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What Forex Services Need to Know About KYC & AML

Five trillion – that is, on average, the dollar value of all the trades in the forex (foreign exchange) market on any given day, according to Reuters. A large part of the market is dominated by G10 countries, even as emerging markets increase their share of the market every year. All these factors make foreign exchange an exciting and vibrant space, with intensely competitive forex businesses trying to maximize their share of the massive market.

Clearly, the space presents opportunities for massive growth; at the same time, forex trading has always been highly regulated. In the last ten years alone, substantial regulations on forex trading have been passed in the US and the UK. These regulations have important implications for forex platforms and brokers, particularly on how they onboard clients. Indeed, how can forex businesses onboard more clients and increase revenue on the one hand, and comply with regulations, along with preventing fraud, on the other?  

How regulations impact forex platforms

As forex trading is a global activity, there isn’t one set of regulations that applies to forex platforms; instead, they are subject to a multiplicity of regulations, depending on the regions where they operate. For forex businesses, the regulations that, arguably, have the most direct impact on their customer onboarding are Anti-Money Laundering (AML) and Know Your Customer (KYC).

These regulations require forex businesses to carry out their due diligence on their customers; and so, verifying the identity of their customers is a crucial step in that process.        

Forex services and identity verification

Verifying the identity of a customer that is signing up for a forex account helps determine whether the customer is indeed who they say they are. Screening their names against AML watchlists helps ensure that they haven’t, historically, been associated with financial crimes such as money laundering — this helps prevent fraud by surfacing bad actors before they can potentially start misusing a forex service.  

But these requirements should not make the onboarding process for customers any less convenient. Forex trading, as such, has, over the years, been democratized — what was done exclusively by traders on trading platforms can now be done by anyone on their mobile device. But while identity verification processes are standard operating procedures for forex brokers and platforms, many still rely on manual procedures that are slow, inefficient and prone to error. In this day and age, when users can download a forex trading app in seconds, it makes no sense to burden them with a slow onboarding process. Most customers just want to start trading; lengthy delays, on account of manual processes, can often lead to customers abandoning the forex service even before they have been fully onboarded.

Then, there’s also a huge opportunity cost in dedicating precious man-hours to manual processes. Besides, having staff manually check identities can often lead to data entry errors.

On the other hand, using electronic identity verification (eIDV) allows staff to focus on more value-additive tasks and improving their productivity. For forex businesses, ensuring AML and KYC compliance is necessary; eIDV allows companies to onboard customers quickly, while allowing them to successfully fulfill their compliance requirements and minimize the possibility for fraud. Clearly, companies that implement eIDV have a competitive advantage over those that don’t.

 Customer success story: IBFX

Learn how a global foreign currency exchange streamlined its account opening process in China.

The information in this blog is intended for public discussion and educational purposes only. It does not constitute legal advice.

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