Everything You Need to Know about Primary-Source Data for Corporate KYC
- Making decisions based on primary-source data is an easy way to improve KYC compliance.
Know Your Customer (KYC) Know Your Customer (KYC) Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks involved with maintaining a business relationship. KYC processes are also utilized by companies for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant. In an age of identity theft and myriad hacking, KYC has become a major emphasis by regulators.As such, banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information. These regulations had initially been imposed only on the financial institutions, having now extended to the non-financial industry, fintech, virtual assets dealers, and many non-profit organizations.Regulators Taking No Chances with Identities Regulated brokers in the retail industry are very stringent when applying appropriate KYC verifications after financial watchdogs worldwide have become stricter in monitoring their compliance with the procedure in recent years. Not only brokers use KYC, the procedure is also widely used by banks, and any financial companies that provide insurance or credit and require appropriate due diligence. Most major jurisdictions in the financial space mandate KYC requirements as well as all regulated brokers.The vast majority of these countries have adopted KYC standards as mandatory only during the past two decades. This has helped curb illicit behavior and has become a fixture of the industry. Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks involved with maintaining a business relationship. KYC processes are also utilized by companies for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant. In an age of identity theft and myriad hacking, KYC has become a major emphasis by regulators.As such, banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information. These regulations had initially been imposed only on the financial institutions, having now extended to the non-financial industry, fintech, virtual assets dealers, and many non-profit organizations.Regulators Taking No Chances with Identities Regulated brokers in the retail industry are very stringent when applying appropriate KYC verifications after financial watchdogs worldwide have become stricter in monitoring their compliance with the procedure in recent years. Not only brokers use KYC, the procedure is also widely used by banks, and any financial companies that provide insurance or credit and require appropriate due diligence. Most major jurisdictions in the financial space mandate KYC requirements as well as all regulated brokers.The vast majority of these countries have adopted KYC standards as mandatory only during the past two decades. This has helped curb illicit behavior and has become a fixture of the industry. Read this Term) and Anti-Money Laundering (AML) Anti-Money Laundering (AML) Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification (Know-Your-Customer checks) and bots that monitor for suspicious trading activity.AML Laws at WorkAML laws take explicit aim at corruption, tax evasion, market manipulation, and the trade of illegal goods. Much of their emphasis also looks to bring to light the efforts individuals or entities utilize to conceal these crimes.Essentially, AML procedures are intended to make it harder for criminals to “hide the loot.” Often, money launderers attempt to disguise their illicitly-obtained funds by funneling it through a legitimate cash business, like a regulated cryptocurrency exchange. Therefore, it is up to the businesses to ensure that they aren’t unwillingly part of a money-laundering scheme.One of the most prevalent issues to combat is laundering, which involves running money through a legitimate cash-based business owned by the criminal organization or its associates. A supposedly legitimate business can then deposit the money, which the criminals can subsequently withdraw.Launderers can also target foreign accounts to make deposits it, depositing cash below several regulatory thresholds that fail to garner suspicion. In the US for example, many transfers or cash payments under $10,000 are unlikely to draw the attention of regulatory authorities.Additionally, money launderers can move cash into dishonest brokers who are willing to ignore existing regulations in return for large commissions. Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification (Know-Your-Customer checks) and bots that monitor for suspicious trading activity.AML Laws at WorkAML laws take explicit aim at corruption, tax evasion, market manipulation, and the trade of illegal goods. Much of their emphasis also looks to bring to light the efforts individuals or entities utilize to conceal these crimes.Essentially, AML procedures are intended to make it harder for criminals to “hide the loot.” Often, money launderers attempt to disguise their illicitly-obtained funds by funneling it through a legitimate cash business, like a regulated cryptocurrency exchange. Therefore, it is up to the businesses to ensure that they aren’t unwillingly part of a money-laundering scheme.One of the most prevalent issues to combat is laundering, which involves running money through a legitimate cash-based business owned by the criminal organization or its associates. A supposedly legitimate business can then deposit the money, which the criminals can subsequently withdraw.Launderers can also target foreign accounts to make deposits it, depositing cash below several regulatory thresholds that fail to garner suspicion. In the US for example, many transfers or cash payments under $10,000 are unlikely to draw the attention of regulatory authorities.Additionally, money launderers can move cash into dishonest brokers who are willing to ignore existing regulations in return for large commissions. Read this Term) compliance is a regulatory challenge. Financial institutions and banks must not only comply with stringent regulations, but ensure the data they use for risk mitigation and prevention is both reliable and accurate. Data is at the heart of compliance efforts. Lapses in data quality, incompleteness and unavailability can hinder effective due diligence, resulting in criminals exploiting weaknesses to commit nefarious activities. Financial crime affects the entire value chain: businesses, financial institutions, governments and societies. KYC data should be at the core of your strategy to stop bad actors from using your business to launder their ill-gotten gains.
In this article, we will discuss corporate KYC data, by comparing primary-source data to stored data, and why data direct from the source is paramount in complying with KYC regulations and keeping your business safe against the evolving threat in the landscape.
What Is Primary-Source Data?
Primary-source data is information obtained directly from the source. In the context of KYC, primary-source intelligence includes data from corporate registries and official government sources, such as land registries, embargo and sanctions programs, and regulatory and law enforcement watchlists, among others. In a recent survey, 81% of senior management believe poor quality data severely delays customer onboarding and negatively affects the customer experience. The knock-on effect is poor customer retention and loss of revenues.
Harvesting information directly from primary sources is a regulatory requirement and recommended to be used to verify the identity of natural persons and legal entities during client onboarding and ongoing customer due diligence. Static data lacks quality, and outdated data causes more problems than it solves. In fact, regulators demand the use of primary-source intelligence. In the EU, the 6th Anti-Money Laundering Directive (6AMLD) came into effect on December 3, 2020, and must be implemented by financial institutions by June 3, 2021. 6AMLD places greater responsibility on regulated entities in the fight against financial crime by expanding the legislative scope of KYC and AML compliance and introducing tougher punitive actions for breaching regulations.
Publicly-available data gives timely access to crucial KYC data points, including the nature of the business, beneficial owners, legal representatives, and entity type — data that can help achieve compliance with the ever-changing regulatory landscape.
Primary-Source Data vs. Stored Data
Stored data is old data by definition, and old data is unreliable. When comparing primary-source data versus stored data, it is important to put into perspective the dynamism of data. Start by compiling a list of all the KYC data points analyzed during the KYC onboarding and customer due diligence process. Then, highlight all the data points that may be subject to change over time. What type of changes can occur? How important are those data points? What is the level of actual risk?
Once you have ranked the importance of dynamic data to your compliance investigative workflow, visualize carrying out a risk assessment using stored, unrefreshed or outdated data. What kind of red flags could you miss?
What are the implications of missing a shareholder? Or unwittingly doing business with an organization that is subject to the Office of Foreign Assets Control (OFAC) 50% rule? What will the regulator say? What are the potential implications for your business? The cascade effect can be damaging, resulting in significant financial losses and reputation damage. Relying on stored static data is extremely high-risk, but you can simply avoid this pitfall by using primary-source intelligence.
Why Primary Source Data Will Play a Key Role in the Future of Corporate KYC
Primary-source intelligence is already playing a key role in the present, but how does it bode for the future? The EU anti-money laundering directives, if followed correctly, can be an effective tool in the fight against financial crime by putting data at the center of financial crime prevention. Picture reformed corporate registries clamping down on fraud, money laundering and other criminal activities; ultimate beneficial ownership registries are due to become interconnected at the EU level; and public registers of Politically Exposed Persons and other Data sharing initiatives prevailing. The measures introduced by regulatory change can drastically improve compliance if implemented successfully by financial institutions. Primary-source intelligence has the potential to be a game-changer but depends on how, when and where businesses adopt real-time data intelligence. Primary source information will play a critical role in corporate KYC risk mitigation and the fight against financial crime.
Conclusion
Making decisions based on primary-source data is an easy way to improve KYC compliance. Not only does it improve risk identification and mitigation, but it strengthens the risk-based approach by using the most up-to-date data readily available. KYC and AML investigations are only as good as the data you use, and the implications of non-compliance may result in a ceasing of operation orders, fines and/or imprisonment. Make sure you do not compromise your business activities or reputation by using unreliable outdated data.
Ian Henderson is CEO of Kyckr
Know Your Customer (KYC) Know Your Customer (KYC) Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks involved with maintaining a business relationship. KYC processes are also utilized by companies for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant. In an age of identity theft and myriad hacking, KYC has become a major emphasis by regulators.As such, banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information. These regulations had initially been imposed only on the financial institutions, having now extended to the non-financial industry, fintech, virtual assets dealers, and many non-profit organizations.Regulators Taking No Chances with Identities Regulated brokers in the retail industry are very stringent when applying appropriate KYC verifications after financial watchdogs worldwide have become stricter in monitoring their compliance with the procedure in recent years. Not only brokers use KYC, the procedure is also widely used by banks, and any financial companies that provide insurance or credit and require appropriate due diligence. Most major jurisdictions in the financial space mandate KYC requirements as well as all regulated brokers.The vast majority of these countries have adopted KYC standards as mandatory only during the past two decades. This has helped curb illicit behavior and has become a fixture of the industry. Know Your Customer (KYC) is the process via which the broker is verifying the true identity of its clients in order to comply with multiple regulations. KYC is used to assess the suitability of customers when it comes to anti-money laundering regulations, any type of financial fraud and determining whether they are potentially risky for the brokerage.In particular, KYC guidelines in financial services mandate that individuals make a cohesive effort to verify the identity, suitability, and risks involved with maintaining a business relationship. KYC processes are also utilized by companies for the purpose of ensuring their proposed customers, agents, consultants, or distributors are anti-bribery compliant. In an age of identity theft and myriad hacking, KYC has become a major emphasis by regulators.As such, banks, insurers, export creditors and other financial institutions are increasingly demanding that customers provide detailed due diligence information. These regulations had initially been imposed only on the financial institutions, having now extended to the non-financial industry, fintech, virtual assets dealers, and many non-profit organizations.Regulators Taking No Chances with Identities Regulated brokers in the retail industry are very stringent when applying appropriate KYC verifications after financial watchdogs worldwide have become stricter in monitoring their compliance with the procedure in recent years. Not only brokers use KYC, the procedure is also widely used by banks, and any financial companies that provide insurance or credit and require appropriate due diligence. Most major jurisdictions in the financial space mandate KYC requirements as well as all regulated brokers.The vast majority of these countries have adopted KYC standards as mandatory only during the past two decades. This has helped curb illicit behavior and has become a fixture of the industry. Read this Term) and Anti-Money Laundering (AML) Anti-Money Laundering (AML) Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification (Know-Your-Customer checks) and bots that monitor for suspicious trading activity.AML Laws at WorkAML laws take explicit aim at corruption, tax evasion, market manipulation, and the trade of illegal goods. Much of their emphasis also looks to bring to light the efforts individuals or entities utilize to conceal these crimes.Essentially, AML procedures are intended to make it harder for criminals to “hide the loot.” Often, money launderers attempt to disguise their illicitly-obtained funds by funneling it through a legitimate cash business, like a regulated cryptocurrency exchange. Therefore, it is up to the businesses to ensure that they aren’t unwillingly part of a money-laundering scheme.One of the most prevalent issues to combat is laundering, which involves running money through a legitimate cash-based business owned by the criminal organization or its associates. A supposedly legitimate business can then deposit the money, which the criminals can subsequently withdraw.Launderers can also target foreign accounts to make deposits it, depositing cash below several regulatory thresholds that fail to garner suspicion. In the US for example, many transfers or cash payments under $10,000 are unlikely to draw the attention of regulatory authorities.Additionally, money launderers can move cash into dishonest brokers who are willing to ignore existing regulations in return for large commissions. Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means. The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.Most exchanges have AML measures that include identity verification (Know-Your-Customer checks) and bots that monitor for suspicious trading activity.AML Laws at WorkAML laws take explicit aim at corruption, tax evasion, market manipulation, and the trade of illegal goods. Much of their emphasis also looks to bring to light the efforts individuals or entities utilize to conceal these crimes.Essentially, AML procedures are intended to make it harder for criminals to “hide the loot.” Often, money launderers attempt to disguise their illicitly-obtained funds by funneling it through a legitimate cash business, like a regulated cryptocurrency exchange. Therefore, it is up to the businesses to ensure that they aren’t unwillingly part of a money-laundering scheme.One of the most prevalent issues to combat is laundering, which involves running money through a legitimate cash-based business owned by the criminal organization or its associates. A supposedly legitimate business can then deposit the money, which the criminals can subsequently withdraw.Launderers can also target foreign accounts to make deposits it, depositing cash below several regulatory thresholds that fail to garner suspicion. In the US for example, many transfers or cash payments under $10,000 are unlikely to draw the attention of regulatory authorities.Additionally, money launderers can move cash into dishonest brokers who are willing to ignore existing regulations in return for large commissions. Read this Term) compliance is a regulatory challenge. Financial institutions and banks must not only comply with stringent regulations, but ensure the data they use for risk mitigation and prevention is both reliable and accurate. Data is at the heart of compliance efforts. Lapses in data quality, incompleteness and unavailability can hinder effective due diligence, resulting in criminals exploiting weaknesses to commit nefarious activities. Financial crime affects the entire value chain: businesses, financial institutions, governments and societies. KYC data should be at the core of your strategy to stop bad actors from using your business to launder their ill-gotten gains.
In this article, we will discuss corporate KYC data, by comparing primary-source data to stored data, and why data direct from the source is paramount in complying with KYC regulations and keeping your business safe against the evolving threat in the landscape.
What Is Primary-Source Data?
Primary-source data is information obtained directly from the source. In the context of KYC, primary-source intelligence includes data from corporate registries and official government sources, such as land registries, embargo and sanctions programs, and regulatory and law enforcement watchlists, among others. In a recent survey, 81% of senior management believe poor quality data severely delays customer onboarding and negatively affects the customer experience. The knock-on effect is poor customer retention and loss of revenues.
Harvesting information directly from primary sources is a regulatory requirement and recommended to be used to verify the identity of natural persons and legal entities during client onboarding and ongoing customer due diligence. Static data lacks quality, and outdated data causes more problems than it solves. In fact, regulators demand the use of primary-source intelligence. In the EU, the 6th Anti-Money Laundering Directive (6AMLD) came into effect on December 3, 2020, and must be implemented by financial institutions by June 3, 2021. 6AMLD places greater responsibility on regulated entities in the fight against financial crime by expanding the legislative scope of KYC and AML compliance and introducing tougher punitive actions for breaching regulations.
Publicly-available data gives timely access to crucial KYC data points, including the nature of the business, beneficial owners, legal representatives, and entity type — data that can help achieve compliance with the ever-changing regulatory landscape.
Primary-Source Data vs. Stored Data
Stored data is old data by definition, and old data is unreliable. When comparing primary-source data versus stored data, it is important to put into perspective the dynamism of data. Start by compiling a list of all the KYC data points analyzed during the KYC onboarding and customer due diligence process. Then, highlight all the data points that may be subject to change over time. What type of changes can occur? How important are those data points? What is the level of actual risk?
Once you have ranked the importance of dynamic data to your compliance investigative workflow, visualize carrying out a risk assessment using stored, unrefreshed or outdated data. What kind of red flags could you miss?
What are the implications of missing a shareholder? Or unwittingly doing business with an organization that is subject to the Office of Foreign Assets Control (OFAC) 50% rule? What will the regulator say? What are the potential implications for your business? The cascade effect can be damaging, resulting in significant financial losses and reputation damage. Relying on stored static data is extremely high-risk, but you can simply avoid this pitfall by using primary-source intelligence.
Why Primary Source Data Will Play a Key Role in the Future of Corporate KYC
Primary-source intelligence is already playing a key role in the present, but how does it bode for the future? The EU anti-money laundering directives, if followed correctly, can be an effective tool in the fight against financial crime by putting data at the center of financial crime prevention. Picture reformed corporate registries clamping down on fraud, money laundering and other criminal activities; ultimate beneficial ownership registries are due to become interconnected at the EU level; and public registers of Politically Exposed Persons and other Data sharing initiatives prevailing. The measures introduced by regulatory change can drastically improve compliance if implemented successfully by financial institutions. Primary-source intelligence has the potential to be a game-changer but depends on how, when and where businesses adopt real-time data intelligence. Primary source information will play a critical role in corporate KYC risk mitigation and the fight against financial crime.
Conclusion
Making decisions based on primary-source data is an easy way to improve KYC compliance. Not only does it improve risk identification and mitigation, but it strengthens the risk-based approach by using the most up-to-date data readily available. KYC and AML investigations are only as good as the data you use, and the implications of non-compliance may result in a ceasing of operation orders, fines and/or imprisonment. Make sure you do not compromise your business activities or reputation by using unreliable outdated data.
Ian Henderson is CEO of Kyckr