Guide

Go Beyond KYT with Unit21’s Data Monitoring Tools

KYT can be made even more accurate by considering other contextual information around a transaction. This includes where a participant is transacting from, what kind of device they’re using, what their other online behavior looks like, how frequently they’re trying to get other transactions cleared, and so on.

That’s what we call data monitoring. And it’s just one of the features that makes our Transaction Monitoring tool a great asset for anti-fraud and AML teams. To see more of what it can do, book a demo with us today.