In today’s technologically advanced world, criminals and organized crime groups are employing new means to achieve their heinous goals. These organizations make use of financial firms and digital enterprises to get access to accounts, take advantage of free services, and transform their unlawful riches into white money. Because there is a possibility of criminal activity, it is critical to do KYC (Know Your Customer) protocols to verify their identities, sources of money, and market profiles.
Investment fraud is becoming the most common swindle around the world, despite strict laws and regulatory restrictions. This form of fraud has an expected ratio of 50% every year. Due to the rise in investment scams, it’s becoming a hot topic of discussion, as both organizations and individuals need to be aware of the dangers. Investors, on the other hand, are flocking to digital platforms and investing in online projects. So, here’s a quick rundown of the many types of investors and the international regulatory framework that governs them.
Know the Difference Between a Sophisticated, Accredited, and Qualified Investor
- Accredited Investors
As per the Securities and Exchange Commission (SEC), an investor verification online, whether a corporation or an individual, may invest in securities without first obtaining a license from the SEC. Hedge funds, crowdfunding, preferred stock, and equity are available to accredited investors but not to non-accredited investors. As a result, such investors are quite appealing to most businesses because they may assist them in investing in unregistered schemes. In other words, accredited investors play a critical role in business finance through investing in securities. Those who avoid the SEC’s rules for company registration, on the other hand, have a good chance of making a lot of money and saving money on filing fees.
- Qualified Investors
A qualified investor is completely reliant on the market. Accredited investors, on the other hand, can have more income and net worth than or equivalent to the regulatory predefined threshold in their jurisdiction. Qualified investors include investment firms, credit card issuers, financial firms, and other legal entities of various types.
- Sophisticated Investors
Sophisticated investors are yet another type of high-net-worth individual who is thought to have extensive experience and industry knowledge, making them eligible for specific changes and benefits. However, this terminology also refers to an investor verification solution with a specific level of knowledge and market clout. There are several legal definitions that govern whether an entity is classified as accredited or sophisticated. These numerous jurisdictions, on the other hand, are wise. Furthermore, savvy investors don’t have to liquefy their assets and are at risk of substantial financial loss.
Cases of Investment Fraud
Investment fraud is getting more common as the industry grows at a rapid rate. Scams like this occur when criminals use deception to persuade legitimate investors to purchase assets based on false information. Furthermore, legitimate businesses deceive customers about their audits, high earnings, and a variety of other false claims in order to acquire investment. In addition, penetrators construct shells.
Cases of cryptocurrency investment fraud have become commonplace in today’s news. Global investors lost millions of dollars and cryptocurrencies in a current one coin Ponzi scheme. These deceptive schemes began with a digital currency known as one coin, which appeared exciting and persuasive, was touted as bitcoin’s main competitor, and promised guaranteed returns. In the first six months of 2016, the British public contributed more than EUR30 million to this fraudulent operation. This coin offering, in actuality, lacked legitimacy, accountability, and credibility. As a result, investors were able to control the pricing and value spike. This was also a pyramid scheme, as the owner was offering this coin to other people.
Guidelines of the Securities and Exchange Commission (SEC)
Although accredited online investors verification are not required to hold licenses or certificates of verification, this does not mean they are exempt from consumer due diligence. Investment firms must authenticate every accredited investor onboarding, according to (SEC) guidelines, in order to protect the firm’s interests. Every investor’s legitimacy can be verified via identity verification tests. The three pillars of SEC guidelines are as follows:
- Obtain personally identifiable information on investors, such as their name, ID number, and so on.
- Investors are required to complete questionnaires and forms in order to offer background information and other appropriate papers in order to establish that their assets are legitimate.
The Bottom Line
Despite much international legislation and the investment industry’s efforts, the number of crimes continues to rise on a daily basis. Financial institutions and other investment enterprises must ensure that their clients are legitimate, eligible, trustworthy, and risk-free. Firms may onboard legal businesses, safeguard their operations, and successfully combat money laundering activities by incorporating the Know Your Investor authentication (KYI) procedure into their identity verification systems.