6 steps to improve your KYC due diligence checklist
Due diligence is defined as being “an investigation or audit of a potential investment or product to confirm all facts. It refers to the care a reasonable person should take before entering into an agreement or a financial transaction with another party.”
In the demanding and fast-paced environment that most firms now operate within, the ability to conduct the required due diligence quickly and effectively can be the difference between winning and losing a valuable client. When there is significant pressure to get results quickly but regulations and best practices are constantly evolving, due diligence can become relegated to a tick-box exercise. Furthermore, when it comes to Know Your Customer (KYC) requirements, these may be seen as having a one-off target to meet or an end date.
However, it is imperative that firms appreciate the importance of proper KYC to their business and strive to maintain ongoing client monitoring, as the implications – in terms of both operational and reputational risk – can be costly otherwise.
Obtaining and understanding the full picture on clients through strong KYC checklists and processes is vital and, when performed in the correct manner, goes a long way towards reducing the possibility of falling victim to fraud and other financial crimes whist also safeguarding against fines and reputational damage.
In an effort to save time, money and devote skilled resources elsewhere within the business, organisations are turning to Intelligent Process Automation (IPA) to do the heavy manual work that comes with carrying out full and thorough checks. IPA reduces the time, cost and risk involved in these activities, while enabling firms to provide a better experience for clients and complicitly demonstrate compliance to regulators.
When looking at your approach in relation to potential and existing clients, there are many factors to be taken into consideration in order to make sure that robust and effective measures are in place.
Having a reliable KYC due diligence checklist that you can refer to in order to streamline procedures is a useful way to manage the onboarding process and can assist in making the process flow seamlessly. Here, we explore six key points for your checklist:
Use a risk-based approach
It is important to remember that the approach you take to Customer Due Diligence (CDD) should reflect the level of risk that your firm faces. Whether that be in relation to your customers, your services or products, or the space that you work in. Therefore, it is essential that you have a deep understanding of the market relevant to you, the risks associated with it, and make your approach to KYC and compliance appropriate in proportion.
Understand the benefits of automation
Make sure those staff members involved in day-to-day KYC tasks are properly trained and fully understand the benefits of KYC automation and where it can be used to its full potential.
This is particularly relevant when looking at automating manual processes – do they know what activities are right for automation? It is crucial that there is a thorough understanding of duties and outcomes in order to know how these can be best achieved.
Consider running workshops to make sure everyone is aligned and be available to answer questions. You must also ensure training reflects regulatory and/or internal policy and new technology implementations.
Harness open source media screening
The recently updated Financial Conduct Authority (FCA) guidance on financial systems and controls (FG18/5) requires firms to include open source media screening as a part of Enhanced Due Diligence (EDD) programmes.
Firms will require a wealth of information on a client in a timely manner to make sound onboarding decisions, and that requires easy access to all relevant data sources. Technology can again play a part in assisting here, as IPA takes on the challenge of handling large volumes of information in a consistent and cohesive manner. Using Artifical Intelligence (AI) in the process of open source media screening reduces the number of false positives, freeing up valuable analyst time.
Maintain audit trails
Having a clear and obvious trail of the steps taken and decisions made as part of your KYC programme is essential. Firms may be asked to prove to the regulators that they have followed procedures and met set standards, so all information needs to be quickly accessible.
For firms working with manual systems, this can prove to be a challenge given the volume of information they deal with. Human error and oversight is removed by dynamically generated audit trails created by KYC technology. The ability to log and record each step consistently and without human intervention will streamline your checklist.
Utilise electronic identity verification
Technology plays a bigger part in firms’ daily tasks than ever, so the fact that the new KYC and ID verification software available enables them to make their onboarding process seamless and secure is crucial.
Customers are becoming more demanding and want results instantly. Biometric verification allows onboarding and compliance checks to be conducted simultaneously and conveniently.
encompass has integrated with global electronic identity verification providers to enable customers to fully automate KYC and ID verification as part of their processes. Advanced imaging algorithms allow customers to authenticate an official identity document and conduct biometric checks and, by offering a digital experience, speed of turnaround, client experience and the levels of security and accuracy all improve.
Integration is key
In order to make informed decisions, the information at your disposal, and how you access it, is key. There is huge amounts of data available to compliance teams to trawl through as part of KYC research. From the new EU beneficial ownership registers to ever-changing sanctions lists, the datasets are growing exponentially. The ability to integrate global information sources gives financial institutions a structured and efficient way to manage this data deluge. Checking multiple datasets at the click of a button will dramatically reduce the length of your KYC checklist.
The encompass API links more than 120 data sources into a single interface, connecting you to the most in-depth and relevant data you need to make your client intake effective, as well as integrating processes for regulatory compliance checks into your KYC process flow, again saving time and cost.
If you want to learn more about the benefits of digitising and automating your KYC operations, download our free whitepaper today.
Founded in 2012 by entrepreneurs Roger Carson and Wayne Johnson, and operating from the UK, encompass is the creator of unique, innovative Know Your Customer (KYC) software for banking, finance, legal and accountancy that enable better, faster commercial decisions. The company is driven by the belief that the best decisions are made when people understand the full picture.
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