Just as it is in the best interest of an employer to thoroughly vet a potential employee, financial firms have the same obligation to meticulously scrutinise potential clients who want to make use of their products and services. This must be done comprehensively to mitigate any fraud or possible money laundering risks.
CDD is at the centre of anti-money laundering (AML) and know your customer (KYC) regulations and can be defined as the act of performing extensive background checks and related screenings on potential clients to ensure that there is a clear understanding of their risk profile before the onboarding process. Some of the risks that must be investigated include, but is not limited to, Source of Funds (SOF), Source of Wealth (SOW), Politically Exposed Persons (PEPs), beneficial ownership, sanction listings etc.
Since regulators across the globe have become more vigilant regarding regulatory compliance, it has substantially increased the pressure on firms to accurately mitigate their risks. This along with regular changes and updates to existing regulations, coupled with firms expanding their footprints across borders, have added to the complexities of consistent compliance while still trying to manage the costs linked to this process. This calls for a more focussed and targeted approach when it comes to CDD processes.
Identifying the core challenges
Having access to the most updated and accurate data has been a challenge for many firms over the years, simply because they must keep up with constant changing patterns in client lifestyles, having to pull data from various legacy systems that may not be in sync with each other, and having to rely on data from third-party providers. This could lead to ineffective decision-making when it comes to mitigating risk which is why data integrity is key to effective CDD processes. This is especially true since regulators require firms to collect broader, more in-depth KYC-related data sets compared to a few years ago; another reason why it is vital to balance speed and efficiency with effective compliance.
Bart Puszko, Director of Lysis Australia says that ‘As markets evolve, regulators are playing catch-up to uplift CDD requirements. Without a good roadmap in place, a firm’s compliance costs can increase substantially. This is where investing in ‘’next-level’’ technology can be a game-changer’.
Having a competitive advantage
To ensure that firms comply with CDD requirements will remain a challenge due a constantly evolving environment. However, when firms invest in the right technology that can produce reliable and accurate data, along with adequate staff training, and a robust financial crime framework, they could have a competitive advantage in the market.
This will require a holistic regulatory approach and the necessary expertise linked to this does not always reside inside the firm. This is where the Lysis Group can add substantial value to the process. Since 2001, the Lysis Group has established itself as a global leader in the field of financial crime compliance and Client Lifecycle Management (CLM) and delivers a unique combination of expert consulting, managed services, training, and resourcing on almost every continent.
The services can be tailored to specific requirements and is delivered by professional teams that can be scaled as required. Our staff are compliance and operations professionals with experience within major financial services firms and are trained accordingly. Partnered with iMeta technology, the services are complimented by a world-class CLM workflow solution.