How effective is your firm at KYC best practice? Is this an area for improvement within your organisational AML framework?

8th January 2019 3291 - Blog Posts

KYC, or Know Your Customer, has taken an increased prominence in the financial services industry over the last few years. KYC is a crucial component of an effective Anti-Money Laundering framework and as AML regulations have tightened up since 2017, it is more important than ever that firms apply effective KYC best practices.

What are KYC best practices?

When we talk about KYC, we generally mean the process of identifying and verifying customers. KYC is an important part of due diligence, which feeds into the AML framework, and it’s also frequently used not just to detect fraud but for market segmentation and the verification of customer viability.

Some of the basic KYC best practices include collating accurate, in-depth and up-to-date information about all clients to detect fraud or other irregularities.

Where KYC was once a simple checklist, now financial and law firms are expected to take a more continuous approach, interacting with customers at several points. Along with establishing the identity of the customer, firms should understand the nature of their business activities to try and ensure sources of funds are legitimate and assess potential risks for monitoring customer’s activities. KYC best practices will incorporate keeping records of customer identities, and screening customers against a list of known criminals. A thorough customer identification process like this is the key starting point of any KYC framework.

Which customers require enhanced due diligence?

On a more enhanced level, KYC best practices should include collecting additional information on higher-risk customers to provide a deeper understanding of their activities. Determining whether customers need this enhanced level of due diligence rather than basic due diligence should take place during onboarding through a clearly defined risk assessment process. There are also some set parameters where enhanced due diligence measures should always be applied. These include where the customer has not been physically present for identification processes, where they are from non-EEA states or in respect of Politically Exposed Persons (PEPs). Some of the other markers that may suggest that enhanced due diligence is necessary range from unusual patterns of activity for transactions, to concerns about your customers’ customers.

Improving your organisational framework

Since the introduction of the latest AML guidance there has been a far greater regulatory burden in order to implement a thorough anti-money laundering framework. Firms face many common challenges, such as keeping processes up-to-date, dealing with a lengthier onboarding process and managing continuous monitoring. Organisations with a global footprint can also face specific challenges if their policies come from global headquarters. This could mean that KYC policies miss out local regulatory nuances, so they are not applicable for every jurisdiction. It’s important that KYC policies are updated regularly to meet the fast-paced changes in regulation and adapted to fit the frameworks of individual countries.

Harnessing technology to implement KYC best practices

RegTech is central to reducing the regulatory burden of KYC and maintaining an adequate AML framework. While there will always be a need for a human touch, automating simple processes can free up skilled resources, as well as creating a clear audit trail which is an essential part of compliance. To truly benefit from RegTech though, organisations need the correct knowledge and expertise alongside AML software, which is why we are seeing an increasing number of firms turning to external service providers such as Lawson Conner.

We provide support to law firms and financial institutions around the world to ensure they are adhering to KYC best practices and maintaining a strong, robust AML framework. MaxComply, our KYC and AML software solution, is comprehensive and easy to use for regulatory compliance and for keeping up to date logs and can reduce AML processing time by 50-80%, while reducing compliance risks.  The solution is offered as standalone software SaaS version or as mSaaS version (managed compliance) where all AML processes and projects are outsourced to us.

To find out how to improve AML processing and prevent time-consuming procedures from slowing your business growth, contact us today.