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The Future of KYC Compliance — Insights From Dimitar Kolchakov

Future of Compliance
March 18, 2021

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 Dimitar Kolchakov, Bulgarian American Credit Bank.

What’s the current state of KYC compliance? 

KYC is an especially important element of anti-money laundering and counter terrorist financing measures. AMLD5 was introduced in 2018 and businesses were required to comply by January 2020. AMLD5 mandated amendments for financial institutions, prepaid cards, credit institutions, the legal sector, virtual currencies etc. and requires the reporting entities to practice enhanced due diligence. In 2019, AMLD6 was proposed, highlighting a stringent framework to combat money laundering and terrorist financing. It extends the scope of criminal liabilities and entities with an updated list of predicated offenses. AMLD6 went into effect December 3, 2020 and with it came tougher penalties, widening the criminal liability to legal persons. The changes that happened in 2019 and 2020 made regulatory compliance inevitable for businesses. Many future-oriented businesses are using KYC/AML screening solutions to practice global compliance because there are just two ways out of the situation: compliance that leads to fraud-free growth, or non-compliance that leads to hefty non-compliance penalties and fraud losses.

How has KYC compliance evolved over the past 5 years? 

The evolution of KYC is fully connected to the new regulations and laws like AML Directive in the EU, Patriot Act in the USA, Payments Services Directive (PSD2) etc. that were implemented in the past 5 years. In recent years, we have witnessed the digitalisation of KYC (e-KYC), which can lead to mentioned advantages for a business, such as speed, efficiency, paperless KYC, and real-time onboarding. Here a few examples of how technology has advanced in the past 5 years:

  • Technology can now assess whether a user’s government-issued ID is genuine or fraudulent, and then compare it against their facial biometrics
  • Facial recognition technology and in mobile biometrics technologies
  • Remote user identification systems via streaming video

These are just a few ways that technology has evolved to simplify user verification solutions, track suspicious transactions, and manage risk. RegTech companies should carry out multifactor identification of users by fingerprints, retina, behavioral features, biography and even selfies (smile identity).

How has KYC compliance changed in the midst of COVID? 

I think that the Covid-19 pandemic accelerated digital banking and e-KYC extremely fast. The Covid-19 outbreak has brought about many changes in many industries, and banking is no exception. Financial services have been at the forefront of digital transformation but the industry is still largely held back by legacy systems. Due to the pandemic, banks and fintech companies will need to respond quickly to growing consumer demands for new solutions.

The world will not be the same after Covid-19, and thus the banking industry is faced with unprecedented challenges. The closure of physical branches, remote working of staff, overworked customer help desks and broken back-office processes are some of the challenges banks are grappling with. While several banks are putting in timely interventions, the unsure are weathering the storm which might prove very costly.

Also, some regulators like AUSTRAC provide a special instruction to KYC during Covid-19 related to alternative processes to verify customer identity, reporting during the Covid-19 pandemic, and opening a new account while a customer is in self-isolation.

What are the top trends shaping the future of KYC compliance? 

Verification of the client's identity is a mutually beneficial process. Banks and financial institutions set the level of customer tolerance for risk, investment preferences and the likelihood of involvement in illegal activities. In turn, customers precisely receive the categories of accounts and services that best meet their real needs. Standard KYC mechanisms include customer approval, personal identification process, tracking of unusual transactions, risk management, such as installing filters that regulate the type and number of financial operations for a particular customer.

On a regulatory and practical side, the main trends are related to:

  • More Ultimate Beneficial Owner /UBO/ detailed information required
  • Better management of the sanctions
  • Implementation of the crypto currency rules and regulation
  • Enhanced due-diligence of high-risk countries
  • Online client onboarding process

Of course, the above will develop with many various regtech solutions based on AI, blockchain, machine learning and big data. The most effective way to meet the requirements is to use regulatory technologies. Regulation and technology are two key trends that have shifted the tectonic plates of global finance. After the financial crisis, authorities around the world began to introduce new - comprehensive and more cautious - regulatory measures.

What’s the future of KYC compliance?

KYC compliance with the help of regtech will change the way many industries operate, with old functions being eliminated or automated for more efficiency, and new delivery channels emerging that allow companies to interact with each other and their customers in ways not imagined even a decade ago.  It is also obvious that the manual paper-based processes that constitute much of regulatory compliance must be automated. We will see a fast-growing implementation of AI, blockchain, machine learning and big data in the usual KYC compliance activity.

The new regulations and faster-growing technology will help companies on a number of different levels. KYC onboarding that uses new technology reduces the time and improves customer experience. With technology, companies have access to many different sources for checking and screening the data that the clients provide. The techniques that the companies use when onboarding the clients digitally includes facial recognition, biometrics and other applications related to AI and machine learning.

Future of Compliance
March 18, 2021

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 Dimitar Kolchakov, Bulgarian American Credit Bank.

What’s the current state of KYC compliance? 

KYC is an especially important element of anti-money laundering and counter terrorist financing measures. AMLD5 was introduced in 2018 and businesses were required to comply by January 2020. AMLD5 mandated amendments for financial institutions, prepaid cards, credit institutions, the legal sector, virtual currencies etc. and requires the reporting entities to practice enhanced due diligence. In 2019, AMLD6 was proposed, highlighting a stringent framework to combat money laundering and terrorist financing. It extends the scope of criminal liabilities and entities with an updated list of predicated offenses. AMLD6 went into effect December 3, 2020 and with it came tougher penalties, widening the criminal liability to legal persons. The changes that happened in 2019 and 2020 made regulatory compliance inevitable for businesses. Many future-oriented businesses are using KYC/AML screening solutions to practice global compliance because there are just two ways out of the situation: compliance that leads to fraud-free growth, or non-compliance that leads to hefty non-compliance penalties and fraud losses.

How has KYC compliance evolved over the past 5 years? 

The evolution of KYC is fully connected to the new regulations and laws like AML Directive in the EU, Patriot Act in the USA, Payments Services Directive (PSD2) etc. that were implemented in the past 5 years. In recent years, we have witnessed the digitalisation of KYC (e-KYC), which can lead to mentioned advantages for a business, such as speed, efficiency, paperless KYC, and real-time onboarding. Here a few examples of how technology has advanced in the past 5 years:

  • Technology can now assess whether a user’s government-issued ID is genuine or fraudulent, and then compare it against their facial biometrics
  • Facial recognition technology and in mobile biometrics technologies
  • Remote user identification systems via streaming video

These are just a few ways that technology has evolved to simplify user verification solutions, track suspicious transactions, and manage risk. RegTech companies should carry out multifactor identification of users by fingerprints, retina, behavioral features, biography and even selfies (smile identity).

How has KYC compliance changed in the midst of COVID? 

I think that the Covid-19 pandemic accelerated digital banking and e-KYC extremely fast. The Covid-19 outbreak has brought about many changes in many industries, and banking is no exception. Financial services have been at the forefront of digital transformation but the industry is still largely held back by legacy systems. Due to the pandemic, banks and fintech companies will need to respond quickly to growing consumer demands for new solutions.

The world will not be the same after Covid-19, and thus the banking industry is faced with unprecedented challenges. The closure of physical branches, remote working of staff, overworked customer help desks and broken back-office processes are some of the challenges banks are grappling with. While several banks are putting in timely interventions, the unsure are weathering the storm which might prove very costly.

Also, some regulators like AUSTRAC provide a special instruction to KYC during Covid-19 related to alternative processes to verify customer identity, reporting during the Covid-19 pandemic, and opening a new account while a customer is in self-isolation.

What are the top trends shaping the future of KYC compliance? 

Verification of the client's identity is a mutually beneficial process. Banks and financial institutions set the level of customer tolerance for risk, investment preferences and the likelihood of involvement in illegal activities. In turn, customers precisely receive the categories of accounts and services that best meet their real needs. Standard KYC mechanisms include customer approval, personal identification process, tracking of unusual transactions, risk management, such as installing filters that regulate the type and number of financial operations for a particular customer.

On a regulatory and practical side, the main trends are related to:

  • More Ultimate Beneficial Owner /UBO/ detailed information required
  • Better management of the sanctions
  • Implementation of the crypto currency rules and regulation
  • Enhanced due-diligence of high-risk countries
  • Online client onboarding process

Of course, the above will develop with many various regtech solutions based on AI, blockchain, machine learning and big data. The most effective way to meet the requirements is to use regulatory technologies. Regulation and technology are two key trends that have shifted the tectonic plates of global finance. After the financial crisis, authorities around the world began to introduce new - comprehensive and more cautious - regulatory measures.

What’s the future of KYC compliance?

KYC compliance with the help of regtech will change the way many industries operate, with old functions being eliminated or automated for more efficiency, and new delivery channels emerging that allow companies to interact with each other and their customers in ways not imagined even a decade ago.  It is also obvious that the manual paper-based processes that constitute much of regulatory compliance must be automated. We will see a fast-growing implementation of AI, blockchain, machine learning and big data in the usual KYC compliance activity.

The new regulations and faster-growing technology will help companies on a number of different levels. KYC onboarding that uses new technology reduces the time and improves customer experience. With technology, companies have access to many different sources for checking and screening the data that the clients provide. The techniques that the companies use when onboarding the clients digitally includes facial recognition, biometrics and other applications related to AI and machine learning.

Build your Customer Due Diligence and KYC processes on a robust foundation with Kyckr.

Make data work smarter, not harder.

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