Across financial services, KYC certainly isn’t new and has long been a principal way for firms to verify the identity of clients. In fact, it’s a key condition of compliance for regulators, ensuring firms accurately establish the customer’s identity.  

But as money laundering and serious finance crime has advanced and criminals have grown more sophisticated, the demands of KYC have moved far beyond just onboarding. It is now a fundamental part of a firm’s ongoing compliance procedure, ensuring firms identify risks posed by both new and existing clients.  

Changing landscape 

While in previous years this may have meant checks annually or every few years after initial onboarding, the changing global landscape has made this approach untenable.  

The coronavirus outbreak brought major challenges for regulated businesses with lockdowns meaning they had to identify new clients remotely.  

Even as the country has re-opened, this change in behaviour continues. It not only impacts how firms engage with clients with less face-to-face interactions but makes it much harder to accurately identify customers and weed out bad actors. This has undoubtedly created a loophole for money launderers and criminals to exploit.  

To add insult to injury, the ongoing war in Ukraine and the thousands of sanctions levelled against Russian nationals has only increased the compliance workload. According to government sources, the UK has sanctioned more than 120 oligarchs with a global net worth in excess of £140 billion.  

With a traditional KYC approach and even annual reviews, it will be far too easy for firms to unknowingly become enablers for sanction evasion. This is especially true as the number of sanctions increases almost on a daily basis and with the possibility of existing customers suddenly becoming subject to tighter restrictions.  

Adopting perpetual know your customer (PKYC) 

Regulators expect firms to take reasonable steps to ensure the customer information they hold remains accurate. In the current climate with the heavy burden of compliance, this requires a move to perpetual know your customer (PKYC).  

It’s a far more dynamic approach that’s better suited to the fast-paced, ever-changing landscape we currently find ourselves in. Reactive checks are replaced with proactive real-time monitoring, utilising hundreds of data sources including credit reference agencies to continually update client information and highlight any potential red flags.  

This method has been integral for regulated firms to stay on the right side of sanctions and meet the demands of both regulators and authorities. Digital compliance solutions such as SmartSearch can identify people subject to sanctions as well as Politically Exposed Persons (PEPs), Special Interest Persons (SIPs) and Relatives & Close Associates (RCAs) in minutes. 

Whether it’s a new or existing client, the platform will automatically trigger Enhanced Due Diligence and alert the user to any relevant matches. And thanks to direct feeds from data sources such as Dow Jones, Equifax and Experian, international individuals can also be verified and held to the same rigorous standards as UK checks.  

Electronic verification 

None of this is truly possible though without switching to electronic verification (EV). Instead of flawed manual checks using paper documents vulnerable to forgery, EV uses facial recognition, biometrics and AI to accurately verify identity. Not only is it more robust, but it is also far faster with hundreds of detailed checks completed in just seconds.  

With regulators placing non-compliance with anti-money laundering (AML) rules high on their agenda, this is a real opportunity for businesses to optimise their processes and create a clear audit trail. Plus, the advancements in digital onboarding create a frictionless experience for the customer, helping to reduce drop out and deliver a clear competitive advantage.   

Martin Cheek is managing director at SmartSearch