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 Greg Pinn, Head of Strategy for Merlon.ai.
What's the current state of KYC compliance?
The passage of UBO requirements in the EU and US (with the AML Act of 2020) has significantly increased the compliance workloads for financial institutions globally. Rather than needing to screen the client, FIs that have a significant corporate customer base are now required to screen 5-10 additional names (executives and owners) than were previously required. This has put additional strain on compliance organisations that were barely able to keep up with previous requirements.
Additionally, Virtual Asset Service Providers (VASPs), also known as Cryptocurrency businesses such as exchanges, ATMs, and ICOs, are seeing additional focus by global regulators, who are requiring compliance with the Travel Rule as well as ensuring that these businesses do more than simply "check the box" on sanctions compliance.
The Biden administration, led by Secretary of the Treasury, Janet Yellen, is likely to focus more attention and manpower on enforcement.
Put together, this makes 2021 a year that institutions are going to need to increase their focus on digital transformation, looking for solutions to reduce the historic reliance on huge teams of analysts performing exceedingly manual tasks.
How has KYC compliance evolved over the past 5 years?
A big change over the last 5 years has been an emergence of a new generation of RegTech providers, looking to answer the growing needs of compliance teams. These can be divided into two main categories -- emerging needs and legacy requirements.
Emerging Needs -- These companies are focused on helping FIs and other regulated businesses solve their emerging challenges, mainly around digital onboarding (ID Verification), UBO requirements, and cryptocurrency transaction analysis.
Legacy Requirements -- These firms are focused on improving existing and long-standing regulatory requirements around identifying and screening of sanctions, PEP, and adverse media, reducing the need for huge, ever-growing compliance teams. These companies leverage new innovations in artificial intelligence, machine learning, and natural language processing to increase the efficiency of compliance analysts.
How has KYC compliance changed in the midst of COVID?
GP: Before COVID-19 compliance teams were predominantly office-based. This is due to the repetitive nature of many analyst tasks, looking through dozens or hundreds of screening results and evidence daily. This type of task requires focus and close supervision. COVID has completely changed this. Compliance analysts must now work from home with all of the distractions that come with that. This is causing FIs to accelerate plans to upgrade technologies to focus analyst attention on less mundane tasks that can be managed by more modern technologies. With these new tools, analysts can focus their remediation efforts where human intelligence is required.
What are the top trends shaping the future of KYC compliance?
The last few years have focused on UBO and cryptocurrency. The next few will be shaped by digital transformation, bringing new technologies and solutions to a market that has been using the same tools for decades. FIs must innovate to keep up with compliance demands. Fines, like the fine against Capital One, will continue to grow and push FIs, both large and small, to look to new technology to solve these challenges.
What's the future of KYC compliance?
Beyond what was mentioned above, we are likely to see additional industries being the subject of AML and KYC policies. This was the case with the AML Act of 2020 that added antiquities businesses to the list of FinCEN-regulated industries. We are likely to see that grow as multinational criminal enterprises look to different industries to launder money.