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Keeping the Knowing in KYC

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Go to the gym, and flexibility is all the rage. It makes everything easier and more effective. For financial services businesses, it does the same, especially if it indicates a responsive approach to regulation updates and changing risks. This holy grail of a responsive, efficient, and cost effective compliance solution may seem elusive, but once achieved it can bring multiple benefits. Clients and compliance officers are more confident, bad actors are discouraged, risks are lower and reputation is stronger.

Barriers to Effective Compliance.

But compliance can seem a burden. Certainly, it needs more resources than twenty years ago. The financial crisis of 2007-2009, however, forced a change of gear. For example, according to Statista, there were 204,000 compliance officers in the United States in 2010, and in 2022, there were nearly 360,000. And if a significant number of businesses are using struggling legacy systems, accuracy will suffer. If too many staff are used to compensate for insufficient automation, compliance will be a clumsy, mechanistic and incomplete affair.

Additionally, compliance can often seem like a process to be gone through before the real business of the day. It is tempting to see it as box-checking exercise, rather than a dynamic interaction. Of course, compliance is process-driven, but that doesn’t mean it has to be purely procedural.

Quality and depth of data matter

If compliance is seen purely as a checklist then KYC will be a failure. If all the required checks for anti-money laundering, counter-terrorism funding, sanctions and PEPs are one-off events, they’re unlikely to be effective in the long term.

That is not a new observation. Practitioners understand the importance of KYC reviews and ongoing transaction monitoring, but doing them well can be difficult. The quality and depth of transaction monitoring, for example, is critical. Without the ability to match transactions to a detailed person profile, it’s easy to miss those vital bits of information that set alarm bells ringing.

Why Flexibility is Important

Regulatory Compliance in the financial services sector is a complex environment. This has led  to a situation where many automated solutions understandably work through identified steps without variation. With that “streamlining” comes the danger being left with provision that’s one-size-fits-all. By definition, this creates an inability to respond to subtle changes, followed by increasing vulnerabilities.

However, if automated systems are sufficiently sensitive, and are able to be fine-tuned to the needs of individual businesses, then suddenly compliance becomes meaningful. That’s not just in the sense of meeting all required rules. It means that being compliant also delivers the very protection it’s designed for.

Effective Solutions Do Exist

With many specialist providers to choose from, it can be hard to identify those that do everything well. The ideal is a system which undertakes detailed customer screening, ID and address verification (with recognition of stolen information) and automated transaction surveillance. In addition, depth of security is provided by global person profiles built from multiple databases. Alongside all these benefits should sit a completely customizable rules engine, capable of allowing users to design and implement powerful rule sets to combat evolving threats. Enforcement and monitoring of risk policies would be automated, to provide long term adjustable long term protection. But does such a service exist? Yes, it does. It’s Compli, from Essiell Compli.

By Declan Morton, staff writer at Essiell Compli.


For reference:

Number of compliance officers employed in the United States from 2005 to 2022, Statista, May 2023


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