As a result, the rate of financial crimes on the internet has increased dramatically. Additionally, the United Nations has highlighted that almost $2 trillion is laundered annually.
Fraud threats are evolving at a rapid pace, requiring financial institutions to respond immediately and fight them to protect their clients. Organisations involved in the financial sector can work effectively because they have access to an existing financial and knowledge-sharing infrastructure. They are interconnected not only to offer more accessible payment options but also to improve the detection and protection against financial crime and fraud.
Often, Anti-Money Laundering policies and processes will employ advanced mechanisms and various data sources, working together to deliver a good defence. Banking institutions and Fintech companies try to work ahead of the curve to predict potential problems early, and identify typologies that could turn into threats.
Dinu Popa, Head of Compliance and MLRO at Payrow, a British fintech startup, spoke to TLE about the modern solutions employed to detect fraud and financial crime as early and fast as possible.
Customer Due Diligence is a quintessential part of any relationship with a financial institution – it represents a collection of processes designed to collect and evaluate relevant information about a customer or potential customer. In brief, it’s about making sure people and businesses are who they say they are.
KYC (Know Your Customer) — this is a process that verifies the identity of a person. It may include checking identity documents or online identity databases (such as Credit Reference Agencies), determining the liveness of a person (such as the use of phone or computer cameras to detect the presence of a live user), as well as biometric data in some applications.
Companies attracting customers remotely have adapted to use electronic or database-led verification systems to comply with their regulatory KYC obligations. As a result, KYC processes have taken on an electronic form – eKYC (electronic Know Your Customer), helping diligence protocols adapt to an inter-connected digital world. These developments have also led to new ways of thinking about high-risk structures and individuals, and how to manage them in a digital infrastructure.
KYB (Know Your Business) – this is a process similar to KYC, but tailored for the identification and verification of organisations. Just as individuals, companies have various footprints across multiple systems, such as incorporation data, performance data, ultimate beneficiaries, changes in ownership and administration, et cetera. Gathering this information creates a comprehensive picture of an entity, assisting in fulfilling the regulatory obligations to know a business. Moreover, KYB (and KYC of course) are continuous Anti-Money Laundering processes that continue throughout the life of a customer, adapting as they go, and ensuring you’ll always know your customer.
KYB rules vary by jurisdiction but generally require firms to implement risk-based AML programs and conduct due diligence in their B2B relationships. This equates to collecting and analysing data such as registration documents, licensing, and the identities of the owners/directors to assess the level of risk that each new or continuous interaction may have.
A UBO (Ultimate Beneficial Owner), according to the Financial Action Task Force (FATF) — a regulatory body to combat money laundering and terrorist financing — is a natural person who ultimately owns or controls a business and/or the natural person on whose behalf a transaction is conducted.
Identifying UBOs is a critical part of the KYB process and a firm regulatory requirement. Guidelines around shareholding percentages to determine UBOs are provided by law, and some institutions may take a stricter view on where the UBO thresholds are drawn, depending on their risk profiles, but never more relaxed than the law prescribes.
KYC/KYB processes have grown to become commonplace in the financial world — on one hand, regulatory requirements are strictly enforced; on the other hand, comprehensive KYC/KYB promotes transparency in business relationships and, ultimately, better defences against fraud and financial crime.
This growth, however, did not come easily — some financial institutions have struggled to evolve at the same pace with new technologies, ultimately creating friction during their onboarding and continuous monitoring journeys. This delicate balance between KYC/KYB requirements and customer friction is not easy to get right — it takes good technology and excellent planning to achieve. Taking days to onboard a business customer in 2022 simply won’t cut it — customers expect better. Thankfully, this sector is now growing rapidly, particularly with the emergence of new tools and services that can help identify persons and businesses. . Using the most modern of services and data providers, Payrow can onboard business customers in as little as a few hours, seamlessly and efficiently.
In addition, Payrow welcomes businesses with complex ownership structures. A dedicated team for complex onboarding is on stand-by to understand, onboard, and serve business customers that have a more complex ownership structure. The team shares more than 3 decades of experience in working with complex structures, both in Corporate and Fintech environments.
“KYC and KYB processes will have to adapt, evolve, and be mindful of the balance between safety and the speed requirements of the modern finance world. At Payrow, with the help of our cutting-edge technology partners and our team’s unique blend of experience, we are ready for the future” — commented Dinu Popa, Head of Compliance and MLRO at Payrow.
Improving safety and confidence in doing business will be a never-ending journey. Threats evolve just as defences do — fraud prevention and counter-financial crime efforts will always require fine-tuning, a wealth of experience, and strong legislation to back them up.
