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Five Solutions to tackle business verification challenges

James Efron
February 03, 2020
4 minutes read
2191

Know Your Customer (KYC) is critical for verifying the clients before doing business with them, but to authenticate businesses is as important as KYC for individuals. This is why regulators are increasingly focusing on business verification to help prevent money laundering and terrorist financing. Business verification, which includes authentication of businesses, UBO identification, and risk assessment of business entities, is been included in the new AML directive of the European Union, as well as other major regulatory authorities. Know Your Business (KYB) services market is projected to grow $11.8 billion, according to an OWI lab report.

Corporate KYC isn’t just a regulatory requirement it helps businesses in identifying the shell companies and other corporate structures involved in illicit funds transfer. The disruptive technologies like artificial intelligence, machine learning, and automation are creating opportunities for quick and real-time customer due diligence and KYC verification. However, many of these solutions focus on KYC for individual and retail customers.

Verifying businesses in the past has been a difficult and time-consuming task. Normally the KYB process for financial institutes to verify the corporates involves manual checks and physical verification, which makes it more tedious and lengthy.

Challenges associated with business verification

With the new KYC/AML regulations, business is required to verify customers, corporate clients, and other critical information. However, there are multiple challenges when verifying a business client and some of them are:

Time taking manual onboarding process

Normally, KYB verification for corporate onboarding is a tedious and manual process, requiring intensive labour. These delays lead to frustrating customer experience and customers are more likely to abandon the account creation process. Moreover, there are chances of errors and mistakes when it’s done manually.

High compliance cost

According to a report, the average KYC cost for businesses crossed $48 billion in previous years. This includes manual labour and third-party payments. All this is raising concerns about AML and KYC compliance costs becoming so high that they prevent businesses from being able to perform other daily tasks.

Complex ownership structure

Latest KYC/KYB regulatory directives such as AMLD5 and FinCEN CDD rules make it necessary to verify and identify the business entities as a mandatory regulatory requirement. Financial institutions are reliant on collecting business details from clients through a manual process by filling in forms and then verifying the information manually. There are high chances of data discrepancies to slip in.

Data inconsistencies

While companies could somehow afford all manual works but a problem that still persists is data verification sources. There are many sources where companies’ data can be found, and sometimes the information available on some file is outdated or incorrect.

Addressing the challenges

With an increase in regulatory requirements, there is a need for developing an appropriate procedure and process that facilitate financial institutes. Here are some solutions that could help businesses:

Automated KYB onboarding

By employing the latest technologies, automated business verification solutions can solve these problems. AI-powered corporate verification solutions will provide an opportunity to enhance the efficiency of the corporate onboarding process, by reducing the cost and making it faster.

Ongoing monitoring for business verification

Businesses should monitor their corporate clients regularly to identify and monitor any changes in the company’s structure, the appointment of new executives, and changes in beneficial ownership. This practice also helps in monitoring PEPs continuously. It will assist companies in adopting a structural approach for business verification.

Access to authentic business registries

As discussed earlier, access to the correct and most updated data is a challenge in performing business verification. However, if the companies have access to the correct and most up to dated business registries is valuable and will make business compliance an easy task.

API integrated KYB solutions

Shufti Pro’s API integrated solution aggregates data from various sources, so businesses only need to enter the required details such as the business registration number and the jurisdiction code where the business is operating. This centralized verification help manage the complexity involved in onboarding and monitoring corporate clients.

Virtual Identification

With an increasing compliance cost, businesses are now turning towards automated software that helps businesses to perform necessary business checks. Shufti Pro’s KYB verification solution is specifically designed to reduce extra compliance costs and dealing with complexities involved in working with high-risk clients.

As the global business markets are growing at an increased pace, companies need to get grip on customer due diligence for both individual and corporate clients.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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Record-Breaking Fines on Banks for KYC/AML Non-Compliance
Challenges associated with business verification
Addressing the challenges
Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance have been structured to make financial institutions secure. The rising number of illegal activities in the finance sector is raising concerns for regulatory authorities. This year, the KYC/AML regulations have become more rigid and different countries have also amended their state laws for customer due diligence. Why are all the regulatory authorities imposing more stringent laws in 2021?

In 2020, the majority of banks were fined for not complying with KYC/AML regulations. The law violations increased significantly and record-breaking penalties were imposed on banks across the globe. This led law enforcement agencies to make certain changes to the regulations and customer due diligence protocols. The record-breaking penalties in the finance sector have changed the game for businesses.

Let’s take a deep dive into the largest penalties of 2020 and how can KYC/AML regulations help the finance sector to avoid them in 2021.

How to Comply with KYC/AML Regulations?

Compliance with KYC/AML regulations require robust Anti-Money Laundering (AML) screening and Know Your Customer (KYC) identity verification measures. These measures verify the identity of every customer and ensure that legitimate customers are onboarded. With the help of document verification and biometric authentication, it gets easier to follow the laws.
Recommended: The Future of Customer Onboarding Post-COVID-19 Pandemic

A Summary of 2020 Bank Fines

2020 brought several inconveniences to life and the most distressing challenge was fighting fraudsters. Identity theft and money laundering were the most reported crimes last year. Unfortunately, the inability of financial institutions to verify identities of customers increased money laundering and other illegal activities. Here is a summary of fines imposed in 2020:

Goldman Sachs Tops the List

The US was ranked number 1 with the highest number of bank fines enforced in 2020. 12 cases of AML non-compliance were reported and the sum of all these fines was €9.39 billion. The fine on Goldman Sachs alone was €3.30 billion. The settlement was made by the bank with Malaysia against the Wall Street Bank for its role in assisting to raise millions for a sovereign wealth fund.

Commerzbank Fined £37.8 Million by FCA

The Financial Conduct Authority (FCA) imposed a £37.8 Million fine on the Commerzbank, London. The fine was a result of the bank’s violation of AML controls. According to reports of FCA, the violations will result in huge risks and stability issues of the UK’s financial system. The audit from FCA shared the following reasons on the basis of which the bank was penalised:

Periodic due diligence failures

Insufficient money laundering control procedures

Inadequate risk management systems

Westpac Paid $1.3 Billion for AML Breaches

Last year, Westpac bank in Australia was number 5 on the list of banks with the highest penalties. The court penalised Westpac with a fine of $1.3 billion. AML laws were breached at different intervals. Westpac not only violated AML/CFT laws but also failed to employ transaction monitoring and did not submit IFTI reports to AUSTRAC. Furthermore, the bank did not perform enhanced due diligence for high-risk transactions as suggested by FATF.

SEB Bank Fined $107 Million for Poor AML Measures

Next in the list of KYC/AML non-compliance is Lloyds Bank that was fined $107 million by the City watchdog for unfair treatment of mortgage customers. According to the executive director of enforcement and market oversight of Financial Conduct Authority (FCA),

“Banks are required to treat customers fairly, even when those customers are in financial difficulties or are having trouble meeting their obligations. By not sufficiently understanding their customers’ circumstances the banks risked treating unfairly more than a quarter of a million customers in mortgage arrears.”

Reasons Behind Hefty Penalties on Banks

The major reason behind all these hefty penalties is the banks’ inability to follow the regulations imposed by higher authorities. However, there are several other reasons resulting in increasing fines and growing rigidity of regulations. They include,

Consistent failures to comply with the Anti-Money Laundering laws

Lack of proper customer due diligence

No transaction monitoring measures taken

Overseen cases of compliance monitoring

Did you know that the highest number of cases of AML law violations have been reported in 2020? Here’s an overview of the number of cases reported last year:

82 cases of transaction monitoring

109 cases of poor AML compliance

115 cases of lack of customer due diligence

If banks continue to lack robust verification and AML systems, the numbers will increase this year as well.

Suggested: A Comprehensive Guide to AML Compliance [2020]

What Can You Do to Prevent Fines in 2021?

Other enterprises in the finance sector must comply with the KYC/AML regulations at all costs. Otherwise, heavy penalties will be their fate in 2021 as well. How can banks and other financial enterprises prevent fines this year? Well, here’s what you should do:

Take a look at the amended laws from regulatory authorities

Audit your current identity verification protocols

Ensure robust KYC/AML compliance measures within the company

Never onboard any customer without verification

Always perform enhanced due diligence (EDD) checks for high-risk customers

Ongoing transaction monitoring must be employed to prevent money laundering

Read more: Shufti Pro’s Ongoing AML Solution to Prevent Transaction Laundering

How Can Shufti Pro Help You?

Penalties on financial institutions are increasing every year and 2020 broke records. The major reasons for hefty penalties included poor customer screening and inefficient AML compliance procedures. Furthermore, damaged brand reputation is another setback for companies. In order to protect your organisation from criminal activities and heavy penalties, it is better to employ KYC/AML verification.

Shufti Pro is a one-stop solution for all your needs. With AI-powered identity verification and AML screening, you can verify all the customers during the onboarding process. Moreover, the ongoing AML screening allows you to screen the backgrounds of high-risk customers as per your requirements. With 98.67% accuracy of our solutions, you can get in touch with the right customers.

Talk to our experts and add robust identity verification protocols to protect your company.

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Five Solutions to tackle business verification challenges