Compliance continues to be a hot topic in 2021

Mitigating Your Risks

In today's business environment, it's critical to know who your customers are. It is also a requirement in many industries for processes known as KYC for an individual or natural person and KYB for businesses and legal entities to be carried out before any business takes place.

For regulated entities such as those in the financial industry or services, this process is mandatory.

What is KYC or KYB? KYC or KYB is a process, which helps companies including financial institutions identify and further verify the identity of the customer be it a person or a business.

The process includes conducting identity verification of a person to ascertain they are who they say or claim to be and for a company, the process includes identifying the business ownership structure as well as its ultimate beneficiary owner.

It then goes on to ensure that the person or business is not associated or linked to criminal activities, are not listed on any sanctions or embargo lists and are not associated with adverse type information or media. The latter is actually a type of a reputational check or a check of allegations of links or association with adverse or unsavory practices reported in the media.

The KYC/KYB process is required primarily to prevent money laundering and the financing of terrorism which could lead to fines, licenses being revoked, assets or accounts being frozen, loss of hard-earned monies, or reputations being tarnished.

Global trading and operating entities in an interconnected world have to consider numerous regulatory processes when on-boarding their clients and take into account the changes which, may occur during their clients’ lifetime relationship.

By monitoring those clients continuously, it is possible to become aware of critical changes quickly and act upon them before any issues occur. An entity that is not sanctioned today, the next day could well be. Penalties for failing to meet regulators' stringent criteria or failing to perform a comprehensive and adequate client onboarding process or client lifecycle management may be serious.

KYC/KYB used to be a local issue in terms of characteristics; whatever needed to be done was done at the appropriate jurisdiction's location; this is no longer the case.

In today's business world, many companies have a global presence and aspirations for further international growth.

Regulatory demand for KYC and KYB is heating up in the US, EU, Australia, Hong Kong, Japan, Singapore, and many other countries where the reputation of the country and its market is held in the highest esteem.

Fines and Non-Compliance Risk

HSBC was fined over US$ 1.9 billion dollars in 2012 by the US authorities and narrowly avoided criminal prosecution for its failure to allow money to be laundered through its systems by drug cartels in one case and by moving money for terrorist-linked banks in another.

In 2017 Deutsche Bank was fined US$ 41 million for shortcomings in screening its customers.

In 2018, ING was fined US$ 900 million after it was found to have insufficient control of its customers’ due diligence process and failing to spot money laundering. Morgan Stanley was also fined US$ 10 million in the same year.

In 2019, Standard Chartered Bank was fined US$ 1.1 billion to US and UK regulators on a similar scenario for non-compliance and failing to conduct proper KYC/KYB checks and Due Diligence on clients of theirs.

In 2020, Goldman Sachs pleaded guilty for the first time in its 150 plus years of operations and was fined a record US$ 2.3 billion the largest in US history for financial crimes.

Between 2008 and 2019 it is estimated that a staggering US$ 26 billion was paid in fines cumulatively by financial institutions for failures related to KYC/KYB and AML. It is predicted that fines in 2020-2021 will reach a staggering US$ 400 billion as a result of misconduct and inadequate AML measures.

In many cases the overwhelming process of KYC/KYB and correct identity verification of customers on a global level has certainly been challenging, furthermore, the over reliance on traditional and time consuming manual processes has been the major challenge for corporations and financial institutions worldwide.

The 4th Anti-Money Laundering Directive 4AMLD and its successor 5AMLD set legal standards for identity verification and CDD Customer Due Diligence in the EU to prevent money laundering and illicit finance.

6AMLD, the next revision of the EU AML directive, which was implemented in December 2020 illustrates the consistent evolution of compliance requirements around KYC, CDD, UBO - Ultimate Beneficiary Owner, and the broader customer on-boarding process.

The inefficiencies of manual processes are readily apparent, and as a company's customer base expands, so does the work involved in manual KYC/KYB checks.

As a result, a significant amount of time and money is lost, during which time employees are more vulnerable to mistakes as their workload rises and increase the likelihood of non-compliance fines.

Customer dissatisfaction with lengthy procedures is also likely to result in lost business through application abandonment.

Electronic and digital KYC/KYB that is scalable is the solution.

Banks and financial institutions as well as payment service providers and e-commerce platforms to name a few are undergoing a digital transformation in the way their services are being offered to their customers with the end goal being increased customer satisfaction levels.

Customers need to access a banking or financial service digitally outside of the walls of a bank or a shop and outside of business hours through an app of their choosing (mobile or online platforms) on-demand, any-time, anywhere.

To make these institutions’ digital experience possible, they had to enhance their capabilities by foraying into the Banking-as-a-Service ecosystem either by building the BaaS technology themselves or by collaborating with service providers offering them secure, reliable, and compliant platforms.

To be able to scale up successfully while still maintaining the highest standards of KYC/KYB compliance, AML, Anti-Fraud, and Anti-Financing of Terrorism, companies must look instead towards digital and electronic KYC/KYB and identity verification.

It can be assumed that the human element will always remain part of the picture especially when it comes to complex, high-level decision making.

However, the initial checks during the on-boarding process are probably where the most time and labour intensive components of the entire KYC process take place, going digital is what will allow effective scaling of any company.

KYC and KYB are vital in fulfilling an organisation’s AML and regulatory responsibilities and the opportunity to minimise costs while maintaining adequate quality standards during the KYC and KYB lifecycle is one of the reasons why businesses should look to outsource their third-party processes and profit from the technologies available.

Cedar Rose provides its clients with reliable and comprehensive KYC compliance services that allows them to conduct verification on organisations and individual customers all over the world easily and conveniently.

Supported by a document retrieval service, compliance checks, and fresh on-demand investigations for due diligence enquiries, clients are able to address each case according to their risk and compliance policies.

Monitoring entities on an ongoing basis provides the client with instant notification should their customers become insolvent, blacklisted, or sanctioned is also part of Cedar Rose's value-added services to its clients. Such flexibility allows their clients to adapt to various complexities that are regular occurrences in b2b collaborations.

Effectively and correctly identifying a client at the on-boarding stage not only helps in maintaining compliance and kick starts the larger and ongoing process but will ensure that the correct legal entity is identified and the ongoing process is not compromised or misconducted.

At Cedar Rose we know not one size fits all and therefore can adapt our services and offerings to suit our clients' risk and compliance requirements.

Our 24-plus years in the business have taught us that our success relies on our clients’ success.

We have the necessary expertise, data as well as technology to deliver a world-class compliance and risk mitigation service to our clients.

Use our trusted digital identity verification, electronic KYC, and monitoring service to expand the boundaries and unlock your business's potential for enterprise gain and competitive edge.

Innovative and forward-looking companies are already enjoying the benefits of our solutions – don’t get left behind.