This article is part of Kyckr’s new Future of KYC Compliance series, which interviews leading industry professionals and thought leaders to learn more about the trends that will shape the future of KYC compliance.
The following is an interview we recently had with Alejandro Leáñez Rieber, International Legal Counsel.
What’s the current state of KYC compliance?
AL: KYC compliance is really sophisticated nowadays. Major financial institutions for instance are using specific software for KYC compliance. In sanctions KYC compliance, the software needs to be constantly updated to be aware of new OFAC sanctions that are always being issued by the U.S. Department of the Treasury.
Amazon reached a settlement recently with OFAC regarding a sanctions violations case. According to OFAC, Amazon was involved in breaching U.S. regulations for almost seven years, OFAC's List of Specially Designated Nationals and Blocked Persons (the "SDN List) orders were accepted by Amazon for consumer and retail goods and services. The extent of the violation reached transactions with individuals in Iran, Syria, and Crimea, and people working for the sanctioned embassies of Iran, Sudan Cuba, North Korea, and Syria. Afterward, Amazon enhanced its KYC compliance system, with an updated sanctions screening system.
KYC compliance is constantly evolving and new technologies are always being created to enhance the reach of KYC compliance.
How has KYC compliance evolved over the past 5 years?
AL: The evolution of KYC compliance has greatly evolved over the past 5 years. Before, the compliance officer needed to search manually from a list of Politically Exposed Persons (PEP). Nowadays, software from companies dedicated to providing KYC compliance will deliver an instant result if an individual opening a bank account is a PEP.
Many companies did not know that KYC compliance was relevant until the U.S. Department of Justice started to prosecute major banks and companies on Foreign Corrupt Practices (FCPA) violations. With a strong KYC compliance system, many companies and financial institutions would have been free of these procedures.
Also, the regulators are constantly updating their information that should be applied toward KYC compliance. For instance, the Resource Guide to the U.S. Foreign Corrupt Practices Act, Second Edition, is a detailed compilation of information and analysis regarding the Foreign Corrupt Practices Act (FCPA) and related enforcement. It was created by input from the U.S. Department of Justice (DOJ), the U.S. Security and Exchange Commission (SEC), and the U.S. Departments of Commerce and State.
How has KYC compliance changed in the midst of COVID?
AL: The COVID pandemic is being looked at by KYC compliance departments as a way to improve their detection systems and criminals have an opportunity to target weak KYC compliance systems.
Many financial institutions and companies have reduced their KYC compliance team due to the economic downturn. Effective transaction monitoring requires large teams and costly software that needs to be constantly updated. A large number of alerts when personnel is missing due to the economic downturn can generate the missing of targets, deadlines, or the overlook by the KYC team of critical issues.
Training of KYC compliance departments remains critical during the COVID era. Remote training of the KYC compliance officer was greatly enhanced during COVID. All KYC compliance officers need to know that an effective Sanctions Compliance Program that encompasses these essential components: management commitment, risk assessment, internal controls, testing, and auditing and training.
Still, the KYC compliance team remains a pivotal and strategic team in the COVID era for companies and financial institutions.
What are the top trends shaping the future of KYC compliance?
AL: An increasing number of job openings within the KYC compliance teams require specific specializations in order to apply for such openings. Candidates are companies that are increasingly looking for well-educated candidates in KYC compliance, and with a clear background in KYC compliance.
Increased digitalisation with Artificial Intelligence like machine learning, allow KYC compliance systems to actually think, train, and enhance the accuracy of the systems. Many software sold to major financial institutions has an enhanced machine learning feature.
Moreover, the cryptocurrency industry is expanding at unprecedented levels which presents a unique challenge to the KYC compliance teams dealing with cryptocurrency, since these are the preferred method for money launderers globally.
Finally, high-risk countries are also subject to enhanced review by the KYC compliance teams, once there is a red flag from a country like Iran, North Korea, Syria, Venezuela, or Libya an enhanced procedure of compliance begins.
What’s the future of KYC compliance?
AL: KYC compliance systems will keep growing since regulations and enforcement proceedings by governments will keep getting more complex with new regulations that will need a constant update by companies and financial institutions.
More sophisticated systems of screening and data capture will emerge, the software will adapt to the regulatory complexity and will reduce the time and cost of KYC compliance. However, the human element will still be there to make the final decisions by gathering all the facts.
Financial institutions will be sharing more data with the regulators to comply with applicable regulations. The risks associated with AML, Sanctions and other risk created by applicable regulations will increase the complexity and reach of the KYC compliance systems.
KYC challenges will keep emerging in the future, due to new regulations and the complexity of the markets. The main way to tackle these upcoming trends is with a strong team always trained in new technologies and regulatory trends.