Enhanced Due Diligence services that enable companies to “follow the money” and meet regulatory demands on KYC and AML proved their worth in 2017 and will continue to do so next year. Here’s why.
Enhanced Due Diligence (EDD) reporting gives financial institutions detailed integrity and advanced background checks on any entity or individual, no matter where they are located in the world.
As regulations continue to tighten and the world is given a powerful reminder on transparency by the Paradise Papers, EDD has become a key part of any best-practice, risk-based approach to AML and KYC compliance.
Watch video — Enhance Due Diligence Beyond 2017
The use of EDD reporting and services will enable organisations to stay ahead of the curve, particularly as 2018 promises even more stringent data obligations and additional strain on already-stretched compliance resources.
Demand for EDD services in 2017 was driven by ongoing regulatory developments involving both AML and Anti-Bribery and Corruption (ABC).
In Europe, the long-awaited 4th EU AML Directive led to member states updating their respective legislation with increased emphasis on Ultimate Beneficial Ownership (UBO) and enhanced Customer Due Diligence (CDD).
The obligations around data collection, in particular in the context of UBO Identification, required firms to increase investment in their KYC and ABC compliance programs.
This was shown in an independent KYC compliance survey, where it was revealed that large institutions with US$10 billion or more in revenues have increased their average size of KYC teams from 68 to 307 compliance professionals in the past year.
However, it appears that firms are still wrestling with costlier, lengthier customer on-boarding and sub-par record-keeping.
This is reflected in the level of corporate discontent and ongoing concern over inconsistent, excessive requests and document security.
Amid all the attention on business transparency after the Panama Papers in 2016 and most recently the Paradise Papers in November, there has been no significant improvement in terms of data accessibility for identifying UBOs.
It is clear that finding UBOs will continue to be a challenge when relying solely on public databases or establishing analysis on just internet sources.
Solutions and best practice were among the topics addressed in our Trouble in Paradise webinar held on 9 November, particularly in relation to transparency, UBO, and using a risk-based approach.
Finding hidden wealth will remain a pain point for financial institutions with the 4th EU AML Directive, as well as for U.S. banks when the FinCEN Rule on Beneficial Ownership and Risk-Based Customer Due Diligence becomes live in May 2018.
In 2017, there was more demand from corporates to implement or improve their compliance programs to meet global anti-bribery and ethical labor laws.
A good example has been France’s SAPIN II, which requires organizations with more than 500 employees to have specific compliance programs to prevent bribery.
It also requires them to have a due diligence process for major clients, suppliers and intermediaries.
Meanwhile, large-scale financial fines for those who have failed to prevent bribery under FCPA or the UK Bribery Act also sent a strong message from regulators.
An important change for due diligence services during 2018 will be the introduction of the General Data Protection Regulation (GDPR) from May.
The rules will require firms dealing with sensitive data to have the right processes and technology in place.
This applies to firms managing their customers’ and third-party information, but also to service providers who perform due diligence checks on their behalf.
More than ever, the trust in partners becomes paramount.
Changes in regulation mean EDD services are under increasing pressure to deliver more comprehensive customer and third-party screening, while in 2018 strict data processing rules will lead to higher standards and more detailed checks.
Significant quality and process efficiencies can be achieved through the use of robust tools for effective delivery in EDD research.
Meanwhile, new technology using semantic search techniques and robotic desktop automation to improve the research process will further benefit EDD service providers and customers.