Customer Due Diligence Process Automation: Optimizing Regulatory Adherence

Customer Due Diligence Process Automation: Optimizing Regulatory Adherence

Customer Due Diligence process automation helps enhance efficiency in countering money laundering and terrorist financing. It allows DNFBPs to onboard and manage customers by using modern solutions and technologies to retrieve and evaluate data, determine risk levels, and make customer onboarding decisions based on results. The automation streamlines AML compliance efforts, reduces manual errors, and enhances the effectiveness of their risk management strategies.

This infographic provides insights into customer due diligence automation to optimise regulatory adherence.

1. Know Your Customer (KYC)

The first level of CDD is “Know Your Customer” (KYC), which involves identifying and verifying the customer’s identity and understanding the nature of the business. Different automation tools are required for different elements of KYC.

a) Customer identification and data collection

This step identifies customers using information collected from various sources, such as customer forms, online databases, and third-party providers. Automating this requires tools and software that can automatically gather relevant information. Further, DNFBPs must ensure that the data collection process complies with regulatory requirements and data security protocols.

b) Customer verification

The verification process confirms the accuracy of information collected from different sources. To automate this step, DNFBPs may employ tools that use face-match technology, verify biometrics and documents and verification algorithms. Further, while choosing tools, they must also consider predictive analytics models that validate customer data against predefined patterns and historical records.

2. Name Screening

This process involves checking customers against various data such as national and international sanction lists, watchlists and adverse media sources.

For this step, DNFBPs can use sanction screening software, which regularly updates and scans customer data against relevant databases and watchlists, such as data pertaining to Politically Exposed Persons and targeted financial sanctions. Additionally, DNFBPs should also implement adverse media tools that scan customer data against various media sources and identify potential matches.

Furthermore, they must develop protocols that are within the software for reviewing and investigating potential matches to mitigate false positives and ensure compliance.

3. Customer risk assessment

This step assesses customer risk based on factors such as transaction history, industry, and geographic location. DNFBPs can implement risk assessment and rating tools that automatically assess the AML risk based on the customer’s profile, risk factors and weighted parameters. Further, such tools should align the criteria with regulatory guidelines and update risk profiles periodically.

4. Enhanced due diligence

When customers are categorised as high-risk, it is mandatory for DNFBPs to conduct EDD. To automate the EDD process, DNFBPs can use tools that have AI-powered analytics systems to identify unusual patterns or anomalies that may require further scrutiny.

5. Ongoing monitoring

After onboarding customers, it is necessary for DNFBPs to continuously monitor customer activity for changes in risk profiles, customer business relationships or transaction patterns they usually indulge in.

a) Monitoring Customer Risk Profile

DNFBPs can set up software that employs technology to automate alerts and triggers based on their predefined risk indicators. Additionally, when selecting a tool, they should ensure that the tool has review processes for alerts and periodic re-assessment of risk profiles within its system.

b) Transaction Monitoring

For this, DNFBPs can implement transaction monitoring software and tools that automatically flag suspicious activities based on predefined rules and anomaly detection algorithms. Ensure that systems analyse vast amounts of transaction data in real-time and generate alerts for further investigation.

6. Reporting suspicion

As a compliance obligation, DNFBPs must report any suspicious activity on the goAML portal. In order to automate this process, DNFBPs can install reporting tools that aggregate data and generate customised reports automatically as required by authorities. They must ensure that the implemented system is capable of producing reports that include necessary details for compliance audits and regulatory filings, following regulations and internal policies.

7. Record maintenance

It is mandatory for DNFBPs to maintain records for CDD and further maintain them for five years after transactions are completed or termination of business relationships. To make this easy, DNFBPs can automate the entire record-keeping process by implementing tools that help maintain a centralised repository for AML records. Further, they can choose AI and machine learning tools for records and data security measures.