cleaning up the mess: how to approach KYC remediation
Now that the big banks have such tight control, financial criminals are looking for softer targets, including small and medium sized financial services providers and legal and professional services firms. Businesses with limited resources for compliance programmes need a solution that speeds up their KYC processes without compromising the quality of due diligence . To minimise risk, you need control, visibility and transparency.
KYC remediation drivers
Since the turn of the millenium, the pace of regulatory change has been staggering. This has left many firms with outdated customer files that no longer offer protection from risk. In some cases, this has led to wholesale de-risking of customer segments simply because of the time and cost involved in remediating these files using current manual processes. In other cases, access to financial services has been interrupted while KYC files are remediated and brought back into line with regulatory requirements.
Regulations driving the need for KYC remediation vary by region but will typically fall under the following categories:
- anti-money laundering (AML)
- tax evasion
- data protection
- counter-terrorism financing
Whether you’re a finance business, accountancy business or law firm, you need a KYC remediation framework that keeps your risks low, regulators satisfied and bottom line healthy. Let’s look at the main KYC remediation steps to a cleaner, less risky customer base.
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Practical implications and anticipating future regulatory changes
KYC remediation policies and compliance
Your internal policies need to mirror the regulations that apply to you. These form the backbone of your KYC remediation process, and have to evolve as regulatory requirements evolve. This means fully understanding regulations in your industry, and the regions in which you and your customers operate. The stringency placed on banking means that rogue customers are setting their sights on fintech, property, law and accountancy firms where they hope to find fewer barriers to their fraudulent intent.
KYC remediation isn’t a one-off affair. New regulations are formed and revised on an ongoing basis so you need to be ready to review and revise your internal policies to match.
Having your policies updated is just the first step. Now you’re ready to tackle the remediation of your back book, which involves implementing processes that bring your data, reporting and compliance policies together.
Identify customer profiles for remediation
Once you have your policies defined, it’s time to start acting on them. Your existing customer data needs to be brought in-line with new regulations that have come into effect. You need to identify which customers need to be remediated, have a consistent process in place for identifying and gathering missing and outdated information, ensuring your teams understand this process, and you need to record your activity so that it’s auditable for external regulators.
Gather your KYC data
As regulations evolve and expand, the amount of information needed for adequate standards of KYC has dramatically increased. Gathering this data is a huge undertaking. You need to be able to gather disparate information from multiple sources in order to get a complete and accurate picture of each customer. The process can be time-consuming, labour intensive and costly.
The challenge is in doing it thoroughly within a budget and timeframe that doesn’t leave you exposed to unknown risks or necessitate the interruption of service provision to valued customers. Automating the data gathering phase significantly reduces the time it takes to update old records and frees up your high-value analysts for more strategic work.
Ultimate beneficial ownership
exploring ultimate beneficial ownership and its role in laundering illicit funds
KYC data analysis and identifying Ultimate Beneficial Owners
Requirements for identifying and verifying Ultimate Beneficial Owners (UBOs) have become more stringent since the Panama and Paradise Papers revelations. This requirement is often a big component of current KYC remediation projects.
Without automation, you’ll need a team of analysts to crunch through swathes of data to manually piece together corporate ownership structures and work out where ownership and control lies. You can minimise the time and overheads associated with this step by using a data visualisation tool. This is especially useful when you’re identifying UBOs or re-examining them.
Complex company hierarchies can disguise the natural persons with controlling votes or shares in a company. Following a tangled thread that leads you back to that individual is made easier with diagrams and charts that decision makers can interpret.
Set up adverse news alerts
Registries and data vendors can only provide you with so much. The news can give you an extra level of assurance and provide triggers for KYC remediation. Fresh new information comes to light across the globe online and in print every day. But who has time to screen every news item — and how often can you do it? If one of your customers becomes politically exposed, you need to be in the know and you need to update their KYC accordingly. Technology that searches for adverse news items flags risks relating to your customers without eating into your operating costs.
KYC remediation is not a set-and-forget process. You’ll need to continually review your policies to ensure best practice and regulatory compliance. Your customer profiles are also living ‘documents’. You need to proactively maintain these for the full lifetime of your relationship. intelligent process automation (IPA) can help you with your ad hoc and continuous KYC remediation processes.
on demand webinar
don’t let outdated customer information expose you to risk
Encompass’ intelligent process automation conducts live document and data collection, analysis and integration from public and premium sources to bring transparency to complex corporate structures and ultimate beneficial ownership, delivering the most accurate and complete KYC on demand.