New Frontiers in KYC & AML Compliance Domains for Fintech

The next few years will prove to be tumultuous for financial companies in the year 2018. As the KYC and AML laws change drastically, financial firms will have to undergo a lot of policy changes to ensure they remain compliant with the prevalent laws. However, staying compliant with the laws is not all it takes; firms need to take additional steps to protect themselves during uncertain situations.

The burden of handling the direct costs for compliance, operations and technology can prove to be an extensive battle for companies, as they fight to remain on even ground. The point worth noting is, is there any benefit for companies for remaining compliant with the laws and regulations as stated in AML and KYC guidelines?

The Compliance laws have become more stringent over a period of time. Due to this reason, every type of business, ranging from small business firms to large organizations, is being forced to fall in line with these regulatory demands. Agile compliance solutions, KYC, AML, etc, have become some of the top compliance contenders, which have formed the watchdogs for many organizations. If any new or existing customers fail to pass these regulatory check points, they will be banished from the respective banks and payment firms.

Are Compliance norms a boon or bane?

KYC or Know Your Customer has become one of the initial, yet an inseparable part of every bank’s on-boarding procedures. KYC was devised with an aim to prevent money laundering and other related financial crimes, which have become an absolute terror in today’s financial markets. The idea of KYC is to simplify the on-boarding procedures; on the contrary, it has done exactly the opposite.

The excessive requirements within the KYC norms can often lead to frustrated customers and a decline in the business revenues. More and more customers are being forced to provide the same documents and same information over and over again, which causes a lot of customers to look for simpler sign on options within banks and financial firms.

Banks face risk from multiple sources; however, financial crimes continue to be the most feared risk source for a lot of banks these days. However, these three factors have majorly heightened the risk banks are exposed to these days:

  • The increase in cross border transactions and better integration of the different world economies.

  • Continuous revision of the rules by regulators

  • Frequent revision of economic sanctions, which closely monitor the transactions occurring in a specific set of countries (example: Syria, Iran, Iraq etc.)

Banks have been forced to respond to these risks, in order to stay on top of the changes in regulatory requirements. In turn, banks have responded by investing in people, manual controls as well as systems which address point-in-time needs. For example, in the US, banks have increased their AML staff by tenfold, just to stay up to date with the compliance requirements.

This is not all, for banks often monitor high value transactions for the risky countries, which makes the effort all the more centralized.  Despite such centralized approaches and heavy financial investments, banks often end up facing challenges in the regulatory regime. Since banks have to work with poor quality data, which is often quite unstructured and fragmented, collecting the mandatory data from the required sources becomes a challenge, even the best of bank personnel can’t fathom.

Even though these rigorous norms and regulations are in place, still more than $2 trillion is laundered every year and everyone has to pay the price. Every crime, involves money laundering in some form or the other, which means criminals need to disguise their ill-gotten profits in some way or the other. Around 2 to 5 percent of the total world’s GDP is lost through money laundering. In turn, in order to avoid and prevent such money laundering scandals, banks are forced to spend $8 billion annually, just to secure their operations and to remain compliant.

Complying with AML and KYC laws has become a norm every bank has to follow. Failure to abide by these laws not only attracts a heavy financial penalty, but also causes a big blow to the identity of the banks/financial institutions. In 2012, HSBC ended up paying $1.9 billion to resolve charges against its name, since it was involved in a conspiracy of drug money laundering. Smaller fines have been imposed in other banks as well, which include the likes of Standard Chartered bank, Wachovia bank, and many others.

About Melissa 

Since 1985, Melissa has specialized in global intelligence solutions to help organizations unlock accurate data for a more compelling customer view. For more information on eKYC and AML please visit www.Melissa.com.

Bobby Joseph: Bobby Joseph - Helping & advising Enterprises on Data Quality, proposing the right tools & solutions in the DQ space at Melissa