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The Impact of Neobanks on AML and KYC Compliance: Ensuring Security in a Decentralized Era

The Impact of Neobanks on AML and KYC Compliance: Ensuring Security in a Decentralized Era

by | Jan 11, 2024 | Blog, In The News, KYC, News & Events

The Impact of Neobanks on AML and KYC Compliance: Ensuring Security in a Decentralized Era

As global financial institutions collectively face the reality of managing a consumer base that has aggressively adopted an increasingly digital presence, traditional banks are also facing a rising challenge in competing against a rapidly decentralizing model of banking in the form of neobanks. Neobanks often attract customers thanks to their lower fees, convenient online access, and optimized user experience; with a forecasted growth in account holders of over 45% estimated to occur within the next three years, (source) there is no denying the importance of ensuring this decentralized method of banking is held to equal standards as classical banking entities.

Below, we’ll take a closer look at what neobanks mean for the future of AML and KYC compliance, as well as why the implementation of proven documentation and identity verification methods are critical to stopping crime in its tracks. Read on to learn more!

What Are Neobanks?

Neobanks, also popularly known as “challenger banks”, are digital banks that exist operate exclusively online, without any physical branches. Instead of brick-and-mortar locations, neobanks rely on mobile applications and web platforms and offer standard banking services such as checking and savings accounts, loans, investments, and money transfers. Moreover, neobanks often utilize their platforms to provide personalized financial advice and insights to their customers, who can access the app by downloading it onto their devices and setting up an account. Just as with traditional institutions, neobanks must also utilize verification methods to ensure the validity of their clientele, and to adhere to AML and anti-fraud legislation as per the requirements of their operating jurisdiction.

The Emergence of Neobanks in the Current Market

With major market players like Wealthsimple, Revolut, Chime, Acorns and other entities becoming household names and experiencing mass adoption across North America and Europe, it is extremely vital that digital institutions take their approach to anti-crime measures seriously.

AML and Neobanks: Navigating the Challenges and Solutions

As mentioned above, it is integral to overall market safety that even the disruptors within the industry follow AML banking protocols. AML measures play a significant role in reducing criminal activity online and require financial institutions to implement rigorous security protocols that include customer due diligence, ongoing monitoring of customer transactions, and reporting suspicious activity to regulatory authorities.

Neobanks face unique challenges in upholding some of these protocols, as a less centralized and far more opaque clientele base presents a higher risk of fraud due to behind-screen anonymity that must be rectified. In order to stay compliant, leading neobanks typically turn to vetted KYC and a robust CDD software that allows them to verify customer identitiesand produce accurate risk profiles in a streamlined, highly-efficient manner.

The Importance Of Digital Identity Verification for Neobanks

Operating entirely online may afford neobanks a lower overhead cost and expedited services for their clientele, but doing so is not without its share of increased risks and challenges. Verifying digital users is much more complex, particularly when it comes to spotting fraud attempts and uncovering additional data about figures who prefer to lurk in the deeper recesses of the market.

Digital identification methods tackle such challenges head-on with a wide array of complex verification methods, including biometric authentication, document verification, and cross-referencing multiple trusted databases across the world. While the manual application of such measures would be unviable for the majority of institutions, having a software platform like iComplyKYC makes it possible to stay on top of new applications, as well as continuously evaluate your existing client base with ease. Automating KYC processes not only dramatically increases overall efficiency across your operations, it can significantly lower expenses, and helps to avoid financial penalties incurred for failing to measure up to compliance standards.

Neobanks: An Ongoing Disruption

Neobanks are, by nature, a disruptive force within the realm of traditional banking. As new and established players vie for market dominance and seek to establish a reputation of trust and competency amongst their traditional competitors, financial and legal regulators are paying close attention to the potential ramifications of continued rapid adoption across global markets.

While such institutions provide a powerful financial alternative to traditional banking and demonstrate some of the notable potential to be found in adopting fully digital practices, they also show just how rapidly digital crime continues to adapt and seek out new opportunities to abuse platforms with poor security measures. With users steadily climbing year after year, it is reasonable to expect neobanks and their fellow industry disruptors to set a new pace and a new standard for AML regulations as these newer technologies continue to advance.

A Proactive Approach to Compliance Challenges

Partnering with a proven KYC and AML software provider like iComply is one of the best ways to stay ahead of the curve and make sure your institution has everything you need to stay compliant with evolving legislation.

Set the Foundation for Success with iComply

Learn how iComplyKYC can help you streamline your AML and KYC procedures with ease, and full compliance in over 250 global jurisdictions by contacting our team today.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

The Future of Identity Verification in Fintech
The Future of Identity Verification in Fintech

Nov 12, 2024

Identity verification is a cornerstone of the fintech industry, crucial for ensuring security, compliance, and trust in digital financial services. As the fintech landscape evolves, so do the methods and technologies used for...

The Crucial Role of KYB in Business Compliance: Insights from the 5th AML Directive

The Crucial Role of KYB in Business Compliance: Insights from the 5th AML Directive

by | Nov 21, 2023 | Blog, In The News, KYB, KYC

The Crucial Role of KYB in Business Compliance: Insights from the 5th AML Directive

Today’s global business market features more interconnectivity and decentralized options than ever before, making the need for regulatory compliance crucial. The Fifth Anti-Money Laundering Directive (5AMLD) has placed an increasing focus on the importance of Know Your Business (KYB) procedures for companies across multiple industries, and focus on building transparency, accountability, and risk assessment into ethical business practices.

Understanding why KYB matters can help organizations navigate regulatory complexities, mitigate risks, and maintain their reputation in an evolving financial and regulatory landscape. Below, we’ll take a look at the significance of KYB for businesses, particularly in light of 5AMLD, read on to learn more.

What Is the 5th AML Directive?

The Fifth Anti-Money Laundering Directive (5AMLD) was introduced by the European Parliament on April 19, 2018, in response to a sharp increase in known incidences of human trafficking, terrorist funding, and other nefarious criminal activities. 5AMLD recognizes the missing focuses of its predecessors (4AMLD, for example), and introduced stricter rules with an expanded number of organizations included within their regulatory guidance. 5AMLD takes into account the development of technology and trends in the financial sector and provides a clear definition of cryptocurrency and obligations for virtual currency exchanges and wallets, and also focuses on the regulation of anonymous prepaid cards, as well as public access to property information.

The ultimate intention of 5AMLD is to improve financial integrity and confidence by combating money laundering other related financial crimes that disrupt the public good.

KYB and Enhanced Due Diligence

Enhanced Due Diligence (EDD) is a central component of of 5AMLD, with Know Your Customer (KYC) and Know Your Business (KYB) being integral parts of fulfilling the needs of EDD. Where enhanced information gather once was seen as a highly elevated business practices (and still is to a certain extent), modern businesses are now expected to perform more comprehensive background checks as an entry point and normative standard. Whether dealing with customers, prospective business partners, or even hiring new staff members, companies must conduct varying degrees of KYC and KYB data collection to ensure that the entity in question is not involved with money laundering or other illicit activities. From a B2B perspective, it is particularly important to ensure that your partners are not tied to any known activities or criminal efforts, both to protect your bottom line and preserve your brand reputation.

Failure to comply with these measures comes with increasingly steep fines and even the potential for significant legal action, making it crucial to ensure your business is on the right side of protective mandates. KYB practices allow companies to gather essential information about their business associates, including their ownership structure, financial stability, and compliance with AML regulations. This knowledge subsequently empowers businesses to make informed decisions about their relationships, reducing the risk of being associated with high-risk or fraudulent entities.

Risk Mitigation through KYB

KYB is a protective risk management strategy that allows businesses to vet partners and identify/categorize risk accordingly. Risk profiles factor in a variety of details such as finances, reputational (known associations, PEPs, etc), operational, and compliance related risks. Each component helps to inform a broader understanding of the entity as a whole, and helps to insulate outside parties from unnecessary risk.

Through KYB protocols, businesses can identify any red flags associated with their partners or customers early on and adapt accordingly. From previous legal troubles, connection to sanctioned individuals, prior involvement in illicit activities or other problematic behaviours, businesses can lean on the information gained through the KYB and EDD process to mitigate risk and terminate relationships at the appropriate time rather than leaving themselves open to greater issues.

Adherence to Evolving Regulations

 

5AMLD is a response, as well as an industry leader when it comes to matching and setting the pace in the fight against money laundering and fraudulently funded criminal activity globally. Businesses face a constant challenge of adapting to evolving standards (and by extension, evolving criminal practices that seek to circumvent regulation), and KYB serves as valuable bridge that makes compliance simple to integrate into daily practices, and makes it easy for companies to avoid the costly fines that come with poor risk management.

Reputation Management and KYB

 

There are no shortage of cautionary tales when it comes to being negligent with compliance in today’s business world, often with severe repercussions to a company’s reputation. Businesses that are associated with entities involved in illegal or unethical activities may find themselves under public scrutiny, leading to a loss of trust among stakeholders or investors, and may find themselves facing lengthy court battles that detract from their brand and allow competitors to exploit the situation (and negative press to their own gain). Just as 5AMLD focuses on transparency in business practices, the backlash from failing to comply showcases both the human and financial dangers of being negligent.

Businesses that invest in robust KYB procedures demonstrate their commitment to ethical conduct and regulatory compliance; and in doing so, cement themselves as valuable players in the global market. By understanding the pivotal role of KYB and its importance in the context of the 5AMLD, organizations can navigate the complex regulatory environment and thrive as responsible, trustworthy, and compliant entities that stand to succeed in business.

Want to learn more about staying up to date with current KYC/KYB protocols? Check out our industry leading modular suite of KYC products.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

The Future of Identity Verification in Fintech
The Future of Identity Verification in Fintech

Nov 12, 2024

Identity verification is a cornerstone of the fintech industry, crucial for ensuring security, compliance, and trust in digital financial services. As the fintech landscape evolves, so do the methods and technologies used for...

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

by | Oct 2, 2023 | Blog, In The News, KYC

Streamlining Compliance: Leveraging Enhanced Due Diligence and iComplyKYC to Safeguard Your Business

Financial institutions are facing statistics that paint a bleak picture with regard to the current challenges posed by evolving fraud and related criminal practices. With digital security at the forefront of concern in 2023, knowing who you’re doing business with is essential to safeguarding your company and staying on the right side of the law. By 2025 alone, cybercrime is anticipated to cost the global economy in excess of $10.5 trillion dollars (source); as international regulators ramp up efforts to stop digital criminals in their tracks, those falling short of compliance efforts are likely to face aggressively increasing fines and legal repercussions.

When implemented properly, Enhanced Due Diligence (EDD) is a valuable line of defense against fraudsters and those wishing to use your company for illicit means like money laundering (AML), funding various trafficking markets, and more. Knowing how to implement best practices and integrate proven software into your foundation of protection is crucial for compliance and efficiency. Below, we’ll take a closer look at some of the core details involved in EDD, as well as the benefits of partnering with a software provider like iComply. Read on to learn more.

Basics in Review: What is EDD?

Enhanced Due Diligence, better known within the industry as EDD, is a more advanced form of standard customer due diligence, which aims to verify the identity of unknown individuals or entities. Where CDD may stop once basic integral information is acquired, EDD is required for customers that have the potential to be “high risk” for a wide variety of reasons. From politically exposed persons (PEPs) to customers looking to move larger sums of money regularly, those with questionable associations or previous business dealings and more, EDD requires such individuals/entities to disclose additional information in order to more finitely review risk factors and create an accurate assessment profile for future dealings.

With users and entities taking more of their business online than ever before, one of the biggest challenges facing regulatory boards and financial institutions, both of whom must be able to monitor interactions and transactions for internal and overall market security, is streamlining EDD protocols and practices. Our increasingly digital world has long since moved past the viability of pure manual review, and being able to implement trusted software like iComplyKYC is crucial for staying on top of compliance measures and ensuring you have the tools you need to onboard, evaluate and properly approach risk with ease.

When is EDD Required?

As mentioned above, EDD is required whenever a customer presents a higher risk quotient or is unable to satisfy the base, low-level risk factors with a standard data investigation. Typically speaking, the Federal Financial Institutions Councildictates that the following categories should be considered when deciding if EDD is necessary:

  • Customers and entities
  • Geographic location
  • Products and services

While not every customer or entity will trigger the need for further investigation, those from countries that rank highest on global crime indexes or who deal with products or services that are much more likely to have ties to nefarious activities or industries must be evaluated closely. Core factors that may trigger an EDD assessment include:

  • PEPs
  • Foreign customers opening accounts without maintaining residency in the company’s country of operation.
  • Companies or individuals residing in or conducting business in countries that are known financiers or supporters of terrorist activity, as per the State Sponsor of Terrorism list, and more.

EDD investigations will uncover valuable details like sources of funds or wealth (SOFs/SOWs), any existing sanctions or watchlist information, who the ultimate beneficial owners (UBOs) are, integral details regarding a company’s legal structuring, etc.

Conducting EDD with Ease

Given the sensitive and highly privileged information handled during the EDD process, it should come as no surprise that conducting such measures can be difficult to streamline without the right tools in place. The key to safety and client retention when it comes to KYC compliance and regulation is a proven suite of tools that allow you to operate with minimal hassle and peak efficiency.

iComplyKYC is designed to seamlessly integrate security measures and identity verification practices into your daily operations, with a quick setup that leaves you compliant with core mandates in over 250 jurisdictions. Our comprehensive suite of KYC products empowers you to handle client and partner onboarding confidently and to create trust in every transaction your institution handles. We understand the significance of having the latest information to stay ahead of fraud and potential issues, and our modular software makes it easy to obtain real-time data and updates on potential sanctions, police reports, and events of interest related to current or prospective clients in as little as 20 minutes. This gives you the power to make an informed decision and to protect your business when it matters most.

Schedule a demo with our team today to learn more about iComplyKYC and how our platform can be tailored to suit your specific needs and requirements.

learn more

Is your AML compliance too expensive, time-consuming, or ineffective?

iComply enables financial services providers to reduce costs, risk, and complexity and improve staff capacity, effectiveness, and customer experience.

Request a demo today.

The Future of Identity Verification in Fintech
The Future of Identity Verification in Fintech

Nov 12, 2024

Identity verification is a cornerstone of the fintech industry, crucial for ensuring security, compliance, and trust in digital financial services. As the fintech landscape evolves, so do the methods and technologies used for...

iComply Announces Security Token Patent and Prefacto Licensing Program

iComply Announces Security Token Patent and Prefacto Licensing Program

by | Sep 14, 2023 | Prefacto, Blog, In The News, News & Events

US Patent grants iComply exclusive rights to a pivotal security feature for tokenized assets and announces Prefacto™ licensing program

VANCOUVER, B.C. – September 14, 2023 – iComply, a global compliance technology provider, is pleased to announce a new licensing program for US patent US-20220103378-A1 System and Method for Off-chain Cryptographic Transaction Verification, an essential technology that ensures transactional compliance for financial institutions using blockchain.

Filed on July 18, 2018, this patent was the first to cover the key technology behind the industry’s issuance and trading of regulatory compliant security tokens, central bank digital currencies (CBDCs), non-fungible tokens (NFTs), and stablecoins.

Since 2018, the security token market has seen explosive growth, boasting a current value of over US $17B.  Leading consulting firm Security Token Advisors CEO Herwig Konings believes “that capital markets will move towards a natively-blockchain based asset and securities life cycle and use tokenized assets to reinvent the customer experience and back office administration.” Experts from premier global financial institutions project that by 2030, US $30T worth of tokenized assets will be in circulation, a staggering CAGR of 410%. 

“The scale at which the industry has already adopted Prefacto™ IP is exciting,” states iComply CEO Matthew Unger. “We are not only enhancing the standards of digital finance concerning security and liquidity but also streamlining blockchain transactions across diverse providers.”

Bridging Traditional Compliance with Blockchain Innovation

Today, consumers benefit from seemingly instantaneous authorization of credit card payments at millions of merchants globally. However, unseen complex processes behind each transaction often take several days to settle, particularly where existing traditional systems require a funds transfer between the customer’s bank and the merchant’s bank.

Prefacto™ leverages foundational blockchain technologies including whitelisting and transaction validators to enable instant settlement of transactions globally. Spearheading the program Peter Nieforth, SVP Licensing, states, “Prefacto™ dramatically reduces the operational costs of ensuring compliance, trust, and integrity in global financial transactions.”

The Future of Financial Transactions

iComply was founded with a vision to power trustworthy transactions for billions of people. The latest Prefacto™ patents and newly launched licensing program are key milestones in the company’s journey, creating the foundation for financial institutions, tokenization platforms, and trading facilities worldwide to join them on this mission.

About iComply:

iComply Investor Services Inc. has been pioneering compliance technology since 2017 and is headquartered in Vancouver, Canada. Using artificial intelligence, blockchain, and edge computing, iComply’s Prefacto™ and iComplyKYC™ solutions are set to redefine the sector, enabling organizations to harness opportunities offered by digital transformation—without compromising compliance, privacy, or scalability. Learn more: www.icomplyis.com 

Sanctions Update: Russia, Ukraine, and Global Uncertainty

Sanctions Update: Russia, Ukraine, and Global Uncertainty

by | Mar 14, 2022 | Blog, In The News, News & Events, Updates

Sanctions Update: Russia, Ukraine, and Global Uncertainty

The Update: What Happened?

Uncertain relations between Ukraine and Russia continue to affect many countries engaging in trade including Canada, the United States, the European Union, China, Iran, and Russia. Effective DATE, sanctions have been imposed and will continue by the largest countries doing trade with Russia; most significantly, the United States. 

 

The Background: SWIFT Access Sanction – Russia’s Main Banking System

On February 26th, a call to action was imposed by the European Commission, France, Germany, Italy, the UK and the US to remove specific banks from the SWIFT (system that facilitates financial transactions and money transfers for banks located around the world) messaging platform. The agreement was imposed to break down Russia’s financial system, a method to further hamper the invasion in Ukraine. Additionally, any other banks will be affected as a German government source reported.

 

The Solution: How iComply Can Help

iComply Investor Services Inc. (“iComply”) is a global compliance software provider that helps compliance teams reduce the cost and complexity of KYC and AML operations while providing a seamless user experience to their KYC subjects. Compliance teams can configure and monitor KYC portals to securely gather, validate, and encrypt client data and documentation before it leaves their device

Our iComplyKYC solution enables access to the most up-to-date client data available and gain a more comprehensive view of risk related to each entity. It also uses AI and deep data analysis to identify new risks and sanctions within 17 minutes, enables management to visualize the volumes and bottlenecks in KYC and AML operations, and it reduces the operational cost of AML risk screening, record keeping, and reporting.

 

How can iComplyKYC screening help you enhance your sanctions compliance? 

Our solution’s capabilities onboard natural persons, beneficial ownership,  and legal entities data, saving your organization time and valuable resources. By using iComply’s platform, you can easily scan sanctioned banks listed by regulatory authorities.

 

Why is this important to my business/organization?

iComply is working with its clients to ensure they have their bases covered from an AML/KYC compliance perspective.

  • Improve screening accuracy while minimizing false positives
  • Stay on top of ever-evolving financial crime activity
  • Ensures GDPR compliance so your organization does not risk being imposed with hefty financial penalties from regulators
  • Do all your compliance checks and due diligence for you rather than using your own human resources or having to contract with multiple vendors 

MIT Exec and Trusted Computing Expert Thomas Hardjono Joins iComply

MIT Exec and Trusted Computing Expert Thomas Hardjono Joins iComply

by | Sep 22, 2021 | Advisory Council, Blog, In The News, News & Events, Updates

MIT Exec and Trusted Computing Expert Thomas Hardjono Joins iComply

Hardjono serves as Technical Director of the MIT Trust::Data Consortium and as CTO of MIT Connection Science

Vancouver, B.C. – September 22, 2020 – iComply Investor Services (“iComply”), a global compliance software provider, is announcing that Thomas Hardjono has been appointed to iComply’s advisory board. He is internationally recognized as a leader and innovator in trusted computing, identity, data privacy, applied cryptography, and cybersecurity.

Hardjono is currently the CTO of Connection Science at MIT and technical director of the MIT Trust::Data Consortium. He previously served as executive director of the MIT Kerberos Consortium, where he was instrumental in driving widespread adoption of the Kerberos protocol, which is now the most ubiquitously deployed authentication protocol used for identity management in the world. Over the past two decades, he has held various technical leadership roles including as a distinguished engineer at Bay Networks, and principal scientist at VeriSign PKI.

“Advancement in trusted computing has historically been driven by hardware innovation, but iComply has focused on delivering those same capabilities through software innovation, which can bring unprecedented flexibility to operations requiring secure authentication,” said Matthew Unger, CEO of iComply. “The highest levels of identity assurance used to be limited to specialty hardware, we can now deliver this same confidence, security, and privacy to any mobile or web application.”

iCompyKYC uses edge computing for identity verification, which protects biometric data by allowing the verification to take place on the user’s device, maintaining an unprecedented level of privacy for personal data.

“iComply’s degree of implementation is quite extensive, and the dashboard that they have built is terrific. iComply has a strong and very clear vision. This is one of these linchpin technologies that the industry desperately needs,” said Thomas Hardjono. “The traditional banks, private organizations, and governments need to step up their game and move in this direction. On the horizon, we have central bank digital currencies, cryptocurrencies, NFTs, and decentralized finance (DeFi) that need to manage all of the things that iComply can manage.”

iComply combines edge-computing KYC onboarding portals with enterprise-level controls for AML risk screening and data management to provide a complete solution that processes users’ data securely on their devices. The solution spans know your customer, anti-money laundering, digital identity, and access management.

 

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About iComply Investor Services Inc.
iComply Investor Services Inc. (“iComply”) is a global compliance software provider that helps compliance teams reduce the cost and complexity of KYC and AML operations while providing a seamless user experience to their KYC subjects. Compliance teams can configure and monitor KYC portals to securely gather, validate, and encrypt client data and documentation before it leaves their device. Learn more: www.icomplyis.com