2019 09 25
After discussing Anti-Money Laundering (AML) Know Your Customer (KYC) Compliance with several FinTech entrepreneurs and business leaders, it was surprising to recognise how these concepts are often misunderstood. Particularly, knowledge gaps regarding the assessment and management of the money laundering risk during the onboarding and the ongoing relationship with their clients.
Keeping this in mind lets shed more light on this grey area and explain what AML KYC Compliance is, and what are the main components of reasonable KYC Compliance.
Put simply, KYC is able to tell the difference between favorable and unfavorable customers.
Anyone identified as unfavorable would pose a higher risk to the organization: criminals, politically exposed persons (PEP), someone with a criminal record or bad reputation, someone located in a jurisdiction which is deemed to pose a higher money laundering or fraud risk due to high level of corruption, or being vulnerable to terrorist activities, or lacks AML legislation, etc.
Organizations need to understand, verify and document the client’s business nature, the purpose of the relationship, their source of funding and wealth, the anticipated pattern of behavior, and other aspects of the relationship in order to develop a profile of the client during the onboarding stage.
Regulators expect financial institutions to implement a risk-based approach to:
• Identify and verify the identities of their customers with all ultimate beneficiaries (UBOs)
• Understand and build a customer profile that includes anticipated behaviors and clear information on the funding source
• Be able to assess and document the risk level of a customer based on a set of criteria
• Determine and apply the required depth of due diligence based suiting the risk level
• Implement appropriate ongoing oversight, and monitoring of the client profile and transactions during the relationships
We all agree that AML KYC is a critical process to ensure criminals do not access and abuse your system: it provides additional safeguards to avoid any risk of reputational damage.
The leadership of a given company needs to build a culture of compliance and demonstrate it by a proper tone, supported with actions. These actions would include dedicating compliance resources comprised of an adequate number of AML specialists and deploying the right technology supported by artificial intelligence to help automate AML and KYC processes to a high degree to ensure proper utilization of resources and effectiveness of processes.
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