With the National Crime Agency (NCA) predicting that as much as £90bn is laundered through the UK every year, it just simply isn’t enough anymore for firms to assess clients at onboarding and periodically throughout the relationship.
This approach only generates a brief snapshot of the client or entity, whereas these days, businesses need a complete picture – and one that is constantly updated to alert firms to any anomalies or risks posed.
Yet the number of firms actually switching to a perpetual Know Your Customer (pKYC) model, particularly when it comes to their sanction obligations, is alarmingly small.
Worrying admissions
In our most recent survey of more than 500 decision-makers across the legal, finance, accountancy and property sectors, more than nine out of 10 firms – 92% – admitted they do not carry out daily monitoring of clients.
Without such due diligence, firms expose themselves to a greater risk of serious financial crime, as well as becoming an enabler for sanction evasion.
Among the regulated firms surveyed, the property sector faces the biggest risk, with 95% of firms not conducting daily checks – shortly followed by finance firms at 94%. Legal professionals such as lawyers, solicitors and conveyancers, as well as accountancy firms, made similar admissions, with 88% of firms in these sectors not implementing daily checks.
Regulators expect firms to verify the identity of individual and business customers, while taking reasonable steps to ensure any information they hold remains accurate.
Without increasing the frequency and quality of these checks, it’s incredibly hard for any organisation to prove that it truly knows its customer.
Neglecting sanctions
This is particularly pertinent as the UK government, along with the US and EU, announces a fresh set of sanctions imposed on Russian nationals and entities. The package of 50 new sanctions announced joins the UK’s growing sanction regime targeting Russia and serves as an important reminder to all regulated firms of their obligations to screen for sanctions and politically exposed persons (PEPs).
As the number of global sanctions increase, it is far too easy for firms with a traditional KYC approach to unknowingly become an enabler for sanction evasion. While checks at onboarding are still a critical step, tools such as annual reviews are no longer fit for purpose in this ever-changing landscape. After all, they just don’t match the pace of developments that could easily impact existing customers.
With severe penalties for sanction breaches, including fines and even criminal prosecution, it’s absolutely vital that regulated firms implement robust sanction screening and monitoring.
Adopting a perpetual KYC approach
Don’t get me wrong, KYC processes are still an essential part of any firm’s compliance strategy, and a very clear requirement of regulators. However, with the prevalence of money laundering and serious financial crime, the growth of the UK’s sanction regime and the increasing sophistication of criminals, the goalposts have shifted massively.
As a result, the demands of KYC are now far greater.
While firms don’t need to be told about how heavy the compliance burden is, the adoption of valuable tools and technology to help alleviate this still remains incredibly slow. In reality, by shifting to a digital compliance strategy and utilising platforms such as SmartSearch, firms can move to a perpetual KYC approach.
This is far more in tune with the requirements of the current climate and the high level of risk facing regulated firms.
Instead of reactive checks, a pKYC approach utilises real-time monitoring and hundreds of live data sources including credit reference agencies and international sanction lists to continually update client information. If any potential red flags are identified, the system automatically triggers enhanced due diligence and alerts the user.
By embracing cutting-edge technology and implementing pKYC, regulated firms across all sectors can transform compliance and achieve greater efficiencies.
This not only helps alleviate this burden, but it keeps businesses on the right side of regulators and ensures these complex tasks become just a standard part of a frictionless onboarding experience for the client.
