News & Blog

The Future of KYC Compliance — Insights From Sukh Vairea

Future of Compliance
November 18, 2020

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 have recently had with compliance expert, Sukh Vairea.

What is the current state of KYC Compliance? 

SV: KYC Compliance is in a state of flux - a mix of organisations embracing technology to improve risk identification to those burdened by legacy technology.  Complex operating procedures in larger financial institutions are contributing to the high cost of KYC compliance. Some businesses perform better at KYC but others need to improve. The output of efficiency, and low-cost KYC remediation is directly proportional to the investment in staff, systems, controls, and processes.   

With regards to the regulatory landscape, some EU member states have been slow in adopting the 4th  Anti-money Laundering Directive which came into force in June 2017. The 6th AMLD is due to take effect from January 2021. There are disparities in accessing corporate registries to retrieve information on businesses, beneficial owners, and Politically Exposed Person’s between EU member states. Access is restricted in specific jurisdictions to law enforcement only preventing full disclosure to the public. A lack of beneficial ownership in offshore tax havens hiding behind a veil of secrecy hinders effective KYC. 

How has KYC compliance evolved over the past 5 years? 

SV: KYC compliance has changed drastically over the past five years. Driven by disruptive FinTech’s, and innovation, the banking landscape intertwined with technology is evolving at an unprecedented pace. Quicker access to services, digitisation, and data-driven insights is changing the way to deliver services to consumers and businesses. Manual-based work can now be automated. Face-to-face business is being replaced with online remote verification. Identities can now be verified in minutes and users onboarded instantly. Mobile banking has revolutionized the way we send and receive money and access financial resources. 

The regulatory landscape has also changed. The introduction of stricter data privacy laws and verification of beneficial owners means regulated institutions must adopt robust controls and risk- based processes to identify and mitigate financial crime risks. However, the law is playing catch-up to criminals who remain one-step ahead of the curve. 

KYC Compliance now involves by analysing and assessing demographics, risk factors, reputation, derogatory risks, and other risk factors. KYC has been perceived as a tick-box exercise – and many organisations still adopt this approach. However, the art of KYC has evolved – the mindset and efforts to change compliance from a cost-centre to a profit generating business by entrepreneurial leadership has converted KYC from a burden to a business enabler.  

How has KYC compliance changed in the midst of COVID? 

SV: COVID has changed a lot in life and business. Digitisation and remote working is an opportunity but faces greater risks from fraudsters, cyber-criminals and money launderers abusing the system for financial gain.  Account takeover, spoofing, and other nefarious activities are on the rise. COVID has accelerated the transitions to online digitisation but at the same time attracted unwanted criminals. Where there is opportunity - there is risk. 

KYC compliance is the first line of defence. Businesses must keep up their guard. KYC checks should not be compromised or treated as a tick-box exercise. The controls to authenticate documents and verify users should be tested regularly to ensure you are fully protected and fighting off threats of an evolving landscape. 

The global recession due to COVID-19 means there is less money for governments and businesses to invest in compliance. This may compromise KYC and regulatory endeavours, but for businesses this may result in financial losses and becoming the victim of crime per se. 

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

SV: The top trends shaping the future of KYC compliance is integrated, data-driven solutions available on scalable SaaS technology. Transparency and interoperability with the compliance ecosystem will be a continuing trend for the foreseeable future. Some organisations are digital from day one, others continue to transition from legacy on-prem infrastructures to cloud-based technology. A top trend will see the continual transition to cloud.  

Another top trend is partnerships particularly software vendors. Businesses will share KYC as a service through blockchain which saves duplication and onboarding efforts. An individual or business once onboarded does not have to go through the onboarding process again. Storing data on distributed ledger technology will become more popular leveraging economies of scale. 

Future trends will see improvements in tech – faster, bigger volumes of remediation and seamless KYC onboarding. Digital footprints will be shared quicker between government entities, associations, and other public services to serve domestic and international customers. Artificial intelligence, deep learning and machine learning will become the de facto.  

What’s the future of KYC compliance? 

SV: The future of KYC compliance is one of hope. But changes need to be driven top-down and bottom-up. At the regulatory level, governments need to pass law quicker and increase investment in fighting crime. Law intelligence units, corporate registries, regulators, and banks need to work with each other and not against each other. 

Access to data, improvements in standardisation and transparency will improve intelligence sharing. Beneficial ownership and politically exposed person registries will hopefully be in a better state and accessible to all. 

The future will see businesses perform better KYC and onboard customers faster than ever before. Automated straight-through-processing with short minimal reviews for low risk customers will become more integrated in compliance workflows. The time taken to review subjects will gradually drop. Compliance teams will be able to focus resources and effort to the areas of highest risk requiring enhanced due diligence. 

The future will see the battle continuing against criminals. A never-ending cat and mouse game. There will be losers but some winners, too. Everything depends on how you tackle the issue, the importance of KYC to your business, and how well equipped you are to fend off the threats.

About Sukh Vairea

Sukh is a compliance expert worked with financial institutions and businesses in EMEA, APAC and the America’s. He previously worked for PwC, Thomson Reuters, Accuity, and Bottomline Technologies, respectively.

Future of Compliance
November 18, 2020

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 have recently had with compliance expert, Sukh Vairea.

What is the current state of KYC Compliance? 

SV: KYC Compliance is in a state of flux - a mix of organisations embracing technology to improve risk identification to those burdened by legacy technology.  Complex operating procedures in larger financial institutions are contributing to the high cost of KYC compliance. Some businesses perform better at KYC but others need to improve. The output of efficiency, and low-cost KYC remediation is directly proportional to the investment in staff, systems, controls, and processes.   

With regards to the regulatory landscape, some EU member states have been slow in adopting the 4th  Anti-money Laundering Directive which came into force in June 2017. The 6th AMLD is due to take effect from January 2021. There are disparities in accessing corporate registries to retrieve information on businesses, beneficial owners, and Politically Exposed Person’s between EU member states. Access is restricted in specific jurisdictions to law enforcement only preventing full disclosure to the public. A lack of beneficial ownership in offshore tax havens hiding behind a veil of secrecy hinders effective KYC. 

How has KYC compliance evolved over the past 5 years? 

SV: KYC compliance has changed drastically over the past five years. Driven by disruptive FinTech’s, and innovation, the banking landscape intertwined with technology is evolving at an unprecedented pace. Quicker access to services, digitisation, and data-driven insights is changing the way to deliver services to consumers and businesses. Manual-based work can now be automated. Face-to-face business is being replaced with online remote verification. Identities can now be verified in minutes and users onboarded instantly. Mobile banking has revolutionized the way we send and receive money and access financial resources. 

The regulatory landscape has also changed. The introduction of stricter data privacy laws and verification of beneficial owners means regulated institutions must adopt robust controls and risk- based processes to identify and mitigate financial crime risks. However, the law is playing catch-up to criminals who remain one-step ahead of the curve. 

KYC Compliance now involves by analysing and assessing demographics, risk factors, reputation, derogatory risks, and other risk factors. KYC has been perceived as a tick-box exercise – and many organisations still adopt this approach. However, the art of KYC has evolved – the mindset and efforts to change compliance from a cost-centre to a profit generating business by entrepreneurial leadership has converted KYC from a burden to a business enabler.  

How has KYC compliance changed in the midst of COVID? 

SV: COVID has changed a lot in life and business. Digitisation and remote working is an opportunity but faces greater risks from fraudsters, cyber-criminals and money launderers abusing the system for financial gain.  Account takeover, spoofing, and other nefarious activities are on the rise. COVID has accelerated the transitions to online digitisation but at the same time attracted unwanted criminals. Where there is opportunity - there is risk. 

KYC compliance is the first line of defence. Businesses must keep up their guard. KYC checks should not be compromised or treated as a tick-box exercise. The controls to authenticate documents and verify users should be tested regularly to ensure you are fully protected and fighting off threats of an evolving landscape. 

The global recession due to COVID-19 means there is less money for governments and businesses to invest in compliance. This may compromise KYC and regulatory endeavours, but for businesses this may result in financial losses and becoming the victim of crime per se. 

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

SV: The top trends shaping the future of KYC compliance is integrated, data-driven solutions available on scalable SaaS technology. Transparency and interoperability with the compliance ecosystem will be a continuing trend for the foreseeable future. Some organisations are digital from day one, others continue to transition from legacy on-prem infrastructures to cloud-based technology. A top trend will see the continual transition to cloud.  

Another top trend is partnerships particularly software vendors. Businesses will share KYC as a service through blockchain which saves duplication and onboarding efforts. An individual or business once onboarded does not have to go through the onboarding process again. Storing data on distributed ledger technology will become more popular leveraging economies of scale. 

Future trends will see improvements in tech – faster, bigger volumes of remediation and seamless KYC onboarding. Digital footprints will be shared quicker between government entities, associations, and other public services to serve domestic and international customers. Artificial intelligence, deep learning and machine learning will become the de facto.  

What’s the future of KYC compliance? 

SV: The future of KYC compliance is one of hope. But changes need to be driven top-down and bottom-up. At the regulatory level, governments need to pass law quicker and increase investment in fighting crime. Law intelligence units, corporate registries, regulators, and banks need to work with each other and not against each other. 

Access to data, improvements in standardisation and transparency will improve intelligence sharing. Beneficial ownership and politically exposed person registries will hopefully be in a better state and accessible to all. 

The future will see businesses perform better KYC and onboard customers faster than ever before. Automated straight-through-processing with short minimal reviews for low risk customers will become more integrated in compliance workflows. The time taken to review subjects will gradually drop. Compliance teams will be able to focus resources and effort to the areas of highest risk requiring enhanced due diligence. 

The future will see the battle continuing against criminals. A never-ending cat and mouse game. There will be losers but some winners, too. Everything depends on how you tackle the issue, the importance of KYC to your business, and how well equipped you are to fend off the threats.

About Sukh Vairea

Sukh is a compliance expert worked with financial institutions and businesses in EMEA, APAC and the America’s. He previously worked for PwC, Thomson Reuters, Accuity, and Bottomline Technologies, respectively.

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