KYT: when Regtech optimizes transaction verification

Against a backdrop of ever-increasing regulatory pressure, the fight against money laundering and the financing of terrorismAML-CFT) requires organizations to be constantly vigilant. This approach is based on a combination of complementary actions: raising awareness and training teams, adapting internal processes, integrating dedicated technologies, and continuously monitoring financial flows. At the heart of this approach are three essential pillars: KYC (Know Your Customer), KYB (Know Your Business) and KYT (Know Your Transactions). 

KYC, KYB and KYT: complementary... but inseparable 

While the first two rely essentially on the analysis of customers and suppliers, whose identities are regularly updated, the third focuses on real-time transaction flows, in order to detect anomalies. Their objectives are therefore different and complementary:  

• KYC involves verifying the identity of individuals with whom a company enters into a business relationship. The aim is to ensure, from the outset of a business relationship, that the customer is who he or she claims to be, and to understand his or her risk profile. This is a regulatory obligation for many sectors, not just finance. 
• KYB is the process of verifying the identity and legitimacy of companies or legal entities with which a company wishes to establish a business relationship. Part of the KYB process includes KYC checks on Beneficial Owners and key company executives. KYB prevents ghost relationships, corporate fraud, corruption, money laundering through complex corporate structures, and the financing of illicit activities. It aims to ensure that the client or partner company is legitimate and does not present significant risks. 
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Detect suspicious transactions in real time 

In concrete terms, KYT (Know Your Transactions) consists of analyzing financial transactions by comparing them with the risk profiles of stakeholders and normal behavior. Thanks to advanced technologies, in particular artificial intelligence, it becomes possible to spot in real time weak signals or anomalies that could betray suspicious activity. 

Typical situations detected by KYT include : 

• Unusual amounts or frequencies: for example, a customer accustomed to small, regular transactions who suddenly starts sending or receiving very large sums. 

• High-risk sources or destinations: for example, a company with no obvious commercial links to a country classified as high-risk, but which begins to transfer funds to or receive funds from that country on a repeated basis. 

• Suspicious transaction patterns: this can include the use of smurfing, a technique whereby amounts are fragmented to stay below reporting thresholds. For example, several deposits of 9,000 euros just below the regulatory threshold of 10,000 euros. KYT can also be used to identify complex arrangements involving flows between several entities with no clear economic logic, often used to conceal the origin of funds. 

• Links with known malicious entities, by matching transactions with information from blacklist and sanctions databases. 

And all sectors are concerned: 

• In the online gaming sector, unusual operations can include massive or repeated deposits without any real gaming activity, the use of multiple accounts linked to the same IP or automated behavior simulating normal activity. 

• In real estate, fractional payments, transactions at abnormal prices or rapid purchases/sales with no economic logic, .... 

• In the brokerage sector, atypical operations include transfers between customers without justification, movements on dormant accounts, rapid subscriptions or redemptions of complex products, and the use of third-party accounts to transfer funds. 

• In the insurance industry, suspicious transactions include hasty payments or surrenders without justification, changes of beneficiary shortly before a claim, or payments to third-party accounts not contractually linked to the insured.  

• In the e-commerce sector, KYT is proving just as valuable, particularly in identifying money laundering via commercial transactions. For example, a site that claims to sell clothing but records payments far in excess of the value of its items, or where the majority of transactions originate from high-risk countries, may arouse suspicion. In such cases, KYT helps to identify platforms that serve as a front for illegal activities, often under the guise of a legitimate business activity. 

Finance, e-commerce, cryptocurrencies: KYT can see it all! 

KYT is not limited to conventional financial transactions. It also plays a key role in the world of cryptocurrencies, where the anonymity and speed of exchanges often complicate controls. Thanks to real-time analysis, it becomes possible to trace illicit funds, for example when an incoming transaction comes from a wallet address associated with a hacking or ransomware operation. In such cases, KYT can be used to block the funds concerned or generate an alert for further investigation. Another common scenario: a user sends cryptocurrencies to a mixer, a service that muddies the waters by mixing funds to disguise their origin, then receives money from a different address. This type of behavior, indicative of an attempt at concealment, can be automatically flagged as potentially suspicious. 

In the e-commerce sector, KYT is proving just as valuable, particularly in identifying money laundering via commercial transactions. For example, a site that claims to sell clothing but records payments far in excess of the value of its items, or where the majority of transactions originate from high-risk countries, may arouse suspicion. In such cases, KYT helps to identify platforms that serve as a front for illegal activities, often under the guise of a legitimate business activity. 

No KYT without automation 

Of the three pillars of AML-CFT compliance, KYT (Know Your Transactions) is undoubtedly the most complex to master. There are several reasons for this. 

Firstly, unlike KYC (Know Your Customer) and KYB (Know Your Business), which are based on relatively stable identification elements (individuals, companies, official documents), KYT concerns flows. These are often ephemeral financial movements, whose lifespan can be counted in seconds. Tracing a transaction in real time is far more complex than verifying an identity document or a Kbis extract. 

Secondly, KYT is part of a continuous monitoring approach. Whereas KYC and KYB are mainly applied at the point of entry, KYT covers the entire life cycle of the business relationship. It therefore requires constant vigilance, well beyond the initial checks. 

Last but not least, the sheer volume of data involved changes the whole picture. A company or an individual generates hundreds or even thousands of transactions, far more than it has identities or supporting documents. The sheer volume of information to be processed makes manual supervision impossible. 

This is why KYT necessarily relies on automation and intelligent analysis technologies. The approach must be dynamic, capable of detecting weak signals and atypical behavior on a large scale. Unlike KYC or KYB, which can rely on spot checks, KYT requires real-time monitoring, constantly fed by data and algorithms. 

KYC, KYB, KYT: a 360° view of compliance 

This is what RegTech is all about: offering solutions capable of intelligently automating KYC, KYB and KYT processes. It is imperative that these three approaches work in tandem to guarantee an effective fight against money laundering and the financing of terrorism, while ensuring robust regulatory compliance. Indeed, it is difficult to analyze a customer or partner without paying attention to their transactions... and conversely, tracking financial flows without taking into account the entities that generate them would make little sense. 

Today, only technology can create this link between the pillars of compliance, orchestrating the whole in a fluid, coherent and real-time way. This is precisely what a solution like AP Monitoring offers. ComplementingAP Scan andAP Scoring, it provides continuous monitoring of operations deemed suspicious or atypical. Thanks to a powerful augmented intelligence engine and scenarios that can be customized according to activities and transaction types, it can detect weak signals before they become problems.

In concrete terms, AP Monitoring proactively identifies what manual processing or a posteriori analysis would easily miss. But above all, it doesn't just look at transactions in silos: it puts them into perspective with customer profiles. By cross-referencing data from AP Scan (identification of politically exposed persons, presence on sanctions lists, sensitive countries, etc.) and risk levels defined by AP Scoring, it creates a 360° vigilance system, fully aligned with modern regulatory requirements.