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 Miriam Goldman Epstein, Operations Manager, SQOPE S.A
What’s the current state of KYC compliance?
ME: KYC compliance is in a constant state of growth and evolution due to various factors. Some has to do with public awareness of corruption and poor oversight from financial institutions - much of which resulted from the exposure of major scandals through high profile leaks. This has forced governments to act, including by imposing stricter regulations, clearer definitions, and greater transparency. As a result, there is ever increasing demand for compliance solutions, such as enhanced due diligence, especially for individuals from complex and opaque jurisdictions.
How has KYC compliance evolved over the past 5 years?
ME: For this, we can look at the trend with anti-money laundering directives in the EU. The first (1AMLD) was agreed upon in 1991, with three more over the next 14 years. Meanwhile, 4AMLD, 5AMLD, and 6AMLD were all created within the past 5 years. This really highlights an increased pace in regulation. It’s also important to note that the EU has actually been enforcing these regulations more stringently than in the past with heavy fines.
In addition, there has been growing recognition in the industry that standard watch-list and database checks are insufficient to protect the financial institutions and that financial professionals need to invest in strong compliance policies to protect their reputation and ensure proper due diligence.
How has KYC compliance changed in the midst of COVID?
ME: COVID-19 really impacted the onboarding process for the financial industry particularly given restrictions on in-person meetings. Likewise, KYC and due diligence research faced challenges linked to the inability to visit physical locations to obtain records, alongside technical challenges connected to data protection and privacy that arose from increasing remote work. All the while, regulators continued to issue fines to those who were not compliant and leeway wasn’t granted. Such logistical challenges led to backlogs, delays, and other issues for compliance professionals. From there, we saw a growing demand for outsourcing of research to third-party providers.
What are the top trends shaping the future of KYC compliance?
ME: Over the coming years, I believe that transparency demands from the public will continue to shape government policies, with even some of the more opaque jurisdictions required to provide more information, such as ultimate beneficial ownership details.
In line with this, we see that there are more calls and policies being drafted to impose greater KYC regulations on other industries, such as the art market and real estate, as well as other forms of currency, such as crypto.
Finally, we notice that there are more technological solutions being developed to assist compliance professionals in their research.
What’s the future of KYC compliance?
ME: The future of KYC compliance will be shaped by trends described earlier. We expect the market demand to grow in size and in the level of reporting expected. Reputational issues will be an expected feature of any good KYC report, as will enhanced coverage of an individual’s source of wealth.
To this end, we expect that what is today considered deep due diligence will, in the future, be the standard level of reporting as financial professionals will adjust to the need for more in-depth coverage of all risks associated with a given individual or entity.
In summary, we expect that the future of KYC compliance will be increased accountability vis-à-vis whom we enter into business.