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Every development in financial processes and markets is swiftly targeted by criminals as an opportunity for fraud or to help hide illegal funds. Advances in technology have only flamed the fire - global losses from payment fraud tripled from USD$9.84 billion in 2011 to USD$32.39 billion in 2020.
As the risk of fraudulent activity increases, new regulations have set a higher bar for accountability and oversight from banks. This includes holding more detailed records on customer relationships, regularly refreshing client profiles and updating databases as and when regulation inevitably changes.
The processes companies or institutions conduct to verify the identity of potential customers before providing them with services and/or products. This will include identity checks, UBO verification and background checks.
Making a judgement on the risk posed by a client for the bank based on their activity, relationships and business activity.
Given the changing nature of financial markets, banks are expected to regularly review and update their customer records through KYC refresh at periodic intervals depending on their risk-based profile.
KYC processes cover various aspects of the AML compliance. Compliance teams build a complete picture of the customer and relevant business relationships through submitted information, third-party searches and verification. Below we outline key AML and KYC requirements for banks.
Financial crime compliance and management starts from the beginning of the client relationship, at onboarding. This is the stage where banks carry out preliminary checks to quantify the risk posed by the client/customer and aim to create a full view of the entity with whom they intend to do business.
Key stages include:
Find out how leading institutions are using digital software to streamline their KYC processes at scale.
Automation-powered KYC onboarding
The goal of customer due diligence (CDD) is to gather all of the relevant information about a prospective customer to accurately assess risk, and then updating that information at periodic intervals throughout the customer lifecycle.
Some customers will be subject to additional enhanced due diligence (EDD). This aims for a greater level of scrutiny of potential business partnerships and highlights risks that cannot be detected by customer due diligence. EDD is specifically designed for dealing with high-risk or high-net worth customers and large transactions.
To protect the institutions from reputational damage or risk, it’s essential to verify whether potential customers are compromised by any known illegal activity. PEP, sanctions and adverse media screening helps to identify sanctioned individuals, politically exposed persons (PEPs) and uncover any known illegal activity to which the institution may be exposed.
Verifying ultimate beneficial owners (UBOs) is an essential first step in determining the risk and reliability of a new prospect by determining who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. This may involve unpacking many layers of ownership structures and can be extremely time-consuming when performed manually.
KYC processes go beyond traditional customer onboarding, requiring a long-term view of customers’ activity and regular updating of information to ensure that banks are maintaining compliant records throughout the client lifecycle. This includes updating customer information to ensure it remains accurate, as well as updating records in line with new regulation and retaining full AML data attribution lineage for demonstrable compliance.
With many compliance teams facing serious efficiency challenges in remaining on top of workloads, automation tools are used by banks to manage time-consuming, manual tasks such as data collation, profile management and identity verification.
For data to be valuable, it has to be accessible between teams, systems and locations. API connections enable banks to instantly transfer information between platforms with full security and control.
AML compliance involves gathering large amounts of customer information, and by integrating with trusted KYC data sources, banks can streamline UBO verification, ID and verification processes and KYC refresh.
By digitizing KYC and AML processes, with centralized access to KYC data, banks can create a complete, digital KYC profile that can be progressively updated.
As the demands placed on compliance teams by regulators and risk management increase, banks working with legacy solutions are struggling to maintain growth targets while focusing on being fully compliant with AML regulations. This exposes banks to unnecessary penalties, reputational risk and inefficiencies.
Automation software for AML can ease the burden on your teams as regulations change and enable you to continue to operate efficiently. To ensure that you can maintain compliance alongside your bank’s growth and customer experience targets, you need to embrace the benefits of KYC and AML automation to future-proof compliance.
Financial market conditions and regulatory context surrounding AML compliance evolve rapidly, forcing banks to regularly update client information to ensure it remains relevant and accurate. Any change in customer circumstances or AML policy must be registered and updated across all existing customer profiles through the process of KYC remediation, greatly increasing workload for compliance teams. KYC automation significantly reduces the time required for remediation.
When working with regulators, the safest way to demonstrate compliance is a clear, accurate and consistent audit trail. When it comes to getting the full picture on each customer during KYC onboarding tasks, the importance of a reliable audit trail – which is central to any compliance program – becomes apparent.
Audit trails compiled manually are both extremely time-consuming and can leave the process open to error, but using technology solutions can make for a much more effective process. By establishing a thorough and accurate automated process, a dynamic digital audit trail, information can be found instantly and used as proof that all required and relevant checks have been carried out.
The increasing importance of ongoing monitoring for AML is leading financial institutions to look to perpetual KYC (pKYC), an ongoing approach to KYC due diligence based on the dynamic refresh of customer data in response to key triggering events. In comparison to the more traditional, reactive ways of updating KYC information, pKYC solutions focus on building adaptive KYC processes that can evolve with business needs, regulatory requirements and risk profiles.
