Due diligence is defined as “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.” Having robust Know Your Customer (KYC) due diligence processes in place is vital. We outline the key ways to improve your KYC due diligence checklist.
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 of clients through comprehensive and efficient KYC due diligence processes is vital. When performed in the correct manner, your KYC due diligence checklist will go a long way towards reducing the possibility of falling victim to fraud and other financial crimes whilst 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 KYC checklist.
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’s 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.
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’s crucial to have a thorough understanding of duties and outcomes throughout your KYC due diligence checklist 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.
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 Artificial Intelligence (AI) in the process of open source media screening reduces the number of false positives, freeing up valuable analyst time.
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 Know Your Customer due diligence checklist.
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.
To make informed decisions, the information at your disposal and how you access it is key. There are 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.
We hope these tips for improving your KYC due diligence checklist have been helpful. If you’d like to learn more, get in touch with our KYC experts or explore our range of automation tools for streamlining KYC due diligence activities.
Also, you can download our free whitepaper on the benefits of digitising and automating your KYC operations.