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Know-Your-Everything: The future of KYC and KYB compliance

Know-Your-Everything: The future of KYC and KYB compliance

Financial institutions typically conduct Know Your Customer (KYC) and Know Your Business (KYB) checks to comply with laws and regulations that require them to identify and verify the identities of their customers and to understand the nature of their businesses. These checks are designed to help financial institutions prevent money laundering, financing of terrorism, and other financial crimes.

There are several steps that financial institutions typically follow to conduct KYC and KYB checks:

  • Collecting information: Financial institutions typically collect information from their customers during the onboarding process, such as name, address, date of birth, and identification documents.
  • Verifying identity: Financial institutions may use various methods to verify the identity of their customers, such as checking identification documents against databases, using facial recognition technology, or verifying information with third parties.
  • Assessing risk: Financial institutions assess the risk associated with a customer or business based on a variety of factors, such as the customer's location, the nature of the business, and any red flags that may indicate potential money laundering or other financial crimes.
  • Ongoing monitoring: Financial institutions typically have systems in place to monitor their customers' activities on an ongoing basis to ensure that they are complying with laws and regulations and to identify any unusual or suspicious activity.

In recent years, financial institutions have increasingly been using technology, such as artificial intelligence and machine learning to automate and streamline the KYC and KYB process. This can help them to more efficiently and effectively identify and mitigate risks while also improving the customer experience.

How asset managers are checking KYC/B today and a better path forward

Automating the KYC process can help organizations streamline and speed up their onboarding process, reduce the risk of errors and fraud, and improve compliance with regulatory requirements.

There are several ways to automate KYC, including the use of digital identity verification tools and automated document analysis systems.

Digital identity verification tools allow organizations to verify the identity of their clients using electronic means, such as by checking government-issued identification documents or by using biometric authentication methods. These tools can be integrated into an organization's existing systems, allowing them to verify the identity of clients quickly and accurately.

Automated document analysis systems can be used to analyze and extract information from physical or digital documents, such as identification documents or bank statements. This can help organizations verify the authenticity of these documents and extract relevant information for the KYC process.

In addition to these technologies, organizations can also automate certain aspects of the KYC process by implementing internal policies and procedures that outline the steps to be taken in the KYC process and the documentation required. This can help ensure that the KYC process is consistent and efficient across the organization.

Human oversight and technology working together

It's important to note that automating the KYC process does not eliminate the need for human oversight and review. It is still important to have trained personnel review the results of the automated process to ensure that the KYC process is being carried out correctly and that any potential risks are identified and addressed.

Conducting due diligence on investors today is time-consuming and highly manual, with no promise of accurate results. Most processes require there to be a human in the loop and do not allow for a trustless system to verify investors.

Using a solution that has electronic identity verification to scan government databases, global corporate records, and sanctions lists is a big life in operational efficiency and compliance accuracy.

Challenges when conducting due diligence:

  • Difficult and complex to track business entities across different jurisdictions.
  • Entities such as trusts have secrecy built in and lack the transparency for compliance teams to see if an LP is engaging in illicit activities.
  • The regulatory burden for KYC will continue to grow, in 2022 the sanctions on Russian individuals and entities show how funds have to stay up to date with sanctions lists or face massive fines.

A Know-Your-Everything would include:

  • A front-end or "headless" interface to collect data from end-customers
  • A seamless KYC integration to check identities and verify them in real-time A KYB flow that includes a human in the loop to review complex entities or UBO (underlying beneficial owner) structures
  • Tools to automate ongoing monitoring and periodic review, and again humans in the loop to vet that information and ensure appropriate flags are being escalated
  • So what the customer gets is a green check for both entities and individuals and peace of mind in ongoing compliance. Without having to build out or integrate a custom platform or network of tools.