Are you making your KYC more difficult than it needs to be? Are you doing it in-house? Lacking internal communication? Or not monitoring the evolving regulatory landscape?
Compliance is not easy and ends up being a delicate balancing act most days, as teams must manage multiple work streams, while also remaining productive. Yet every minute of the day a criminal is seeking to outsmart compliance teams and launder proceeds of crime.
You may, however, be upsetting that delicate balance by making simple, yet costly mistakes, when it comes to your KYC approach. Here are three common mistakes that happen in the world of KYC compliance and the steps you can take today to avoid them.
Mistake: Reliance on manual processes
Manually-intensive processes can be costly, not just in employee time spent, but in the effects of human error as well. Yet too often, financial institutions waste valuable time and money on tasks that can be automated. Why waste time collecting documents when you can easily automate the process?
Automation of data streams augments performance and increases your effectiveness by streamlining tasks to save time and costs. As such, an analyst's time spent on data extraction and cleansing can be reallocated to risk identification and mitigation. Optimising the utilisation of resources available to you can also strengthen your guard against criminals intent on laundering proceeds of ill-gotten gains.
Mistake: View compliance as a “tick-box exercise”
KYC and AML compliance is often perceived as a “tick-box exercise,” usually relegated to an annual or quarterly project, or only done when preparing for an upcoming audit. However, compliance must be more than a tick-box exercise in improving security, reducing risk, and protecting corporate assets and brand reputation.
Unfortunately, many businesses treat KYC and AML as a regulatory burden rather than a value-adding component to their business. One of the factors contributing to this mindset is that compliance costs money, adds unnecessary red tape, and can be a hindrance to business. This mindset unfortunately can lead to exposure to a wide range of risks. Bad actors love to exploit these kinds of weaknesses, and regulated firms simply going through the motions will soon find the spotlight shining on them. The ramifications may be significant, with financial losses incurred and expensive lawsuits filed.
The tick-box approach can often result in poor and ineffectual customer due diligence, too. How many times have financial institutions marked high-risk customers as low to reduce due diligence efforts? Or simply ticked boxes checking the source of wealth? Think of compliance more as a gateway to allow good people quicker access to services they deserve, while stopping criminals at the door before they enter and cause serious damage to your business.
Mistake: Incomplete data
Data may be king, but it’s what you do with data that counts. Gaping holes in internal data can hinder compliance efforts and the ability to extract insights into customer behaviour, not to mention leave you widely exposed to financial crime risks. The importance of data cannot be understood. Yet many financial institutions store and utilise incomplete customer data files. Missing and/or incomplete data is an avenue for criminals to exploit any weaknesses in KYC and AML processes to commit nefarious crimes. Imagine missing data in transactions, not knowing who is sending the payment, or disguising the beneficiary.
Incomplete data used in the identification and verification of beneficial ownership may result in missing a shareholder or miscalculating the risk level by missing red flags as well. A core focus for firms should be improving the quality, integrity, and accuracy of internal and external data-sets.
Keeping the Balance
Don’t cost yourself customers, fines, and reputation. Avoid making these common mistakes in KYC by investing in people, technology, and reliable data to give you the best chance in catching criminals and protecting your brand against crimes against humanity.
