James Saunders, co-founder and CTO at RelyComply, shares some steps each regulated organisation should take to strengthen its AML and KYC controls:
South Africa’s greylisting by the Financial Action Task Force (FATF) in early 2023 has created significant economic challenges. The development tarnishes the country’s reputation, causes delays and higher costs in international transactions, and potentially deters inbound foreign investment.
But the good news is that the damage to the country’s international standing and economy needn’t be permanent. A concerted effort across the financial ecosystem to strengthen Anti-Money Laundering (AML), Know Your Customer (KYC) and Counter-Terrorist Financing (CTF) frameworks could facilitate a rapid exit from the greylist.
- Continuous ID verification: Verifying a customer’s identification documents at the start of the business relationship is not enough. It’s also essential to implement a Customer Identification Programme (CIP) that gathers crucial details like the source of funds, business activities, and Ultimate Beneficial Ownership (UBO). Build an audit trail of activity backed up with a continuous identity verification process.
- Bolster risk assessments: Assigning accurate risk ratings in KYC is crucial for effective resource allocation and compliance. Look for red flags such as inconsistent or incomplete personal information, unexplained wealth, unusual transaction patterns, links to Politically Exposed Persons (PEPs) or sanctioned entities, and complex corporate structures.
- Stay up to date with regulatory changes: AML/KYC regulations evolve and change as new money laundering threats emerge. Don’t assume that your existing AML/KYC process will remain compliant indefinitely. Look out for changes in national and international AML/CFT regulations. Also, customer risk profiles should be regularly reassessed based on updated information and changing circumstances. Review your entire AML/KYC programme at least once a year, including policies, procedures, technology, and training.
- Invest in modern, integrated technology: Outdated systems can’t keep pace with the rate of change in the regulatory environment or the evolution of criminals’ behaviour. An advanced end-to-end compliance platform that integrates seamlessly with existing business systems can automate compliance current workflows, pulling data from legacy systems while adding new automation and intelligence capabilities to help battle changing criminal typologies.
- Keep customer data up to date: Incomplete or outdated customer data creates easily exploitable gaps that criminals seek when probing for AML/KYC oversights. In addition to the upfront gathering of essential details like the source of funds, the nature of business dealings, the transaction rationale, and expected account activity, it is critical to periodically re-screen customers to detect changes and keep data current.
- Focus on internal training and culture: Instilling a culture of compliance is critical, so establish KYC and overall AML compliance as a core value across your institution. This includes regular training to reinforce its importance at all levels, fostering shared responsibility for adherence, and cultivating an ethical, diligent atmosphere to reduce organisational blind spots.
- Automate processes: The risks of human error, duplication, and blind spots are much higher with manual workflows, where mistakes can easily slip through the cracks. Automation provides a solution to streamline compliance activities for greater accuracy, speed, and efficiency, with today’s AI-powered tools taking automation to new heights. AI can automatically scan historical transactional data to uncover hidden patterns, detect anomalies, and flag suspicious or high-risk behaviours.
- Monitor transactions: Ongoing transaction monitoring and risk-based alert resolution are vital in detecting behaviour indicative of money laundering. Leveraging AI and data analytics can help monitor transactions across customer accounts.
In conclusion, South Africa’s greylisting is a clear call to action for financial institutions and other sectors to strengthen their AML and CTF frameworks. By strengthening compliance systems, processes and culture, every regulated institution can restore the country’s international standing and move it off the greylist as soon as possible.
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