The Know Your Customer (KYC) process aims at keeping the corrupted politicians and tainted funds out of the premises of the financial system.
The banks and other financial institutes are vigilant with respect to regulatory compliance, especially KYC authentication for the verification of each on boarding identity.
In the KYC verification process, another important aspect is to screen the customers against sanctions lists, global watchlists, and list of Politically Exposed Persons (PEPs).
Compliance is mandatory for financial institutions (FIs) to secure the reputation. As well as to avoid regulatory fines which can be ensured by integrating systems with best KYC providers.
Importance of KYC Authentication and PEP screening
The PEPs who perform transactions in the financial systems put the institutes at high risk. The regulatory evaluation screens the financial institutions country wise to determine the KYC and AML measures taken by them.
In the case of discrepancy in the KYC Authentication or ongoing AML checks, the institutes face harsh fines and penalties.
In the ongoing screening, the transactions are monitor, the threshold is check for each transaction and how frequently the transactions are perform.
KYC verification process should not be complete just one time i.e. during customer on boarding or account registration. It should be complete frequently after a certain time period. Therefore the following measures must be take to fully comply with regulatory obligations:
- Integrate the system with trusted KYC service providers.
- To make sure that the identification of each individual should be complete against the update global records, verification should be complete by the databases holding all the data in one place.
- Ensure a risk-based approach which means that for each individual, after KYC authentication as well as ongoing AML checks, assign a risk rating to each individual against the profile.
- This helps the organisation determine how much an entity could be risky for the institute.
- An automated ongoing individual monitoring should be done throughout the customer lifecycle.
- For example from the day the individual became part of the financial system and with the routine it is performing transactions.
- All activities should be monitor to deter the risks of non-compliance and bad entity in the system.
Customer Due Diligence Process
As per regulatory requirements, the Customer Due Diligence (CDD) process, along with KYC authentication includes ongoing AML checks.
Ongoing AML screening helps check the identity continuously against criminal records. Neglect in compliance can lead to fines and reputational damage. Between the years 2008 and 2018.
The regulators globally charged about $27 billion fines to financial institutions as a result of non-compliance with identity screening against watchlists.
For example, in 2014, BNP Paribas was levied $9 billion and $1.1 billion was charge to Standard Charter in the year 2019.
In the UK and US, KYC authentication and ongoing AML checks are mandatory as per regulatory bodies.
The identification of accounts of political personalities that are under corrupt lists is a requirement in the states.
In the US, the definition of PEP is an individual who has a senior post of public trust or they are some close people such as professional associates. Family members or people who perform transactions on the behalf
In the United States, the broad definition of PEP is someone who holds a senior position of public trust or people close to them. Such as family members, professional associates, or people who conduct transactions on the behalf of that person.
Whereas in the UK, PEP is apply only to the people who have a high public office. The associates and family members of PEPs are deem high risk for which Enhance Due Diligence processes and procedures are require.