If you are a regulated firm, you are no doubt very conscious that onboarding checks for companies need to be undertaken painstakingly to meet current regulatory and legal requirements, covering both the business ’KYB’ and individual ‘KYC’ checks.
At the same time, however, there are requirements for rapidity and cost control which cannot be ignored. firms that fail to meet the demand for fast and efficient onboarding fail to grow – it’s as simple as that. With some challenger fintech firms completing the process in 5 minutes or less, competition is stiff and expectations are rising. But how do you balance the regulatory requirements and risks against this commercial imperative?
The choices we make, the risks we take
There are those that argue the application of Pareto’s principle, or something like it, in this situation. The idea being, that it’s acceptable to perform less initial checks on merchants considered to be lower risk, given that any problems tend to originate from a small percentage of the market participants. The trick, of course, is how to assess that risk? That requires its own set of checks, which also need to be performed quickly, in order to send those merchants down the ‘lighter touch’ path.
A second question, then, is how much risk you are prepared to take on, given the potential penalties for getting this wrong. Most firms here are looking to tightly control their risks, so the balancing act continues. Given these factors, it is perhaps better to look at a different question. Does painstaking have to mean painful?
Data and decisions
The problem here is not lack of data. Data is available in multiple locations, in multiple forms and the upcoming 5th AMLD mean that there will be still more, in the form of publicly accessible UBO (Ultimate Beneficial Owner) lists to browse. There are two key challenges to meet. Getting hold of that data in a usable form within the timescales required is the first of these challenges, which needs to be seamless, from the merchant’s perspective.
The second challenge is how to perform frictionless decision making, based on analysis of the data and your risk assessment criteria. This may mean multiple decision points, where firms take the approach of fast-tracking relatively low risk merchants, but taking a deeper look at higher risk entities, or those whose volumes have significantly increased or whose profiles have changed.
Automation is, of course, the key to streamlining these processes to meet these challenges. Here’s where quality counts, in making sense of quantity. The best software will require as little interaction with the customer as possible, but behind the scenes will draw data from multiple sources to verify businesses and individual identities in seconds.
Checks performed by NorthRow’s software, including OFAC, PEP and UBO, can utilise data drawn in from over 200 data sources across more than 100 countries. Disparate data is no longer a problem, as the data can be taken in using OCR, NLP and analysis of specific fields within the available sources. As the available data increases, so do the connections, but without adding complexity to the customer’s experience as these are handled downstream and delivered in real time.
Risk and rules
Build digital applications that enable correct completion on the first application. Make it as fast and easy to complete an application without error.
Take a risk-based approach to client onboarding. Determine high, medium, and low risk products and high, medium, and low risk regions.
Build the business rules engine. Automate the compliance process, by working with your risk rules and building a scorecard using those rules.
Integrate cross-border or regional specialisation. Intelligently apply appropriate rules to ensure compliance in every case.
Implement traditional and machine learning techniques. Apply these to the creation and native operationalisation of analytical models.
Create and action a risk score. Automatically approve, refer or decline accounts based on information collected in the application and by the rules-based engine.
The Article Originally Appeared in Bobsgulde: From business principals to business principle Streamlining merchant onboarding without compromising compliance (25 June 2019)
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