In Focus Consumer Credit
Getting to know you
Electronic verification can meet all firms’ KYC needs and drive more effective engagement
John Dobson Chief executive, SmartSearch
john.dobson @
smartsearch.com
On the back of successive waves of regulation, there is an ever-greater focus on firms’ onboarding and Know Your Customer (KYC) processes. Combating financial crime in general and money-laundering in particular is a high priority for most advanced economies and KYC is of key importance to this.
Anti-money-laundering needs Keeping up with the latest anti-money- laundering regulations can seem rather onerous. Amendments to the UK money laundering regulations (MLR) had been expected for some time, as they were set in motion by the 5th EU Money Laundering Directive (5MLD). In the end, they were slipped out just a
few days before Christmas and came into full effect on 10 January, leaving firms with very little time to comply. And just as firms are getting to grips with
those amendments, there is already the prospect of another set of changes, as the 6th Money Laundering Directive (6MLD) comes into force in December. This will widen the scope of money laundering offences and increase the criminal penalties available to judges.
Focusing minds These measures are designed to focus corporate minds – but what practical steps can firms take to make sure they stay compliant? And, also, how will this impact on their
engagement with customers? Many firms are still reliant on manual ID
checks, using paper documents such as passports and driving licences. There is a widespread belief that this is the most reliable method of establishing ID.
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It has never been easier for would-be fraudsters and criminals to obtain high-quality fake or falsified documents which are so sophisticated that even experts at detecting forgery will sometimes struggle
In fact, it is wide open to abuse. It has
never been easier for would-be fraudsters and criminals to obtain high-quality fake or falsified documents which are so sophisticated that even experts at detecting forgery will sometimes struggle. By contrast, electronic verification (EV) –
which for some reason many seem to regard as suspect – is practically failsafe. It is nigh-on impossible to create a false trail of credit- reference data, for example. Alongside EV, digital platforms can also
support the full range of customer due diligence required by the regulations, offering screening against Sanctions and
Politically Exposed Person (PEP) lists, and automatic enhanced due diligence where indicated.
Ongoing monitoring Crucially, unlike ‘traditional’ document- based methods, EV can also provide ongoing monitoring and this can actually help to drive more effective customer engagement. Users can be alerted if a client’s Sanctions or PEP status changes for any reason, and take action as necessary. It can also alert users to a change of
address. This is important not just for compliance but also for maintaining contact with customers. For corporate clients and other legal
entities, digital screening can help identify ultimate business ownership (as demanded by the regulations) and also perform a number of other financial checks that provide users with useful management information about prospective clients. This can only help drive a deeper understanding between firms and their clients. Many firms are already seeing the benefits
of EV for themselves, and the regulatory direction of travel is finally catching up with that. 5MLD explicitly acknowledges the role that EV can play in rooting out fraud and money laundering. The Treasury consultation on the latest
MLR changes specifically asked if more could be done to encourage wider use of EV and noted that this could result in significant cost savings to firms. As the international regulatory focus
on money-laundering grows stronger, EV is not only the most secure way for firms to meet their KYC obligations but also a valuable tool to help drive more effective customer relationships. CCR
February 2020
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