According to the FCA, many mainstream banks are still failing to carry out adequate customer due diligence (CDD) and know your customer (KYC) checks when onboarding new customers.
And the problem isn’t confined to the traditional banks, the FCA also targetted challenger banks stating that they too fall short across multiple AML requirements. And while smaller challenger banks often go under the radar, the AML guidelines apply to all financial institutions, regardless of their size.
Regulators recognise that fighting financial crime is no easy task and that the banking sector is investing large sums of money to strengthen their anti-money laundering efforts.
However, in spite of repeated warnings the sector is still mired in outdated, often manual processes. The FCA also highlighted glaring problem areas, such as the failure to collect basic new customer data covering occupation and income, which are essential in formulating accurate risk profiles.
Despite punitive fines, the message isn’t being heard
Not only do these failures increase the risk of money laundering and terrorist financing, but it also exposes banks to multi-million-pound fines and reputational damage.
In one of the most high-profile cases in recent times, the FCA fined NatWest £264.8 million for AML failures. More recently, in June of this year, Switzerland’s top criminal court ordered Credit Suisse to pay fines and compensation totalling €21 million for its enablement of the laundering of millions of euros of drug-money. While the Credit Suisse fine is significant, the reputational damage is arguably much worse, as the scandal reverberated around the world and led its Chairman to resign.
The 3 guidelines the FCA recommends banks follow in order to meet AML requirements
In order to mitigate the risk posed by poor onboarding procedures, the FCA provided 3 guidelines that will help banks to ensure they are fully AML compliant.
1. Collect vital customer profile data
A robust onboarding process is the first line of defence against fraud. This demands a strong KYC process for all customers using thorough CDD and enhanced due diligence (EDD) procedures.
When onboarding new customers, banks must augment their identification checks with a range of key questions to get a broader understanding of risk profile. Thereafter, it is the job of banks to continue monitoring accounts and customers to identify any changes in risk exposure.
As an example of deficiency in this area, the FCA found that firms have identified a politically exposed person (PEP) relationship but do not evidence an adequate assessment of source of wealth (SOW) and source of funds (SOF). In addition, firms do not always assess the level of risks posed by a PEP. By addressing these KYC deficiencies, banks can put themselves in a much stronger position to prevent fraudulent activity before it occurs.
2. Automate manual processes
The FCA highlighted the reliance on manual processes and how it increases the risk of non-compliance. For instance, many banks continue to use paper documentation to onboard customers. This typically involves manual reviews of the inputted information, as well as manual storage and document retrieval. In addition to the risk of human error and bias, it makes data storage and reconciliation far more challenging.
Other areas where manual processes are still prevalent include fraud and suspicious transaction monitoring, suspicious case investigation, regulatory reporting, and trading floor surveillance.
To underline this point, when the FCA fined Deutsche Bank £163 million, its largest ever financial penalty for AML controls failures, it noted that the bank “lacked automated AML systems for detecting suspicious trades.”
3. Upgrade from spreadsheets
The FCA has also identified the continued dominance of spreadsheets as part of the banking workflow as a major point of contention.
Spreadsheets expose banks to human error, a lack of agility, and document malfunction relating to cell formulas and bugs. Moreover, by continuing to use spreadsheets as a core operational tool, banks forego the benefits of thoroughness, error elimination, speed, reduced workforce requirements, and enhanced security that automation provides.
The latest automated onboarding process will help you stay compliant
RiskScreen OnBoard offers a single, end-to-end automated solution that covers every aspect of the onboarding process; it delivers simplicity, consistency and speed, thereby empowering you to onboard more clients and faster than ever before.
This intelligent and intuitive solution is configurable to your unique business requirements, enabling you to take a tailored risk-based approach to onboarding. As a result, it provides end-to-end consistency to the onboarding experience for all parties involved with real-time verification.
RiskScreen OnBoard offers a range of additional functionality, all designed to make the onboarding of customers even more efficient.
It offers two distinct risk models. A single highest value for quick provisional assessment and a weighted total risk for a more detailed risk assessment. For KYC, KYB, eIDV, and Screening, you can choose the level of intensity of data inputs based on the risk-based approach.
There is also the new Dynamic Forms module which reacts to the answers and live risk assessment that are being conducted ‘on the fly’. Should a prospect reach a pre-agreed threshold, then a high risk on-boarding flow can be triggered without them being aware.
A flexible approval and sign off process offers you the ability to tailor signoffs from straight through to eight eyes, depending on your risk appetite.
All this is delivered in a single package, with a single contract, and through a single supplier.
For a no-obligation demonstration of how RiskScreen can help your business to modernise and automate your onboarding processes, contact us today.