Know Your Customer (KYC) compliance programs are not one-hit processes. A fact that can be lost when organisations are looking at their CDD (Customer Due Diligence) systems and processes.
The tightening of regulations, particularly since the Fifth and Sixth Money Laundering Directives came into force, requires regulated entities to both understand the importance of ongoing monitoring in KYC compliance, and to take appropriate action.
Businesses must have a much deeper and longer-term understanding of what it is to know their customers and to keep that understanding up-to-date. Some call it perpetual KYC monitoring, but whatever you term it as, failure to comply can come with expensive consequences. Both for the organisation and key individuals within it.
When it comes to KYC compliance monitoring, here are four top tips for risk management.
Access to the latest data is critical for effective risk management
The basis for any area of due diligence, is to ensure you have done everything possible to validate the information you have about the client, with the latest available data. Software can provide access to continually updated national and international databases. This ensures the most up-to-date picture of individuals and companies in real-time for effective ongoing monitoring in KYC compliance.
Taking the steps to introduce a strong automated onboarding process, is one thing. But going further and introducing a digital automated KYC monitoring process is another. The two, however, have a symbiotic relationship – one doesn’t work well without the other. Introducing an automated, end-to-end KYC onboarding and KYC monitoring process saves both time and money for the business and provides an effective risk management strategy.
Monitoring processes use sophisticated and high-speed processing to check the data accuracy for ongoing KYC monitoring. It will flag up any discrepancies and changes, as well as anything suspicious and provide a report detailing the records involved.
The best software platforms will rank these inconsistencies along the lines of ones that are of no concern, through to red flag issues that need immediate attention. This provides an appropriate level of risk management against the business’s appetite to risk.
Automation for ongoing monitoring in KYC compliance
There has always been a need for regulated entities to both onboard clients accurately and to monitor any changes to their status. This process can be cumbersome, particularly if internal systems are manual or partly manual. The result has been that some organisations have not paid sufficient attention to the ongoing monitoring, and subsequent remediation (cleaning up) of their customer files.
Whilst sanctions and fines have increased to provide more of a deterrent to sloppiness, they have also been personalised, following the UK’s response to 6AMLD. No longer can company officers use the defence that they weren’t aware of what was going on or going wrong. Now, they can be held personally responsible for breakdowns in their processes that enable bad actors to take advantage of sloppy compliance procedures. This personal responsibility comes with the threat of individual prosecutions, including substantial fines and custodial sentences, on top of any corporate sanctions.
What better way to evidence good practice to the regulators than with the introduction of an automated process for ongoing monitoring for KYC compliance? Automated risk management processes provide detailed audit trails and reporting. These easily evidence the measures taken by an organisation to reduce the threat of ongoing crime and financial threat when it comes to ongoing KYC monitoring.
Using an effective platform for ongoing monitoring for KYC compliance, not only saves time and money but can also increase your team’s efficiency.
Effective tips for KYC risk management
Selecting the appropriate tasks to automate is very important, as that’s where you’ll be setting the base for success. Those tasks that are time-consuming, repetitive and simple enough for algorithms to handle accurately without human input, are the first in line.
Once you’ve decided on which tasks you want to automate, you should take some time to select the right automation tools. So, how do you choose the ones that are best for your business? Here are a few guidelines you should consider:
- Create a checklist of features for the business automation tool that will meet your immediate goals and longer-term ambitions
- Look for a solution that has a proven ROI
- Ensure the platform is capable of easy integration with other systems
- Think long-term and find a solution that can scale with your advancing business
- Choose a tool with a high level of security measures
Moving forward – the future of ongoing KYC compliance
The future that compliance teams face is one of continual and continuous development of tools to aid the fight against financial crime. Criminals are continually looking for new ways to circumvent established processes and developing counter-measures. So, believing that you have cracked it and have enough tools to protect yourself moving forward is a sure way of attracting failure. Consequently, compliance teams need to keep up-to-date with the latest innovations in counter-measures, to ensure that they have enough firepower to protect themselves and keep themselves in the game.
Currently, machine-learning and AI are considered the most effective tools to keep us moving forward. Understanding the need to keep vigilant and up-to-date with technological advances, is key for compliance teams. Equally important is keeping your ‘finger on the pulse’, to keep forewarned of what the criminal fraternity is currently getting up to.
The future’s looking brighter for compliance teams, but not if you are a company entrenched in the 20th century.
The explosion of financial crime is the biggest threat to every regulated entity and the whole financial structure. But, help is at hand for those who want it.
