Know Your Customer (KYC) is the backbone of the processes by which financial institutions (FIs) verify clients before doing business with them. Regulators are increasingly focusing on KYC to help prevent the growing threat of money laundering. But properly assessing business accounts is just as important. Corporate KYC, which vets the business or corporate entity and beneficiary owners trying to establish a relationship with a financial institution, helps uncover shell companies and other corporate structures that also enable the normalization of illicit funds.
The emergence of disruptive technologies such as artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA) has created opportunities for many startup-driven RegTech products in the KYC and AML space. However, many of these solutions focus on problems verifying retail customers. But the corporate side is where the challenges are significantly more complicated.
Corporate onboarding has traditionally been a complex, unstructured and cluttered process. The current corporate KYC processes for FIs to get to know their clients are lengthy and tedious, and they involve verification through physical paperwork and manual checks. With the onset of new KYC/AML regulations, FIs are required to identify and verify the customer, the Ultimate Beneficial Owners (UBOs), the nature and purpose of customer relationships, and other critical data points.
The challenges associated with corporate KYC are multifold, and include the following:
Challenge #1: data quality and inconsistencies
There are various different sources where company data can be found, and sometimes the information on file is out of date or confusing. For example, the legal entity has one name but is doing business under another.
Solution: access to government business registries
The source of truth is government business registries. Unlike other data sources that aggregate information, the registry holds records from every entity ever in existence, whether on paper or in digital form. Access to such government business information with a tool that goes straight to the source of company data is valuable in performing corporate KYC verification.
Challenge #2: time-consuming and laborious corporate onboarding
Traditional onboarding for corporations is a time-consuming, labor-intensive and manual process. These limitations can lead to frustrating delays for customers, forcing them to abandon the account creation process. Moreover, such manual processes are also prone to error.
Solution: API-integrated corporate KYC solution
API solutions aggregate data from varied sources, so you only need to input the data once to perform an in-depth KYC check. This centralized process can help manage the complexity of onboarding and monitoring customers, ensuring that a business is constantly protected from money laundering schemes.
Challenge #3: complex ownership structures
Global KYC/AML directives such as the FinCEN CDD Rule and the 5AMLD mandate the identification and verification of UBOs as a top priority on the regulatory agenda. However, FIs are reliant on gathering UBO information directly from clients through a back and forth of forms until KYC documentation is complete. It’s all too easy for data inaccuracies to slip in or for an organization to conceal ownership structures
Solution: access to shared UBO registers and commercial shareholder information
Given data quality issues with existing public registers, regulations such as the 5AMLD require that countries create public UBO registers (so far several of the EU member states have already started to introduce UBO registers). Access to government registers combined with emerging technologies such as AI/ML and NLP streamlines the process of identifying ultimate beneficial ownership and structure.
Challenge #4: increasing cost of compliance
According to a survey comprising 1,100 financial institutions and their corporate customers, financial institutions with over $100 billion in revenue spent up to $150 million in KYC costs in 2017, deploying, on average, 307 compliance professionals exclusively for KYC processes.
Solution: automated corporate onboarding
Implementing an automated corporate verification solution, powered by AI technology, provides an opportunity to enhance the efficiency of the corporate onboarding process in terms of both speed and cost reduction.
Challenge #5: growing regulatory demands to monitor customer risk at all stages
With the onset of the FinCEN CDD Rule and the 5AMLD, the emphasis is on FIs to develop clear, auditable processes to manage ongoing checks. Both global regulators and stakeholders increasingly expect that FIs be more aware of customer risk at all times.
Solution 5: ongoing monitoring for corporate KYC
FIs should monitor their customers regularly to receive real-time alerts or notifications to changes in company structure, new director appointment and beneficial owners. Moreover, this practice also helps them in performing continuous monitoring of politically exposed person (PEP), sanction and criminal watch list sources for the updated business information. As well, FIs need to access multiple data sets as part of the monitoring process, and doing each individually can be a drain on resources. Based on customer risk profiles, there may be some sets of data that FIs should monitor more frequently than others.
The new corporate KYC solutions leverage APIs, AI/ML, biometrics, and advanced optical character recognition (OCR) technologies to solve KYC/AML problems and bring a structured approach in the way business verifications are done in this day and age. The vast market potential (with the global KYB addressable market size to reach $11.8 billion by 2022), the growing API wave around the world, as well as the maturing of AI technologies, will enable banks, FIs and businesses around the world to onboard corporations in a much faster, easier and risk-controlled way.
Fully automate the retrieval of company vitals from government and commercial registers worldwide to help streamline workflows for Know Your Business (KYB) processes. Download our Business Verification brochure to learn more.