The importance of KYC checks in an evolving regulatory landscape

KYC checks

As AML (anti-money laundering) compliance professionals know all too well, conducting effective KYC (know your customer) checks is a critical part of preventing money laundering and terrorist financing. However, navigating the constantly evolving regulatory landscape can be a challenge, as new requirements and guidelines are introduced on a regular basis. 

In this blog post, we’ll explore some of the recent regulatory developments that have impacted KYC checks and AML compliance, and share tips for staying up-to-date and adapting your KYC program accordingly. 

What is a KYC check?

Regulated businesses must conduct KYC checks in order to verify their customers prior to opening an account or making a property purchase, for example.

A KYC check usually requires customers to provide proof of their identity, proof of their address, and sometimes other pertinent information associated with the relationship being initiated. In the case of a house purchase for example, a solicitor may ask for bank statements showing the source of funds being used as a deposit as part of the KYC check. 

A person may also be checked against sanctions lists, screened for political exposure, CCJs, and credit checks carried out.

Recent regulatory developments impacting KYC checks

Over the past few years, there have been several regulatory developments that have impacted KYC checks and AML compliance. One of the most significant was the FATF’s (Financial Action Task Force) revised guidance on virtual (crypto) assets, which set out new requirements for the virtual asset industry, including the need to conduct KYC checks on all customers. 

Other developments have included the EU’s (European Union) Fifth Money Laundering Directive, which introduced new requirements for customer due diligence and beneficial ownership, and the increased focus on environmental, social, and governance (ESG) risks. 

These regulatory developments have had several implications for AML compliance professionals. They have led to significant changes in KYC requirements, including the need to collect more information on customers and conduct ongoing monitoring. 

These changes have also meant firms are subject to increased scrutiny from regulators, who are now more likely to investigate (and penalise) companies that fail to conduct adequate KYC checks. 

Additionally, such frequent regulatory changes have made it more challenging for companies to stay up-to-date and compliant, particularly those that operate in multiple jurisdictions. 

Adapting your KYC checking process  

To navigate these regulatory changes, AML compliance professionals need to be proactive and nimble. Some of the ways compliance teams can continuously adapt and improve a KYC program include: 

  • Conduct regular risk assessments to identify areas of vulnerability and prioritise resources accordingly 
  • Review and update your customer due diligence procedures to ensure compliance with regulatory requirements 
  • Provide ongoing education and training to your team to keep them informed of regulatory changes and best practices 
  • Leverage technology to automate certain KYC processes and improve the accuracy of risk assessments 
  • Collaborate with other departments and stakeholders to ensure a coordinated and consistent approach to KYC checks 

Using technology for KYC checks 

Today, firms are looking to technology as a way of improving the efficiency and accuracy of KYC checks. Some are using innovative software solutions to automate certain KYC processes, such as information collection, document verification and screening. 

Staying up-to-date on regulatory changes is a key part of conducting effective KYC checks and ensuring AML compliance. Most technology providers will provide tools and solutions that manage regulatory change, with systems that are customisable to your firm’s risk appetite and processes. 

What poses a risk to your business, may not be considered as such by another – this is why it is important that you are able to personalise rules, workflows and risk factors when selecting a technology partner for KYC checks and overall AML compliance.

By remaining informed, adapting your KYC programme accordingly, and leveraging technology where appropriate, you can help protect your company from the risks of money laundering and terrorist financing. 

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