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When is KYC not KYC?

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The world of financial services is a classic example of an environment where we seek clarity and simplicity, but seem plagued by ever more complex systems and regulation. That this is at least in part due to criminal activity comes as no surprise. Thus, many institutions are caught between the need for compliance and the temptation to cut corners as a route to growth and profitability.

Compliance and Expediency – a Fine Line

Some who take shortcuts may do so without fully realizing the fact. Vulnerabilities follow close behind. In particular, the distinction between Know Your Customer (KYC) and Verification has become a focal point of concern. We can see this in an insightful February 8 article by Rachel Wolcott for Thomson Reuters. In it, she illuminates the dangers of such expedited processes, where the quest for swift customer acquisition can inadvertently open doors to fraud. This, she points out, is particularly pertinent as financial services firms grapple with the allure of low- or no-documentation onboarding and shared KYC platforms. Despite advancements like biometric authentication, these remain susceptible to criminal exploitation.

The essence of KYC, a rigorous vetting process aimed at truly understanding the customer, is often diluted in the rush for commercial efficiency. Verification, while a vital step, is sometimes misconstrued as comprehensive KYC. It might offer a semblance of security but falls short of the thorough analysis required to pre-empt criminal misuse of financial systems. Last year’s introduction of paid verification by platforms such as X (formerly Twitter), and its wider use by LinkedIn and others, underscores the growing commodification of identity checks. It further blurs the lines between genuine understanding of the customer, and superficial validation.

Verification vs True KYC

Financial institutions, particularly those in the investment and trading sectors, face a conundrum. The temptation to fast-track KYC to maximize client onboarding, spurred on by software solutions promising such capabilities, poses significant risks. As Wolcott highlights, this approach can facilitate the creation of mule accounts, which become conduits for money laundering, sanction evasion, or terrorism financing – or all three

Against this backdrop, there’s a fast growing demand for a compliance solution that combines speed with thoroughness. An ideal service would encompass exhaustive customer screening, real-time ID verification, and identification of compromised information. It would provide a flexible compliance rules engine, and automated monitoring of customer behavior. This comprehensive approach, underpinned by global data integration to create intricate customer profiles, would offer the promise of genuine KYC—a deep understanding that transcends mere identity verification.

Compli: Setting a Standard for Global Compliance

Here, Compli from Essiell Compli hits the sweet spot, providing a suite of services designed for global compliance. Its capabilities extend from fast in-depth customer screening to real-time verification, stolen information identification, and behavioral surveillance. And a customizable Rules Engine automates the enforcement and monitoring of risk policies. Businesses can stay ahead of regulatory changes and potential risks. Further, by facilitating secure data sharing among collaborating entities, Compli also addresses the critical issue of data silos. An holistic view of customer activity is enabled and blind spots are reduced.

The distinction between KYC and verification is not just semantic. It’s fundamental. As the sector evolves, the need for solutions like Compli, which prioritize a deep, nuanced understanding of compliance across jurisdictions, becomes paramount. This approach safeguards against immediate threats and positions institutions to navigate the future with confidence.

By Declan Morton, staff writer at Essiell Compli.


For reference

KYC Update: Firms marketing super-fast customer on-boarding are vulnerable to account-opening, mule attacks, Rachel Walcott, Thomson Reuters, February 8, 2024



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