What’s it worth? Exploring the real value of Know Your Customer checks
The National Crime Agency estimates that money laundering costs the UK’s economy £24bn each year. Know Your Customer (KYC) checks are one safety net to help protect businesses from this risk.
KYC checks help businesses to distinguish between favourable and unfavourable clients. They are a legal requirement for organisations covered by Anti Money Laundering (AML) legislation but can also provide additional safety and assurance for any company working with new clients.
However, the disruption caused by Covid-19 – including the inability to conduct face-to-face identity checks and the increased pressure on financial resources – is causing many businesses to let KYC and AML procedures slide.
Covid-19 and cutting corners
Most businesses understand the importance of KYC checks but historically many have found it difficult to stay on top of compliance due to constraints around budgets, resources, processes and staff training. With Covid-19 bringing a new set of challenges, the pressure to uphold the proper procedures has increased even further.
According to financial markets data provider, Refinitiv, 65% of organisations admit to taking shortcuts with KYC checks and due diligence during the pandemic. The lack of face-to-face contact in particular, has been a major barrier for verifying identity documents in person. Moreover, Covid-19 has strained companies’ finances and as a result, KYC checks are often de-prioritised. The same study found that 73% of respondents felt they were ‘under extreme pressure’ to boost revenue due to Covid-19.
While the pandemic has brought new obstacles for carrying out KYC checks, the lack of face-to-face interaction has also widened the window of opportunity for identity and financial fraudsters, opening companies up to greater risk. In this climate, staying on top of KYC and AML compliance is more important than ever.
What are the risks?
KYC checks are much more than a tick-box activity. Compliance aside, they protect organisations from real risks such as unintentionally assisting terrorism or organised crime and engaging with fraudsters. Additionally, failing to meet AML requirements can result in hefty fines and even prison sentences, as well as impacting reputation and therefore the future of the company.
Regulators are hot on enforcing compliance, and you don’t have to look far to find examples of companies that have been caught out recently. Over the last year in the legal sector, 273 AML breaches were reported to the Solicitors Regulation Authority, with just over 10% resulting in enforcement actions culminating in fines of £160,000. Likewise, German neo bank N26 has recently been fined €4.25m by the German financial services regulator for poor AML practices. This raises an important question: is cutting corners on KYC checks worth the risk?
A simple solution
While customer due diligence checks can be time-consuming and costly on a company’s resources, technological innovation can address these concerns. Refinitiv found that 86% of organisations agreed that digital technologies have helped identify financial crime. Similarly, those who regularly use technology to prevent risks associated with financial crime are far more likely to establish a collaborative relationship with law enforcement agencies than those who don’t.
At TrustID, we have developed a quick and affordable solution to support KYC checks for AML compliance. Using a unique combination of automated technology and human expertise, our service verifies identity through assessing the authenticity of global identity documents. There are also options to include additional PEP and sanction checks, ongoing monitoring and address verification. For businesses that are onboarding customers remotely, TrustID also offers face biometrics to confirm that the document holder matches the person presenting it.
Tim Wheeldon, COO of Fluent Money, the UK’s largest second charge distributor, attests: “TrustID has provided us with one of the most advanced ID scanning systems available. This purchase takes our regulatory and compliance procedures to a new level and helps us ensure that we have done our utmost to eradicate identity fraud in our industry”.
Ensuring your organisation’s compliance with the latest legislation and protecting your business against fraud is critical. When such a simple and affordable solution exists, cutting corners on customer due diligence simply isn’t worth the risk. For a quick overview of how TrustID KYC checks work, watch our video.
Want to find out more?
If you’d like to discuss how remote identity checks could support your AML compliance, please get in touch. We’d be happy to arrange an online demo.
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Tony Machin
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In 2020, HMRC issued a record fine of nearly £24 million to a money service business called MT Global for breaching money laundering rules. One of the offences committed was failing to conduct ‘fundamental’ due diligence which involves verifying a customer’s identity and, where appropriate, their line of business.
Managing AML compliance in uncertain times
Tony Machin
July 1, 2021
I recently wrote an article which appeared in ‘The Accountant online’ looking how accountants can conveniently comply with Know Your Customer (KYC) and Anti Money Laundering (AML) requirements in a fast-moving business environment. Read on for a summary of the article.
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