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Reviewing Customer Risk Profiles After Onboarding

Jan 23, 2023 | Blog, KYC

As we ease into a new year, there’s never been a better time to review your organization’s AML and KYC protocols to ensure you are as protected as possible. Criminal activities continue to grow increasingly complex and fraudsters find new ways to fly under the radar, as technology grows more innovative. The message to financial institutions and Virtual Asset Service Providers (VASPs) is clear: to fall behind on your due diligence practices is to leave yourself vulnerable to costly fines and adverse long-term repercussions.

At iComply, we know that managing KYC, KYB, CDD, and EDD protocols can be tricky, especially with the constantly evolving nature of AML legislation. With North America and the UK receiving the highest AML fines in the first half of 2022 (USD $1 billion and $18 million, respectively), businesses wishing to avoid the pain of being caught unprepared need to stay on top of best practices.

Below, we’ll discuss core KYC fundamentals, as well as how often you should be reviewing your customer risk profiles after onboarding is complete.

What is the Core Objective of KYC?

Know Your Customer, better known as KYC or KYB, is a form of AML and fraud protection that seeks to prevent financial crime by learning identifying details about a prospective individual or business to form vetted partnerships. By verifying the parties your organization deals with, you can remove many of the risks that come with the unknown and allow your operations to proceed confidently, with the safety and accuracy you can trust. Through advanced forms of KYC, Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD), dig beneath the surface to get important details that keep you on the right side of the law and ready to move forward with any business relationship or partnership safely.

The main objectives of the KYC process are:

  • Identify and verify the identity of customers (both humans and organizations);
  • Properly evaluate the nature and purpose of customer relationships to develop customer risk profiles; and
  • Continuously monitor, identify, and report suspicious transactions on a risk basis to update client information as needed.

Due diligence measures are typically concerned with 4 main types of risk:

Customer Risk

Are you able to vet a client, their activities, and their known pattern of behaviours? Are there any high-risk factors, ownership structures, or political exposures you need to be worried about? CDD and EDD can dig past the surface to see who or what is hiding behind any given name.

Geographical Risks

Sometimes the location of a business or prospective client can uncover additional risks that you’ll want to be aware of, such as heightened exposure to money laundering activities or jurisdiction-specific requirements. In addition to knowing where a business is incorporated, you’ll also want to know where their main headquarters are and if there are any other locations you need to record and report.

Product and Service Offering

Certain products and services (virtual asset exchanges, for example) have more inherent risk where fraud and money laundering are concerned. How open and transparent is your prospective customer or business partner’s past, what additional risk factors are you aware of, such as additional team members or owners to be wary of, etc.?

Delivery Channel Risk

The delivery of any good or service is never fully without risk, but to mitigate unnecessary risk, knowing a wide variety of extenuating factors is critical to avoiding conflicts and damaging risks.

Using dedicated KYC software and protocols that help to automate much of the review process is one of the best ways to gain a clear picture of the above information and rest easy knowing you are compliant, prepared, and ready to act.

How Often Should You Review Your Risk Profiles

The financial world moves quickly, and with global regulations and risk factors constantly shifting, the reality is that businesses need to maintain up-to-date client and partner risk profiles to operate effectively. International sanctions issued in 2022 have been a strong reminder that global standards and sources of data can change instantly. Without the right tools to adapt to these changes quickly, you risk exposing your organization to extensive fines and other avoidable risks.

While the frequency you need to review your risk profiles will vary somewhat depending on your industry, services offered, etc., standard protocols advise at least once every 3 years (typically for lower-risk clients) or as needed for additional information. Being prepared to review your profiles on an annual (or more frequent) basis gives you the ability to adjust to evolving information and protect your company from costly liability allegations caused by failure to act. Rather than leaving reviews to chance and circumstance, it’s best to have reliable protocols in place alongside dedicated KYC software that can automate much of the review process, helping to reduce or eliminate manual errors and streamline operations.

EDD with iComplyKYC

At iComply, we know that balancing the need for CDD and EDD with the demands of day-to-day business operations can be challenging. Our modular suite of KYC products makes it easy to tailor your workflows to your specific requirements, including standard CDD, EDD, continuous risk monitoring, and more.

iComplyKYC allows you to focus on the ins and outs of running your business while reducing the cost of running ID verification and KYC protocols by up to 80% all while keeping you compliant with requirements in nearly 250 different jurisdictions. When it comes to streamlining your KYC and CDD process and simplifying risk profile reviews, iComply has you covered!

Book a demo with our team today to learn more about iComply’s range of KYC solutions, and discover how our platform can be customized for your organization.

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