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Five Major Challenges of KYC Monitoring

Banking CIO Outlook | Tuesday, August 24, 2021

Failure to identify a sanctioned entity can have serious consequences, including fines, regulatory enforcement, and damage to one’s reputation.

FREMONT, CA: Many companies have gone through the trouble of digitizing their onboarding, yet they are squandering enormous amounts of money and manpower on inefficient processes when it comes to continuous monitoring. Even though KYC monitoring is critical for ensuring compliance with Money Laundering Directives, where does it all go wrong, and what can businesses do to make changes. Here are five challenges of KYC monitoring:

Money and time wasted on false positives

When a real customer’s name matches a name on the Political Exposed Persons (PEPs) or Sanctions list, the consumer is marked for enhanced due diligence.

False positives place a substantial financial and time burden on regulated businesses, as time and money are spent investigating false positives frequently unfounded. In addition, firms that do not adequately screen for PEPs and sanctions (even if it is a false positive) may risk significant fines from the regulator.

Undetected risks due to insufficient data

On the other hand, a false negative happens when a client associated with a sanctioned company is not highlighted for additional due diligence. Failure to identify an authorized entity can have serious consequences, including fines, regulatory enforcement, and damage to one’s reputation.

Without reliable data sources to detect PEPs and sanctioned individuals, your risk radar could be compromised. The heart of compliance screening difficulties that anti-money laundering (AML) workers face daily include inaccuracies in data entry, human error, and poor data quality.

Lack of detail of alerts leads to inefficiencies

An alert is frequently issued when a corporate customer appoints a new director or has a change in ownership. However, a major issue is that the notifications don’t provide enough information for a compliance officer to make a real-time risk-based decision. Some monitoring solutions, for example, will notify you of a change in business directorships but won’t tell you who the new directors are, requiring a compliance officer to go back into the system and check.

Poor record-keeping

When the regulator comes knocking, disparate systems and, in some circumstances, manual records have proven to be a considerable obstacle. It’s not enough to simply monitor your consumers regularly; you must also demonstrate your activity to the regulator and give a clear audit trail as proof.

Lack of configurability

Many continuous monitoring solutions have limited configuration options for what should be alerted, resulting in issues being flagged that your company doesn’t care about. Choosing a compliance partner with a highly adjustable regulatory rules engine will enable you to simply update your ‘rules’ in real-time, ensuring compliance with changing regulations, minimizing unnecessary warnings, and increasing productivity.

See Also:    Top 10 KYC Solution Companies

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