In today’s modern, tech-driven world, manual Know Your Business (KYB) onboarding processes belong in the past. Not only are they costly, but error-prone, and risky.
While there is no questioning the importance of KYB checks, the growing complexity of regulations and increasing pressure to manage risk effectively have put a spotlight on the inefficiencies inherent with traditional KYB processes.
As we look towards the end of 2024 and beyond, the pressure is on for compliance teams in regulated businesses to ditch outdated manual methods of onboarding customers. This article highlights five manual KYB tasks that no longer have a place in modern regulated businesses.
Manual document collection and verification
Manually collecting and verifying documents such as company information, registration certificates, shareholder details, and proof of address is time consuming and prone to errors. This process often requires multiple touch points with the client, leading to delays and frustration.
Often, it involves sending emails back and forth, scanning documents, and physically verifying their authenticity. This process can be slow, as it relies on the client to provide the correct documents and on compliance teams to cross-check them against official records. Mistakes can occur at multiple points and sensitive documents might be lost, incorrectly filed, or misinterpreted.
What’s more, the manual nature of the process increases the likelihood of human errors, such as data entry mistakes or overlooked discrepancies, which can lead to compliance breaches. The time-consuming nature of this process also delays onboarding, which can frustrate clients and result in abandonment, especially in fast-moving sectors like financial services.
In sectors where swift, friction-free client onboarding is crucial, manual processes can lead to lost business opportunities and even fines for non-compliance. Automating this process not only improves efficiency but also ensures that businesses remain compliant with evolving regulations.
What to do instead: To eliminate the inefficiencies of manual document collection and verification, regulated businesses should look to a comprehensive KYB automation platform. These platforms allow businesses to automatically pull and verify essential documents directly from sources like Companies House, significantly reducing the time spent on manual checks.
When a client submits their documents, the platform can instantly verify their authenticity against official records, ensuring that only accurate and up-to-date information is used during the onboarding process. This not only accelerates the onboarding timeline but also mitigates the risk of errors, ensuring that compliance standards are consistently met.
Manual beneficial owner verification
Identifying and verifying ultimate beneficial owners (UBOs) is a complex task, particularly when dealing with layered or international corporate structures. Manually tracing ownership can lead to incomplete or inaccurate data, increasing the risk of onboarding entities linked to financial crime.
In manual processes, compliance teams may have to sift through multiple layers of ownership, often spread across different jurisdictions with varying levels of transparency. This can involve extensive research, contacting foreign registries, and relying on clients to provide accurate information. The manual approach is not only time-consuming but also prone to significant errors or omissions.
What to do instead: Automated UBO verification tools ensure that businesses maintain transparency and meet regulatory expectations without the manual burden.
These platforms are designed to automatically trace and map out intricate corporate ownership structures, even when entities are spread across different jurisdictions. By integrating with global registries and databases, these systems can identify UBOs quickly and accurately, flagging any potential risks associated with the ownership structure.
Manual PEPs and sanctions screening
Screening clients against global sanctions lists and identifying politically exposed persons (PEPs) are critical components of AML compliance. However, doing this manually is fraught with challenges. Global sanctions lists are constantly updated, with new entities and individuals added frequently.
Manually checking each client against these lists requires access to up-to-date databases, which can be difficult to maintain.
Moreover, identifying PEPs is particularly challenging because it involves not just the individual but also their family members and close associates, whose identities may not be immediately apparent. Manual screening processes are prone to errors, such as missing matches due to name variations or failing to update lists regularly.
This leaves businesses exposed to significant compliance risks, including the possibility of unwittingly engaging with sanctioned entities, which can result in severe financial penalties and damage to the business’s reputation.
What to do instead: Automated screening tools that integrate with up-to-date global sanctions and PEPs databases can perform real-time checks during onboarding and on an ongoing basis. These tools also offer the ability to set up alerts for changes in status, ensuring that businesses remain compliant with the latest regulations. It ensures continuous compliance and reduces the risk of inadvertently engaging with sanctioned individuals or entities.
Manual risk assessment and scoring
Assessing the risk profile of a business is a critical step in the KYB process, but when done manually, it is highly subjective and inconsistent. Risk assessments typically involve evaluating factors such as the industry in which the business operates, its geographic location, risk profiles, and the backgrounds of its owners and directors.
Manually compiling and analysing this information requires significant time and expertise. Different compliance officers may apply different criteria or weightings to these factors, leading to inconsistent risk classifications.
What to do instead: Automated risk scoring ensures that high-risk clients are correctly identified and monitored, reducing the likelihood of non-compliance with the Financial Conduct Authority’s (FCA) regulations. These platforms can automatically evaluate a business’ risk profile by analysing vast amounts of data, from multiple sources in real-time. These systems provide consistent and objective risk scores, which can be dynamically adjusted as new information becomes available or your firm’s risk appetite changes.
Manual monitoring of client risk profiles
Once a business relationship is established, ongoing monitoring of client activity is essential to detect and respond to suspicious behaviour. However, when this monitoring is done manually, it becomes an overwhelming task, especially for businesses with large client bases.
Monitoring involves reviewing client information and data, changes in ownership, and other significant business activities to identify any patterns or anomalies that could indicate money laundering or other illicit activities. Manually analysing this data requires significant time and expertise, and it’s nearly impossible to keep up with the volume of information in real-time. As a result, suspicious activities might go unnoticed until it’s too late.
What to do instead: Automated ongoing monitoring systems use sophisticated algorithms to track client risk profiles around the clock. These systems can flag suspicious activities or changes in risk factors for further investigation, allowing compliance teams to focus their efforts where they are most needed. Without automation, businesses risk missing critical red flags, potentially leading to significant regulatory action.
The continued reliance on manual KYB processes in a world increasingly driven by technology is not only inefficient but also poses significant risks for regulated businesses in the UK.
As we move into the latter months of 2024, it is imperative for AML risk and compliance leaders to recognise the drawbacks of outdated, manual methods of conducting KYB and move towards automated, streamlined solutions that enhance accuracy, efficiency, and regulatory compliance.
