Fraud is one of the most serious challenges the financial institutions are facing in the current world. As a result of fraudulent acts, companies are losing billions of money every year. The introduction of technology was the stepping stone to fraud. With complex software and applications, the "bad guys" are in a position to conduct fraudulent acts and get rich faster without being detected or caught. On May 28, 2013, U.S. prosecutors indicted seven people in a cyber-crime operation involving an online bank that allegedly handled more than $6 billion for drug dealers, child pornographers, identity thieves, hackers, and other criminals, all connected through the anonymous exchange of digital currency ( Machado & Gartner, 2018). Other than that, The Financial Action Task Force (FATF) estimates that the total amount of money that is lost by countries in the world through fraudulent acts such as money laundering is nearly $1.38 to 3.45 trillion. According to the statistics from this body, the money amounts to almost an eighth of the world Grose Domestics Product (GDP) ( Suryanto & Ridwansyah, 2016).
Worse still, the fraudulent money in the world is used by the wrong people to support activities which are poisonous to the world. 2005 PBS Frontline Investigation revealed that 9/11 attack in the United States of America that left thousands of people soulless got its sponsor from the money that was laundered ( Suh, Nicolaides & Trafford, 2019). From the investigation from this body, it appeared that the funds rose through Islamic charities in Europe and the United States was laundered through the European banking system to support the planning of 9/11 and other terrorist operations ( Machado & Gartner, 2018). From these simple statistics, it is evident that fraudulent is one of the activities that banks institutions and other financial institution must fight with all the efforts they have ( Subramanian, 2014).
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Money laundering is one of the fraudulent acts that banks are facing in the current world. In the contemporary world, financial institutions face hefty fines due to money laundering as fraudulent activity. From different financial institutions’ statistics, a good number of financial institutions have paid a lot of fine because of the money criminals place through their system, yet they are do not notice such fraudulent activities. The International Monitory Fund (IMF) in the year 2012 listed the intensity of the fraud and their impact on the banking system in the world. The organization revealed that Money laundering is a leading source of compliance fines for financial institutions (Srivastava &Gopalkrishnan, 2015). It is an implication that banking institutions must come up with laws and regulation to reduce the rate of money laundered that criminals place in the financial institutions in the world. It is the reason why most such institutions are implementing the Know Your Customer (KYC) system to reduce the rate of such a fraudulent act. In this article, the focus is on a change model that would reduce the financial threat that occurs due to fraud in a different financial institution. The interest is to discuss why an organization needs to implement KYC as a strategy to reduce the economic threat. Further, the discussion will focus on why ADKAR model is the best and suitable model the organization can use to implement workable KYC in the organization to curb financial threat due to money laundering and other types of fraud in the organization.
The Need to Adopt the KYC and ADKAR Model
From the above statistics, it is evident that there is an imminent threat to finance from fraudulent activities in the world. In this case, it is needless to say that there is need to have a more reformed and much-refined way to prevent the threat of financial security in different financial institutions that come as a result of the fraudulent activities (Subramanian, 2014). The best way to approach this matter is not only to have the best security and technology-based system that will deter such threat but also have in place the best method of accomplishing this task by implementing it in the best way possible. Such a strategy will also ensure that there is security not only to the financial institutions but also to the world monetary fund so that the threat of financial from fraudulent activities are under control.
It is with this concern that financial institutions view KYC as the best technology-based approach that would help in preventing this threat and also reduce the high rate of financial security that comes as a result of fraudulent activities in the financial institutions around the world. One of the problems that bring about insecurity and high rate of fraudulent activities such as money laundering is that most of these individuals that do large financial transactions in the banks and also commit criminal offense are not known (Suh, Nicolaides & Trafford, 2019). It would be better for each financial institution in the world to have in place the best ways to implement and also understand their customers. In this manner, the bank will have data regarding each person who make a financial transaction. The bank will not only know the nature of the transaction committed but also kind and traits of these individuals. These will include critical personal details such as the source of funds, the financial, and the level of income. In this case, the financial institution will be in a position to detect such activities such as money laundering and also nail the people involved before they reach the last stage where the damage shall have occurred. This focus of KYC and it is the best strategy these institutions need to reduce such financial threats. But how do we implement it in the best way that is economical and also efficient? ADKAR model is the best implementation solution.
There is a need to adopt the best and economical way to implement KYC so that it helps in reducing this threat. ADKAR model is a well-known approach of implementing a change in in the different institutions. Change management is one of the trickiest activities in an organization. It is with this concern that any financial institution should understand how the change will be achieved in a cost-effective way and also in an efficient way to reduce change resistance that may cripple any institution. In this case, the focus is to reduce the threat of fraudulent attack in financial institutions using little financial support as possible, which is the reason why it would be recommendable to use the ADKAR Model.
The name ADKAR is an acronym that is based on five building blocks that bring about successful change. The letters stand for Awareness, Desire, Knowledge, Ability, and Reinforcement. First, the model has nearly 80% chances that it will succeed in this case, which is because it reduces change resistance as it creates awareness and knowledge sharing about the change before reinforcement (Udara, 2019). In this case, people will implement the change they understand the people affected would already understand how to handle the change. It implies that the organization will be sure that its finance use for implementation does not go to waste because the desired change must be successful. It is also needed in this case because it will be the most cost-effective approach when compared to other methods which the organization could use in this case such as Three Cs implementation model (Srivastava & Gopalkrishnan, 2015). This model is also the best for this case because, through it, the organization management will assess the need and the desire to change before going ahead to implement the change effectively. It means that if the desire is positive in the organization, it would be more efficient to achieve the change without change resistance in the organization.
Know Your Customer (KYC) system
The implementation of technology is the best recipe to fight the money laundering process in the banks before banks lose a lot of money when the statutory bodies unveil the process. “ Know Your Customer (KYC) procedures are a critical function to assess and monitor customer risk; they are also a legal requirement to comply with Anti-Money Laundering (AML) laws” ( Sanusi, Rameli & Isa, 2015). The problem with many banking institutions and other financial institutions in modern time is that they focus on profit to the extent that they do not understand or know their customers. As a result, it allows launders, and fraudulent individuals find their ways into these banks by using fake identities and thus can carry out illegal and fraudulent acts successfully with limited detection( Sanusi, Rameli & Isa, 2015). To reduce the chances of falling victim, the Know your Customers technology system can help these institutions in understanding their customers and detecting those who are suspect to different fraudulent activities such as Money laundering.
KYC is a technique which allows the banking institutions to Establish customer identity so that each customer who is involved in any transaction within the banks is known, not only by name, but also the types of activities which generate the amount of the money that the customers stores and also use within and outside the bank ( Suh, Nicolaides & Trafford, 2019). KYC is also a technology system that helps the financial institutions Understand the nature of the customer's activities (primary goal is to satisfy that the source of the customer's funds is legitimate) (Enofe et al., 2017). In this sense, the aim is to try and trace the customers’ source of income that generates the amount they have in their bank accounts. Through this step, the financial institution is in a position to establish whether the customers’ money is legitimate or is a money launder so that bank can treat it as a fraud ( Machado & Gartner, 2018). Lastly, it is the process through which the financial institutions Assess money laundering risks associated with that customer for purposes of monitoring the customer’s activities so that they can validate it as authentic.
KYC is a process that involves three key steps towards creating a safe environment for a bank to detect and deter money laundering activities within its system. The first step is the customer identification Program (CIP). The biggest challenge the Banks face is to know that a person is a person whom he or she claims to be from the documents the person is holding. Currently, It is difficult to authenticate a person because i dentity theft is widespread, affecting over 16.7 million US consumers and accounting for 16.8 billion dollars stolen in 2017 ( Subramanian, 2014). In the current United States' CIP codes, any individual who wants to do any financial transaction must have their identity verified. This code aims to reduce or minimize any form of financial terrorism, money laundering, and bank fraud. In this case, the CIP step is to help the Bank identify the customers based on different personal details which include the email, name, birth dates, and Identification numbers ( Srivastava & Gopalkrishnan, 2015). All these are feed into the system and stored. All these data are gathered and used during the account opening process within a reasonable time. "The law that guides the Procedures for identity verification include documents, non-documentary methods (these may include comparing the information provided by the customer with consumer reporting agencies, public databases, among other due diligence measures), or a combination of both” (Enofe et al., 2017).
T he second technique under KYC is due to customer diligence (CDD). For any Bank institution that aims to control fraud such as money laundering, the institution must be in a position to determine whether or not it can trust the customer. The institution additionally, must assess the customer trustworthiness, and this is where the CDD is critical for any banking institution. Note that, money laundering as mentioned in this article occur because most of these banks aim at profit making and thus ignore the potential risks that come with different customers that deposit an withdraw large sums of money ( Suryanto& Ridwansyah, 2016). CDD is the best recipe to understand the customers and also establish whether the bank can trust them with their dealings.
The CDD process is complicated yet workable for any financial institution that is interested in implementing this approach for its safety. The first step, in this case, is for the financial institution to ascertain the identity as well as the location of the potential customer. Further, the institution needs to understand other aspects of the customers such as their business activities and this can be as simple as locating documentation that verifies the name and address of your customer ( Sanusi, Rameli & Isa, 2015). Secondly, the institution also needs to be, especially during the process of authenticating or verifying a potential customer. In this case, the best approach the institution can take is to classify their risk category and also redefine some aspect of customer identity such as the type of customers before creating a profile and storing the information and any additional documentation digitally( Suh, Nicolaides & Trafford, 2019).
The last aspect of the CDD, which is also critical for financial institutions is to ascertain whether it would be appropriate for the institution to conduct or carry out the process of Enhanced Due Diligence . Such organizations suspect and mark some customers as high-risk individuals. In that case, such customers can be requested to give more information that can help the institution verify their real identity for the sake of security, which is the process called Enhanced Due diligence (EDD). The institution can conduct this process in an ongoing manner as “existing customers have the potential to transition into higher risk categories over time; in that context, conducting periodic due diligence assessments on existing customers can be beneficial” ( Machado & Gartner, 2018). There are many factors which can warrant enhanced due diligence. These include the suspicion on the geographical Location of the person, his or her Occupation, the Type of transactions he or she carries out in the bank as well as the Expected pattern of activity in terms of transaction types, dollar value and frequency in the institutions.
The last part is the ongoing monitoring where a banking institution that wants to use this technology to deter fraud acts successfully will need to monitor the customers continuously. It is not just about having the KYC technology system in the place, and every bit is over, it is about a constant process through identification and following such customers to note their every move and activities within the bank ( Suryanto& Ridwansyah, 2016). In this case, there are many issues a Bank will need to monitor on the process and continuously. The first is the spikes in activities, which are those activities that seem unusual. Besides, other activities the company needs to be keen on are uncommon out of border activities which were not part of the registration activities at the time of account opening. Further, the bank will also need to monitor other matters such as adverse media a mention where an account owner is involved in some forms of fraud in other areas (Enofe et al., 2017). In this sense, the organization will be in a position not only to identify and detect these individuals but also to curb the rate of money laundering that is prominent in most banks in the world.
Implementation Plan Within the Bank System
Change management is one of the most critical parts of organization continuity. Transformation is inevitable, and at any time, an organization must be flexible to change so that it can accommodate new changes that take place in the corporate world (Srivastava & Gopalkrishnan, 2015). Managing change is critical because there are many circumstances where change resistance cripples an organization plan for success. Change resistance takes place where there is no appropriate templet to warrant a successful change and how it can manage to produce the best and most desired outcome in the organization. In the case provided, there are three phases through which an institution can follow to ensure that such an institution move from unwanted method that has placed them at a risk of fraud and also implements KYC digital strategy that will warrant the organization success in mitigating the risk of fraudulent activities such as money laundering (Demetis, 2018). It needs keen interest and enough resources to ensure that the process is successful in the organization.
The Change Preparation
Change preparation will be one of the most critical points of change management to ensure a successful implementation of the KYC system in the financial institution. The question is, how does a bank prepare to change from a dogmatic system to adopt the KYC technology-based system? There are two steps for a successful change preparation in this case. The first one is to define change management's strategy. The most critical part of these changes needs assessment (Subramanian, 2014). Change need assessment is a process which the organization will carry out to warrant whether there is a need to have in place a new system that would better curb fraud in the organization (Machado & Gartner, 2018). The process is complicated, but it includes critical matters that will determine whether the change will succeed or fail. The first is the assessment of the changing scope in the organization, which includes defining the extent of the change, the number of people and the areas which the change will directly or indirectly affect and how it will change the system entirely (Enofe et al., 2017). It also involves the assessment of the organizational readiness to adopt the KYC digital system. In this case, some of the matters to take into account are the assessment of the company values and determine whether they are in line with the principles that the KYC system needs. At this point, it is also critical to assess any potential change resistance risk.
Next, the institution will need to develop a team that is critical for the change. In this case, the Bank needs to identify Information technology (IT) experts that will be part of the change. A Sample of the team which must be part of the change process for the implementation of the KYC includes some of the following; the first is IT experts (Enofe et al., 2017). These are individuals that will be responsible for assessing whether the KYC system will integrate well with the already existing system in the Bank. Further, the Human resource department will be part of the team. The Human resource manager will allocate different employees who will be working in this system to ensure that it is understood by the employees an also used successfully used within the organization (Suryanto & Ridwansyah, 2016). Besides, there is a need for the financial manager to allocate the budget for the implementation of the system. Also, there is a need for managers and sponsors so that the project is well financed. Other stakeholders within and outside the company who will be affected by the change must also be informed.
Managing the Changes
The process of managing change includes developing a change management plan and implementation of the change process. Developing a change management plan is the process which the institution will follow to ensure that all resources are necessary for the change. The first step will be to allocate duties for the team, which is critical to reducing role confusion during the implementation process (Subramanian, 2014). The second, which is a basic necessity, in this case, is training the staffs. The institution will have to train the IT, the managers since this is a new system and many people will still be wondering how they will use it while banking. Training the staffs will be useful as this will enhance change familiarity and thus will reduce any chances of change resistance (Subramanian, 2014). Training will focus on how people will use the KYC process and how it will integrate with the existing system in the company.
The next step will be communication. Communication in the change management process is the best way the institution will use to enhance awareness about the transition so that employees can embrace and understand it in the organization. Communication during this process will mostly aim to achieve the two most essential goals in the change process (Subramanian, 2014). The first aim will be to focus on the outlining the importance of the KYC and why it is critical for the Bank system. The part will be to communicate to the employees how the KYC digital system will be implemented and used within the organization (Machado & Gartner, 2018). During this process, the change team also needs to communicate with all the people who will be affected by the change in one way or the other. It will include training them on the new changes and how they will handle their new roles that will be created by the implementation of the KYC system in the organization.
Implementation and Sustainment
The next step will be the implementation stage. ADKAR model is one of the best models that the organization can use to implement the KYC system in the bank to aid in Fraud detection (Wong et al., 2019). The first step in this process is creating awareness of the change that is about to take place. Communicating the difference will be a critical part of the implementation process. The next is a desire for change implementation (Srivastava & Gopalkrishnan, 2015). In this case, the organization will lobby for the change agents to mobile people to rally behind the change that the organization requires (Wong et al., 2019). The next step is knowledge, which will mostly sum up by communication and explanation of the change. The next will be the ability to implement the move, which in this case will be done through availing resources necessary to implement the change (Wong et al., 2019). The final step will be to change reinforcement, which will mostly focus on monitoring and evaluation of the change to ensure that the organization sustains change for a long time.
In conclusion, the need for financial institutions to have in place a system that can help them curb fraud, such as money laundering process, is apparent. Many technology systems can help in this case, however, know Your Customer system is one of the best systems that such institutions need to implement to curb the growing money laundering fines that such institutions face in their operations.
References
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