Know your customer (KYC) compliance is crucial for financial institutions to avoid facilitating money laundering and other illegal transactions. The process is based around knowing your customers’ identity, and making an effort to understand their activities and nature before or during business operations with them. Though navigating KYC can be difficult, it is important for companies to protect themselves and any other individuals who may be harmed by financial crime.
Ian Henderson is the CEO of Kyckr, a global business register that helps with know your customer processes for anti-money laundering regulations. Ian has had a vast career in the banking industry, and has served as CEO at Shawbrook Bank and RBS International, to name just a few, and was the Chief Operating Officer of Barclays Wealth Private Banking.
Here Henderson shares his top 3 KYC compliance mistakes and how organisations can avoid them.
KYC compliance is complicated, but are you making it more difficult than it needs to be?
Even seasoned compliance veterans and organisations that regularly deal with KYC and AML processes make mistakes. Compliance is rife with misconceptions, and people who have worked in the business for years are no exception. Some organisations still believe they can automate humans out of the process entirely or continue to treat KYC compliance as a checkmark exercise when in reality, the nuances of compliance necessitate hands-on attention from people with real expertise.
Most commonly, organisations treat KYC more as a regulatory burden than a potential value add. This may be the biggest misconception of all. Anything so central to an organisation’s functioning hides the potential to provide value to end-users, even if that value is only expressed in the facilitation of processes that end users never see.
Even if you already appreciate KYC compliance for the value it adds, everyone makes an occasional blunder. Evaluate the KYC processes and mindsets within your organisation and be vigilant to avoid these three most common KYC compliance mistakes.
Reliance on stored and third-party data
Data keeps the world turning, especially in finance. However, 64% of firms experience difficulties with or don’t know the quality of their data.
That number is astoundingly high for such a critical business factor. If regulators come calling or bad actors attempt to exploit your processes, you want to feel 100% confident in your data’s ability to help you ward off trouble. One of our customers recently expressed to us that only 25% of the data they get from their previous data vendor was usable or up to date.
Given the costs and reputational risk associated with anti-money laundering (AML) breaches, this mistake can be incredibly costly both from a regulatory and reputational perspective. If you rely on stale data from third parties, and the quality of your data keeps you up at night, it’s time to seek out other options. You have options to get real-time, structured data from legally authoritative sources at a click of a button. When you can trust 100% of your information instead of 25%, you can naturally make more informed KYC decisions, reduce regulatory risks and avoid hefty fines.
Building internal software systems for CLM management
In virtually every situation, building your own software system is exorbitantly expensive.
With customer lifecycle management, internal systems require a massive amount of upkeep to be effective. Tracking customer needs across their journeys requires deep insight not only into your own systems but into process best practices that likely exist beyond your organisation’s area of expertise. If you do not want to start a business within your business to handle this immense task, scrap the headache and team up with a trusted provider.
Lack of internal communication
Nothing kills strong companies faster than a lack of communication. When departments and leaders keep the lines open, they can anticipate problems and respond before small issues become calamities.
In the case of KYC compliance, internal communication helps all parts of the organisation understand the value add that compliance provides. In addition, when everyone stays updated on the latest compliance needs, the company is better protected from unpleasant visits from regulators and breaches by bad actors.
To avoid creating silos within your organisation regarding compliance, build compliance-related work into every department. Guarantee participation by making everyone responsible for a common goal. A compliance mistake affects everyone, so everyone should have the ability to prevent one.
As KYC compliance evolves, so will the most common mistakes committed by companies. By mastering communication and trusting the right partners, however, organisations can insulate themselves from the majority of compliance concerns and build a foundation for a stronger, compliance-proof future.