Accurate AML Compliance with KYC Automation

Accurate AML Compliance with KYC Automation

Know Your Customer of KYC, as we call it, is the fundamental criterion for starting a business relationship with a customer. A robust KYC process helps businesses comply with the AML rules and regulations and identify any discrepancies in the customers’ profiles at the initial stages of establishing a business relationship. It helps identify forged identities often used to place the illegal money through the legal system and hide their origin or source. But manually managing and implementing the KYC process can be complex and challenging, especially in the fast-evolving digital environment, where the outcome expected is precise and immediate. Digital transformation in AML compliance requires an hour as these processes must combat financial crimes-related challenges arising from identifying and verifying the customers and business partners. 

For Know Your Customer KYC, businesses often depend on reliable external sources to verify and authenticate the information furnished by the customers. The onboarding process is deemed to be concluded when information submitted by the potential customer is screened/verified against the data made available by third parties. It includes the government agencies that manage the company registration and incorporation work and agencies involved in overseeing the credit scores and risk management. Such information is available and accessible in the public domain on their web products or via APIs. Businesses can access this valuable information via hard copies or digitally to ensure they have all the required information at their disposal when carrying out the KYC process. 

The KYC files consist of primary and secondary documents. The primary documents are the ones that act as supportive evidence from trustworthy independent sources. At the same time, the secondary information includes reporting of the compliance specialists that reveals the data analysis, interpretation, and the results derived from the analysis. 

Businesses need to liaise with such agencies to help them verify the authenticity of the documents furnished by individuals and entities proposing to establish a business relationship. It will help them carry out the due diligence process and ensure that they associate with only legit businesses with no criminal records or intention to get involved in money laundering activities. 

Most KYC process includes employees manually creating documents. Team collaboration in AML compliance depends on documents shared in drives and sent via email. These KYC files are shared and accessed, and the compliance team collaborates online to complete the KYC process. Earlier manual downloading of the KYC files was cumbersome, and KYC became an overwhelming process for both small and large designated organizations. 

Creating digital customer profiles with access to complete customer data helps businesses achieve full AML compliance. Digitization has streamlined the KYC process and made it more manageable and cost-effective. Now, with the help of technology dedicated to efficiency in the compliance processes, such as AML software, companies can complete the KYC process in a relatively short period with more effective and accurate results. They can offer a smooth onboarding process and an enhanced customer experience. 

Disadvantages of Manual KYC 

There are several disadvantages of manual KYC processes, which urge businesses to move towards digitization and create digital customer profiles. Collecting the customers’ information, organizing, and storing it manually is a burdensome task that leaves business organizations no time to focus on growth. Instead, they are tied up between the complex compliance requirements and fulfilling the basic needs of the KYC and due diligence for its customers. Let’s know why business organizations should reduce dependency on manual KYC drastically. 

Information gathering is a time-consuming task and therefore delays the customer onboarding process. It leads to a bad customer experience, involving too much correspondence between the parties, damaging the company’s reputation. 

Human errors are also a factor that makes companies consider minimizing dependencies on manual efforts. Errors can enable criminals to misuse an organization’s financial system and exploit the resource to launder illegal money. In addition, improper implementation of the policies does not yield the desired results and leads to discrepancies in the entire compliance process. Errors can jeopardize the whole compliance exercise and render the KYC process ineffective, which makes the organization more vulnerable in the hands of criminals.  

In such a scenario, businesses attract penalties and fines imposed by the government and the concerned authorities. Regulatory action is taken against firms that do not implement the KYC process diligently.  

Digitization and automation can help businesses streamline the KYC process, avoid all the problems mentioned above, and ensure AML compliance. 

Accurate AML Compliance with KYC Automation

KYC Automation

Integrating the AML software to make the KYC process more manageable, robust, and efficient would be the optimal suggestion. Digitizing the KYC process will ensure a digital customer profile that can be easily created, accessed, and stored, managed while collaborating with the compliance team. It will provide accurate results and help businesses detect any anomaly early in the compliance process, starting from customer onboarding. 

With real-time updates, the whole team is on the same page and can work effectively to combat money laundering and financing of terrorism. The technology unifies information and presents data in an easy-to-understand format helping the team analyze and derive accurate results. So, automating the manual KYC will help businesses implement the KYC procedures correctly and assist in accurate risk assessment and management. 

Manual vs. Digital KYC

The best way to bring efficiency to the KYC and other AML compliance frameworks is to leverage technology that provides quick and accurate results and reduces the dependency on human resources. Manual processes are fast becoming redundant as the evolving technology is streamlining the KYC process and delivering results in a blink of an eye. So, businesses can free their workforce from manual and mundane tasks and instead direct them towards solving more complicated tasks, focusing on the growth of the business’s core operations.  

Social media has become a potent source of real-time information that companies can easily access anytime. Businesses can get the customers’ details from online sources and analyze the customers’ accounts digitally to arrive at the correct conclusion. 

With the updated and correct information, businesses can make informed decisions regarding the authenticity of the documents furnished for KYC. They can identify forgery of any kind during the onboarding process and avoid any mishap of financial crimes. 

KYC requires collecting and verifying customer data, which businesses monitor throughout the business relationship journey. Continuous monitoring helps detect changes in the customer profile. Creating and updating customer profiles manually is daunting; therefore, relying on technology and creating customer profiles digitally is advisable. With a digital profile, the compliance personnel can easily track all the customer data and compare it with the current profile to analyze changes. With continuous monitoring, businesses can detect any unusual customer behavior and immediately track any suspicious activity with the help of technology. Mapping the original customer profile with the updated profile with accuracy is possible only with technology.  

Often mergers and acquisitions and business expansions lead to ownership and management structure changes. Therefore, updated changes in the digital customer profile will help businesses analyze any change in the customer profile – such as the identification of the Ultimate Beneficiary Owner (UBO) or a customer who might have become politically exposed (PEP). It is noteworthy that the primary and secondary information is not helpful in isolation. Instead, it is interdependent, so the compliance team must depend on both to get a clear and better understanding of the KYC files and make informed decisions on establishing a customer relationship or executing any transaction. 

Manual KYC processes are tiring with no control over information and collection, slows down the entire KYC process. It is time-consuming and often characterized by human errors. 

Final Words

Using technology for AML compliance is the way forward for all businesses. Today, software that works on AI brings the much-needed proactiveness and efficiency that companies need to comply with the ever-changing AML regulations. Automation with the help of AML software makes the KYC process more accurate and cost-efficient. It saves precious time for the organizations, which they can allocate to core business functions. Technology helps efficiently implement the AML policies and ensures 100% adherence to the AML laws.

Moreover, it reduces operational costs to a large extent by reducing human dependency on the completion of the KYC process and the occurrence of human errors. The technology makes data collection, storage, and retrieval quick, easy, and effortless, simplifying the AML compliance process. 

AML UAE is there to assist you in the KYC automation process by identifying an appropriate AML software to address your unique business requirements. 

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About the Author

Jyoti Maheshwari

Chartered Accountant

Jyoti has over 5 years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.