3. FOREWORD 5
EXECUTIVE SUMMARY 7
EDITORIAL PANEL 9
SECTION 1
QUANTIFYING THE KYC RESOURCING CHALLENGE 12
SECTION 2
MAJOR KYC PAIN POINTS AND THE RISKS THEY REPRESENT 18
SECTION 3
HOW NEW TECHNOLOGIES AID BEST PRACTICE 28
CONCLUSION 34
CONTENTS
5. 5FOREWORD
WealthBriefing Research began investigating global trends in
client onboarding back in 2014, breaking new ground by exam-
ining in depth the challenges and opportunities this crucial first
stage of wealth management relationships represents.
Having delivered a broad barometer of operational best prac-
tice and technological innovation in onboarding; we next
looked at the role of digital signatures in ramping up efficiency
and enhancing the client (and advisor) experience during what
can very often be an onerous and frustrating process. We now
continue the onboarding theme with a deep-dive on what
is undoubtedly its most important strand: AML/Know Your
Customer and sanctions screening.
Client due diligence is a key focus for management teams and
is where many of the key challenges facing the wealth man-
agement industry intersect. Chief among these is of course the
pace of regulatory change and the concomitant issues this cre-
ates across compliance resourcing – both human and techno-
logical - operational efficiency and risk management.
The EU Member States now have until June 2017 to write the
Fourth Anti-Money Laundering Directive into national law.
Meanwhile, in the US definitive guidance is awaited on Fin-
CEN’s Proposed Rulemaking to amend the Bank Secrecy Act to
hinder the use of anonymous companies for money laundering
purposes. Add in the new requirements imposed by the Com-
mon Reporting Standard on tax information exchange (now
live) and MiFID II (only slightly delayed to January 2018) and
it is fair to say that wealth managers face a heady mix of new
rules concerning CDD, in addition to the general compliance
onslaught the industry has seen in the past decade or so.
The ever-heavier regulatory burden is making finding, funding
and retaining top compliance talent increasingly difficult at just
the time when their skills are most needed. As this report will
discuss, many firms are carrying out extensive remedial work as
they ready themselves to meet tighter regulatory requirements
and those with the requisite skills and experience to meet all
the multi-faceted demands of top compliance roles are a scarce
resource. Indeed, as one expert later describes, the ability to
effectively balance risk mitigation and business development
calls for a “remarkable individual”- particularly when we con-
sider the granular knowledge of investment products, technol-
ogy, law, other cultures and so on they need too. The ensuing
war for talent and very strong salary growth in compliance roles
means that for many institutions it has become “prohibitive to
hire”, as another contributor said.
In their quest to optimise the time compliance officers spend
on CDD – while still maintaining the very highest standards of
risk management – wealth managers are increasingly turning to
technology, as with other areas of the compliance challenge. In
client screening, and in onboarding processes generally, new
tools are now really delivering the automation, enhanced abil-
ity to collaborate and auditability institutions need – and many
are said to be achieving very impressive benefits as a result.
At a time when margins remain under pressure and massive
fines related to CDD failings are a regularity, the appeal of si-
multaneously slashing turnaround times in client onboarding
and achieving higher-quality processes is encouraging invest-
ment in specialist tools and complete overhauls – despite, or
because of, the legacy issues most firms face.
We are delighted to have been able to gather insights from 20
senior wealth management executives, compliance and tech-
nology experts, lawyers and consultants for this report. We are
most grateful for their input, along with that of the wealth man-
agement professionals across the UK, EU, Switzerland, Hong
Kong, Singapore and US who took part in the survey.
We welcome feedback on this or any other research, and
would be pleased to discuss any ideas for development read-
ers might have.
Wendy Spires
Head of Research
WealthBriefing
wendy.spires@wealthbriefing.com
FOREWORD
6. The smartest way to know your customer
Getting a full and dynamic picture of potential and existing clients - both individuals and
business entities - is becoming increasingly challenging for financial institutions.
But now a solution is at hand: smartKYC has applied innovative technologies to redefine
KYC searches. The system increases rigour and speed in the identification of AML and sanction
red flags, and in the constant monitoring of client related risks and opportunities.
By automatically finding relevant information across multiple sources and languages and by
intelligently eliminating false positives, smartKYC increases the precision, efficiency and
auditability of your KYC and AML efforts.
A multilingual semantic engine for
KYC/AML screening and due diligence
7. 7EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
According to the global survey on which this report is based,
almost two-thirds (63%) of wealth managers will increase their Cli-
ent Due Diligence spend in the next year, with a third maintaining
current levels and just 4% predicting a fall.
Of those increasing their budgets in the year ahead, just over a
tenth (11%) will focus on outsourcing. The majority, however, were
evenly split (44% each) between those focused predominantly on
recruiting more staff and those investing in technology.
Wealth managers estimate that screening high-risk clients current-
ly requires an average of 5.4 man hours of work, with medium-risk
prospects taking 2.5 hours and even low-risk ones 1.6 hours.
The very much higher standard deviation seen for high-risk clients
(3.75) versus low-risk (1.08) should be noted, however. The vast ma-
jority of firms of all sizes are able to screen a low-risk prospect in
around two hours, yet a fifth of firms are taking double the peer
group average time to screen a high-risk client. Clearly, variation in
technology investment is having a significant effect on operational
efficiency today.
The panellists were unsurprised that nearly eight in ten institutions
(78%) ask their relationship managers to initially screen prospective
clients, rather than have compliance wholly responsible, or outsource
to a business administration provider as some respondents specified.
To highlight another significant, but possibly easily overlooked,
element of wealth managers’ workload, almost eight in ten (79%)
wealth managers carry out full DD screens on prospective employ-
ees and 77% check prospective partner companies to head off
risks like fraud and reputational damage.
It was found that almost a third (32%) of firms use some form of
outsourcing in CDD currently – a figure set to rise in line with the
fact that 11% of wealth managers increasing their screening bud-
gets in this area over the coming year will focus their spend mainly
on outsourcing.
The CDD process holds many frustrations for wealth managers,
with PEP/watch list screening and proving source of wealth/funds
tied at the top in the rankings of institutions’ biggest pain points
with 29% of the votes each.
The many challenges coming under the auspices of each of these
top two (arguably interlinked) pain points merits their clear lead.
However, given that respondents were asked to identify the most
frustrating part of the CDD process, other pain points are also
clearly weighing heavily on the industry. Issues around data cap-
ture and document collation (17%), and detriment caused to the
client experience/relationship (11%) - particularly because of data
security concerns - are high on the agenda.
Adapting to regulatory change and jurisdictional differences is
the biggest cause of frustration for almost a tenth (9%) of firms,
while 6% of respondents ranked issues around trusts and Ultimate
Beneficial Owners highest. The frustrations surrounding the latter
may be expected to rise in particular as regulations forcing greater
transparency in this area, like the EU’s Fourth Anti-Money Launder-
ing Directive (MLD IV), come into force.
The survey revealed significant divergence in institutions’ risk-rat-
ings for various key countries. While Iran, Sudan and (to a slightly
lesser extent) Russia are universally seen as high-risk, others like
China and Mexico appear to split wealth managers between
medium- and high-risk ratings.
Wealth managers also appear to vary widely on how often they
fully rescreen their clients. For example, it is worrying that in to-
day’s fast-moving environment approaching a fifth of firms appear
to be fully rescreening their high-risk clients only once a year; at
the other end of the spectrum, a similar proportion are doing this
daily. CDD policies and procedures clearly differ very much across
the industry according to each institution’s ethos, markets and cur-
rent/target client base, with internal controls also having to evolve
rapidly in line with regulatory and geopolitical shifts.
Importantly, rescreening frequency is said to typically bifurcate
along watch list/media lines, with the former done more regu-
larly due to the laboriousness of carrying out thorough media
checks manually. Only a tenth of wealth managers say search-
ing for adverse media on prospective clients is their biggest
priority, despite the manifest advantages that real time moni-
toring confers across many areas of CDD. The various chal-
lenges firms are evidently experiencing in documenting source
of wealth/source of funds have made tracing monies the top
priority for 50% of firms, while screening via watch lists was in
second place with 30% of wealth managers focusing on this.
The highly variable levels of automation in client onboarding pro-
cesses WealthBriefing research has revealed across the industry is
clearly a key factor in how feasible best practices like full overnight
rescreens for all clients are. Today’s rapidly-moving regulatory and
geopolitical environment presents particular risks to the 16% of
wealth managers that are only fully rescreening their high-risk cli-
ents annually (a further 19% of institutions are limiting themselves
to rescreening high-risk clients biannually).
Almost half (49%) of respondents would be in favour of their in-
stitution fully rescreening all clients daily, adding to the 13% for
whom this is already a reality.
Overnight rescreening of all clients may soon become a reality
for at least some wealth management professionals, as 43% of
firms are said to be increasing the frequency with which clients are
re-screened in the near term.
METHODOLOGY:
106 senior wealth management professionals in the UK, EU, Swit-
zerland, Hong Kong, Singapore and US were surveyed for this
report in November and December 2015.
In-depth interviews were carried out with 20 senior wealth man-
agement executives, compliance and technology experts, lawyers
and consultants.
9. 9RESEARCH ORIGINATORS
RESEARCH ORIGINATORS
Roopalee leads the business development initiatives for
EY’s wealth management team. She has over 15 years of
experience across industry and consulting; she has worked
with a range of private banks, wealth managers and retail
banks in the UK and India.
Roopalee has supported wealth managers by providing
insights and leading projects on proposition development,
strategy implementation, operational design and
regulatory change.
ROOPALEE DAVE
Senior Manager, Wealth and Asset
Management, EY
Alessandro is one of Finantix’s founders and as strategy
director he focuses on the company’s growth and overall
direction. He is responsible for communications with major
clients, business partners and analysts worldwide.
Since 1992, Alessandro has represented Finantix in various
capacities related to product development and global
account management and been responsible for large-scale
implementations of wealth management platforms. Before
establishing Finantix, Alessandro was a consultant
specialising in the areas of process management and CRM.
ALESSANDRO TONCHIA
Co-Founder, Finantix, a partner
firm of smartKYC
Tom is a senior manager in the EY Wealth & Asset
Management practice with over nine years of experience
in financial services. This includes significant time spent in
wealth management and investment banking operations
before joining EY in 2015.
Thomas’ areas of expertise include Target Operating
Model considerations, regulatory change, client
onboarding and custody services.
THOMAS MORLEY
Senior Manager, Wealth and Asset
Management, EY
Wendy has been a wealth management journalist and
a research writer for eight years, covering a variety of
international markets and sub-sectors over that time. She
has written an array of in-depth reports on issues affecting
private banks and wealth managers, including technology
and operations trends, enhancing the client experience,
branding and marketing strategy, and risk-profiling
methodologies.
As well as speaking at conferences in both the UK and
abroad, Wendy also regularly consults on strategic and
communications issues related to the wealth and asset
management market, specialising in technology.
WENDY SPIRES
Head of Research - WealthBriefing;
Report Author
10. 10 Towards True KYC: Technological Innovations in Client Due Diligence
EDITORIAL PANEL
Christian joined Barclays in September 2011 and is head of
the private bank in London, where he is responsible for the
key client business in the UK.
Before joining Barclays, Christian worked at JP Morgan,
where he was head of European equity sales and then
co-head of sales in 2010 post the merger with Cazenove.
Before this he worked at Merrill Lynch and Morgan Stanley.
CHRISTIAN BERCHEM
Head of Private Bank - London
Barclays
Dominic has been a compliance manager at the
London-based wealth management firm London Capital
for over four years. Prior to London Capital, Dominic
was a compliance manager of a high net worth client
advisory firm, and holds various investment and advisory
qualifications.
DOMINIC CRABB
Compliance Manager
London Capital
Chrisol is responsible for managing and developing
international AML solutions, including WorldCompliance
data solutions for third-party risk screening, as well as for
international identification verification solutions. His areas
of regulatory compliance expertise include AML-KYC, real-
time transaction filtering, negative media monitoring and
anti-bribery and corruption compliance.
Chrisol has over 12 years’ experience in developing com-
pliance data solutions, primarily for the financial services
sector. He has worked with clients in over 30 countries and
is a regular speaker at industry events.
CHRISOL CORREIA
Director, International Head of
AML Compliance
LexisNexis Risk Solutions
Chris has edited numerous financial publications over the
years, primarily in compliance. He ran Compliance Monitor,
Fraud Intelligence and Money Laundering Bulletin
between 1997 and 1999 and then covered for the editors
of all Complinet’s online publications as the one expert
who had experience of every sector.
In 2001 Chris set up Complinet Money Laundering and
ran it until its dissolution in 2009, chairing many
compliance conferences, including one for Chatham
House, along the way. He is now the editor of Compliance
Matters and Offshore Red, and the compliance editor of
WealthBriefing.
CHRIS HAMBLIN
Editor
Compliance Matters
11. 11EDITORIAL PANEL
Xavier is head of Salamanca Group Trust and Fiduciary, and
as such is a principal driver of the trust and fiduciary vision
and strategy, supported by a multi-jurisdictional
management team.
Xavier gained over 20 years of experience in various
management positions at ABN AMRO Bank and Trust in
Luxembourg, Geneva and Jersey prior to joining Investec
Trust in 2005 as managing director of the Geneva office
and as CEO of the Investec Trust Group in 2009. Xavier
served as the inaugural vice- president of the Swiss
Association of Trust Companies and is currently a member
of its committee.
XAVIER ISAAC
Managing Director, Salamanca
Group Trust
John Whick read Economics and Geography at University
College London before working as an economic analyst,
both in the parliamentary and corporate world. While
completing an MSc at the University of London, John
taught economics and finance to degree and MBA
students.
Prior to joining Henderson Rowe, John worked for two
years as a principal trader on the European bond markets.
He set up the Investor Visa offering at Henderson Rowe
in 2010 and continues to develop services for the firm’s
international client base.
JOHN WHICK
Senior Investment Manager
Henderson Rowe
Mike Toole is group chief operating officer of Artorius
Wealth, a multi-family office and wealth manager
established in 2014 that is now growing quickly in the UK
and Switzerland.
Previously, Mike was a partner at accountancy firm Baker
Tilly, where he was group operations director for the
financial management and investment businesses. Mike
has 12 years’ experience in financial services and banking,
including with KPMG, Santander and UK mutual societies.
He was also involved in founding a Saudi family office and
managing a substantial private equity portfolio.
MIKE TOOLE
Chief Operating Officer, Artorius
Wealth
WealthBriefing would also like to offer special thanks to
the following contributors for their invaluable insights:
• Don Andrews - Partner and Co-lead in compliance and
risk management, Venable LLP
• Ben Harris - Manager, Compliance, Morgan McKinley
• Jonathan Kirby - Managing Director – Switzerland, JTC
• Emma Radmore - Managing Associate - Financial
Services and Funds, Dentons
• Mark Spiers - Principal, Head of Banking, Investments
and Lending, Bovill
• Rob Taylor - Head of Department for Investment
Management, Financial Conduct Authority
• DE (Ed) Wilson Jr - Partner specialising in Washington-
related business and regulatory matters, Venable LLP
ADDITIONAL CONTRIBUTORS
12. 12 Towards True KYC: Technological Innovations in Client Due Diligence
According to the survey which forms the ba-
sis of this report, almost two-thirds of wealth
managers will increase their CDD spend in
the next year, with a third maintaining current
levels and just 4% predicting a fall. Of those
increasing their budgets, a tenth will focus on
outsourcing (as will be seen, just under a third
of institutions partially outsource their KYC
function). The majority, however, were evenly
split between those focused predominantly
on recruiting more staff and those investing
in technology.
According to the panel, the importance ac-
corded to technology investment is a natu-
ral consequence of the industry’s shortage
of compliance expertise; it also reflects - as
with so many other elements of operations
- how regulatory and cost pressures are
opening minds to new ways of working.
With no respite from regulatory upheaval in
sight, WealthBriefing research has found that
76% of wealth managers believe technology
plays a crucial part in fulfilling compliance
obligations. Moreover, 94% believe technol-
ogy could play an even greater role1
. As the
data on processing times and frequency on
p25 show, CDD is evidently one such area.
“We are focused on ensuring that we
have the right resource and expertise in all
regions to support enhanced KYC reviews
and supplementing this as necessary, both
from an employee and - more so this year -
from a technology perspective,” said Chris-
tian Berchem. In fact, a number of C-level
executives have told WealthBriefing that
although they have been hitherto primar-
ily focused on hiring to support enhanced
KYC procedures, 2016/17 will be about
addressing technology enhancements to
enhance productivity.
This matches Alessandro Tonchia’s experi-
ence, who said that firms may have been
largely focused on bolstering compliance
head count in recent years, but the tide is now
beginning to turn due to the urgent need for
cost savings and simple market forces.
“Every time a major breach is detected, in-
stitutions’ first instinct has been to hire - be-
cause they feel that more people shows more
goodwill, more quickly to the regulator,” he
said (the UK regulator has followed the US
in asking how much firms are spending on
compliance). Compliance officers’ stock rises
ever higher as a result, triggering a battle for
talent which has seen average remunera-
tion for director-level compliance profes-
sionals hit £107,617* (US$154,924) among
London’s wealth managers, according to
recruiter Morgan McKinley2
.
Ben Harris, compliance manager at Mor-
gan McKinley, confirmed that compliance
recruitment in wealth management has
been “extremely busy” in the past year and
is set to continue to be so over 2016, with
most institutions having to hire large proj-
ect teams of CDD specialists to remediate
client files and onboard new business.
“Wealth managers have had their fair share
of AML issues over the last 12 months and
the regulator has demanded they get their
house in order. This has led to increased
hiring, which has driven up salaries and
made the wealth management talent pool
very shallow,” he said. “Day rates for AML
staff within a private bank are on average
£500 ($726) per day in the UK and candi-
dates moving on a permanent basis can
expect a 20% pay increase on average.”
Interestingly, Harris also highlighted grow-
ing demand for specialist advisors on regu-
latory developments as another symptom
of firms’ struggle to stay ahead of a raft of
new rules. “Most wealth managers will now
have a dedicated professional covering
this, whereas in the past it would have been
a generalist covering numerous tasks,”
said Harris. “Salaries will start in this space
at £80,000 ($116,000), depending on expe-
rience, and go upwards from there. This is
again a very candidate-short pool.”
Even when implementations are pushed
back, this often still affords scant breathing
space for those behind in their preparations
63%
33%
4%
Increase
Remain the same
Decrease
FIGURE 1:
Will your institution’s CDD spend
change in the next year?
Every time a major
breach is detected,
institutions’ first
instinct has been
to hire - because
they feel that more
people shows more
goodwill, more
quickly to the
regulator.
SECTION 1
QUANTIFYING THE KYC
RESOURCING CHALLENGE
44%
44%
11%
Headcount
Technology
Outsourcing
FIGURE 2:
Where CDD spend will increase,
where will this mainly focus?
13. 13SECTION 1 – QUANTIFYING THE KYC RESOURCING CHALLENGE
due to the wide-reaching ramifications of
new rules. In February 2016 the European
Commission pushed the MiFID II deadline
back a year to January 2018, citing the “ex-
ceptional” challenges firms and regulators
face to prepare, and clarifications to the new
rules are still to be issued. Against this back-
drop, those with experience of rapidly get-
ting an institution up to speed with new rules
(and remediation) will be highly sought after.
The challenge of hiring compliance ex-
perts with the right skill set is only going
to get harder in the years ahead, in part
due to the fact that, in the words of Don
Andrews, “the future of compliance is in
technology”. As he pointed out, the whole
compliance function needs to have a good
understanding of technology as it is impos-
sible to carry out activities like suspicious
activity monitoring robustly otherwise, but
at the highest levels the trend seems to be
towards compliance chiefs being asked to
sign off on the soundness of their systems
(see p29). CCOs must have multi-disciplin-
ary knowledge base to match the broader
and weightier responsibilities they are
being asked to bear.
“Thinking of what the CCO of ten years’
time needs to look like, they are going
to require a very strong sense of technol-
ogy and of complex investments like de-
rivatives and structured products,” said
Andrews. “They are also going to have to
be incredibly astute with respect to inter-
preting laws and requirements, and deal-
ing with multiple regulators globally in
cross-border scenarios.”
“Being able to manage all this - and the
different ways institutions are structured,
from a legal or governance standpoint
- that’s the profile of quite a remarkable
individual,” he concluded.
It seems then that wealth managers are
very much at the mercy of labour market
forces in compliance. While the 20-30%
pay increases seen in mature jurisdictions
are startling enough, in fast-growing and
talent-constrained jurisdictions like Hong
Kong, jumps of 40% or even more are not
uncommon. “It is now becoming prohibitive
to hire,” Tonchia concluded. “The sheer ex-
pense of finding and paying for compliance
skills means that people are more open to
doing more with technology by necessity.”
A TENTH OF HEADCOUNT;
A TENTH OF TURNOVER?
To underscore the magnitude of the over-
all compliance costs being imposed, in
2015 the global financial services sector
was predicted by Celent to spend $50bn
on risk management and associated regu-
latory compliance, with each Tier 1 bank
spending $0.5bn.
Compliance costs have long been dent-
ing profitability across the board, with AML
accounting figuring highly: some UK in-
stitutions are estimated to be spending
£660m ($950m) each a year here3
. Howev-
er, as the panel noted, smaller institutions
will generally bear a greater quantum of
this burden due to their larger peers’ abil-
ity to leverage economies of scale in both
technology and staffing, and to share niche
expertise.
“The smaller you are, the greater the pro-
portion spent on compliance. Down at
the bottom you may be spending 10% of
turnover; if you’re medium it could be 5%,
and at the top it might be 2-3%,” said Chris
Hamblin. “Institutions must also have legal
expertise, in particular in esoteric areas
such as letters of credit. Big banks will have
a handful of experts, so you can deal with
emergencies faster and need fewer people
to cover the same ground.”
Of course, CDD requirements are just one
part of institutions’ increased need for
compliance expertise, as adjustments in
regulations such as UCITS V and AIFMD
have spelt the implementation of new con-
trols, policies and procedures. Heightened
client screening needs are no doubt a big
driver of the startlingly large compliance
drives of recent years, however. Several
global banking groups are known to have
hired several thousand compliance staff in
2015 as new regulations came into view.
Yet the experts argued these numbers
should not obscure the challenge of secur-
ing the senior expertise required, and the
costs of hiring specialised veterans. “One
of the biggest industry challenges is cor-
recting the inaccurate assumptions - or ba-
sic data gaps - on previous regulatory re-
quirements, and as such there is increased
spend on experienced staff for remedia-
tion purposes,” said Thomas Morley.
Thinking of what the
CCO of ten years’
time needs to look
like, they are going to
require a very strong
sense of technology
and of complex
investments like
derivatives and
structured products.
For Anti-Money Laundering purposes, “Know Your Customer” is
synonymous with “Customer Due Diligence”, a phrase invented
by the Basel Committee in the early noughties.
The UK tends to use KYC and CDD interchangeably, while the
EU prefers CDD, as does the Paris-based (although strongly US-
influenced and German-backed) Financial Action Task Force.
Variations including “client screening”, “global screening”, and
“background screening/checking” are also commonly in use.
The KYC/CDD process breaks down as follows:
First is client identification or client verification at the account-
opening stage, where institutions are carrying out background
checks and gathering supporting documents (note that in UK
regulatory language the individual is called an “applicant for
business” rather than a client).
Sometimes this involves an element of reliance, in that the cli-
ent may be new to the jurisdiction/institution in question but
has previously been served by a reputable institution within an
“equivalent” jurisdiction.
Central to the verification stage is documenting source of funds
and source of wealth, with both phrases used ubiquitously. For
the former, an institution investigates where the funds it will be
handling come from (there may be other funds elsewhere); for
the latter it examines why the person is wealthy and where the
wealth comes from.
KYC/CDD also entails ongoing monitoring, which includes trans-
action monitoring, but also more in-depth checks to ensure that
nothing of concern has emerged in reference to a client – such as
adverse media or new connections to PEPs.
CLARIFYING KEY TERMINOLOGY
14. 14 Towards True KYC: Technological Innovations in Client Due Diligence
Nor is it just a case of fewer people hav-
ing the necessary understanding the more
esoteric a policy area or market is; it is also
how that understanding is applied. Those
who can balance business development
and the thornier compliance issues are a
very scarce resource, it was said.
IRREGULAR NEW BUSINESS FLOWS
Compliance is said to account for about a
tenth of headcount typically, with salaries
rising faster than those of revenue-generat-
ing employees in some growth markets. So,
although under-resourcing is dangerous,
over-resourcing in compliance is something
to be avoided perhaps as much.
Compliance officers may be carrying out
the full gamut of regulatory duties in ad-
dition to CDD and arguably today there
is scant chance of them being under-em-
ployed for very long – particularly at small-
er institutions, where the survey found that
88% of sub-£500m ($345m) AuM firms have
maximum of five compliance personnel.
Yet CDD is an area where it can be particu-
larly difficult to get staffing levels right due
to irregular new business inflows, the panel
observed.
“KYC resourcing issues relate to the need
for the right experience level covering our
global footprint,” said Berchem. “Good
practice would include sharing resources
where possible and careful business plan-
ning to accommodate anticipated peaks and
troughs - as you would do with call volumes
or any other work of similar nature which is
resource intensive or variable in volume.”
Accurate planning may be difficult, how-
ever, and Mark Spiers confirmed that this
is frequently a focus of Bovill’s consultancy
work. “We see lots of firms struggling with
the number of people to put at the end of
the process because it sometimes goes in
peaks and troughs: you have busy seasons
and then you don’t,” he said.
A degree of over-staffing may be prefer-
able to heightened regulatory risks and op-
portunity costs, but as the panellists noted,
it is far easier to gain than shed headcount
and over-staffing can easily become very
expensive - particularly when a niche seg-
ment is involved. In addition to headline
recruitment and salary/bonus costs, over-
resourced firms will also likely have to con-
tend with the costs of seating personnel in
expensive wealth management hubs (start-
ing at around $2,000 per month for each
individual).
Some firms are grappling with whether CDD
resourcing should best sit within the opera-
tions or compliance function as they care-
fully examine and optimise their processes.
However, compliance cost pressures appear
to be catalysing far more dramatic opera-
tional overhauls too. The experts observed
that wealth managers are increasingly at-
tempting to centralise their operational and
compliance resourcing for CDD in lower-
cost countries such as Poland. Predictably,
however, firms are not as open to the pos-
sibility of sharing compliance teams and fa-
cilities with their peers, it was said.
“Given all these pressures, it’s no surprise
that wealth managers want technology
providers to help them hire fewer people
and then enable the ones they do hire to
be more productive,” said Tonchia. As he
explained: with the first aim, technology
helps address the fact that wealth manag-
ers are chasing new business across several
markets highly disparate in terms of lan-
guage, culture, media reliability, bureau-
cratic quality and regulation.
There is therefore often a need for what
were called “the very special specialists” to
cover each market, with future volumes still
unpredictable. The number and deploy-
ment of these in-demand, well-remunerat-
ed compliance officers therefore has to be
aggressively optimised.
“Technology makes it possible for insti-
tutions to hire fewer people for each na-
tionality of client. Better use of technology
might even mean you don’t necessarily
need the Chinese or Russian specialist,”
said Tonchia, noting that often volumes of
a particular nationality can be too small to
justify additional headcount.
As Tonchia explained, technology which
analyses documents for red flags in a variety
of the tougher source languages, particu-
larly those using non-Roman alphabets, can
be a huge boon in cost and efficiency terms.
“It causes real issues when you’re hitting
websites only to find they are written in Rus-
sian and you can’t even make a start,” Mike
Toole confirmed. “You can start to get re-
ally frustrated then without an efficient and
reliable translation solution.”
Cutting down translation costs is desirable
in itself, particularly when multiple languag-
es might be relevant. However, just as im-
portantly, native language analysis also en-
ables compliance officers to independently
carry out preliminary screening to identify
absolute non-starters at the earliest oppor-
tunity. This not only minimises wasted time
nurturing a relationship, but also allows
firms to make better informed outsourcing
decisions, the panel noted (see p16).
As Figure 3 shows, wealth managers es-
timate that screening high-risk clients
currently requires an average of 5.4 man
hours of work, with medium-risk prospects
KYC resourcing issues
relate to the need for
the right experience
level covering our
global footprint. Good
practice would include
sharing resources
where possible and
careful business
planning to accom-
modate anticipated
peaks and troughs - as
you would do with call
volumes or any other
work of similar
nature which is
resource intensive or
variable in volume.
MEAN
(HOURS)
FIGURE 3:
How many man hours of work would you say it takes to screen low-,
medium- and high-risk clients at your institution?
STANDARD
DEVIATION
1.6
2.5
5.4
1.08
1.57
3.75
Low-risk Medium-risk High-risk clients
15. 15SECTION 1 – QUANTIFYING THE KYC RESOURCING CHALLENGE
taking 2.5 hours and even low-risk ones
taking 1.6 hours. The very much higher
standard deviation seen for high-risk cli-
ents (3.75) versus low-risk (1.08) should be
noted, however. The vast majority of firms
of all sizes are able to screen a low-risk
prospect in around two hours, yet a fifth
of firms are taking double the peer group
average time to screen a high-risk client.
As discussed opposite, in reality a large
part of the new wealth institutions are now
chasing derives from markets for which giv-
ing clients a clean bill of health is inherently
tougher.
Investments today are focused on maxi-
mising automation and applying new tech-
nologies drawing on big data topographic
algorithms and semantic search to sift and
sort thousands of online documents – and
institutions are said to be achieving very
impressive efficiency gains in CDD as a re-
sult. Tonchia has seen efficiencies as great
as 90% achieved in the bulk rescreening of
low-risk clients following new technology
adoption.
Automation is clearly integral to maximis-
ing productivity as 80% of most institu-
tions’ clients will present no issues, the
panel noted. Furthermore, achieving these
efficiencies is foundational to the compli-
ance function fulfilling its tricky dual remit
of mitigating risk and facilitating business
growth. Relieving compliance analysts of
much of the burden of identifying red flags
so they can focus on assessing them will
ensure that senior expertise is deployed
where it will have most impact – whether
that turns out to be in protecting the busi-
ness from regulatory and reputational risks
or ensuring that all business which can be
compliantly taken on, is.
ALL HANDS ON DECK
The panel also highlighted the better use
of junior analysts and researchers’ time as a
priority, as part of a more efficient use of in-
ternal resourcing to better cope with peaks
of new business. As discussed, for both sup-
ply and cost reasons, top-level KYC roles are
hard to fill and recruiters serving the wealth
management sector have told Wealth-
Briefing it is increasingly difficult for wealth
managers to source candidates who are
appropriately qualified for roles involving
onboarding new business specifically.
Although tough decisions must be made at
senior levels, there is scope for junior com-
pliance officers to be more productive and
take a more collaborative approach with
their superiors, it was suggested. “We can
allow all internal staff to do more, includ-
ing the junior ones, because our system
interleaves data sources and the informa-
tion is presented in the right format to aid
decision-making and enforce compliance
policies,” said Tonchia. As discussed on
p29, smoothing the process of junior ana-
lysts calling on senior expertise is key here.
BROADER SCREENING
The panellists were unsurprised that nearly
eight in ten institutions ask their relation-
ship managers to initially screen clients,
rather than have compliance wholly re-
sponsible, or outsource to a business ad-
ministration provider as some respondents
specified. While prospective clients may
not get run through any databases in the
earliest stages (although they may if tech-
nology investment has made this efficient),
the experts observed that best practice
will see RMs trained in the risk matrix their
firm is applying and so well aware of what
they should be focusing on when assessing
which relationships to pursue.
Not only are RMs the first line of defence
in risk management and the guardians of
their organisation’s reputation; their time
must also be focused where it will be most
productive. Unless potential compliance
issues are detected as early as possible,
much work across business functions may
be wasted.
The authorities certainly want client screen-
ing to commence at the earliest opportuni-
ty. Clarifying the UK regulator’s position for
this report, Rob Taylor, head of investment
management, said: “The FCA expects all
private client firms operating in the UK
and advising clients to work to the highest
standards of KYC due diligence possible.
Best practices include KYC being done
on prospective clients before they are
even visited and rigid control over clients
coming from high-risk jurisdictions.”
Given the inefficiencies (and possible inac-
curacies) implied by firms carrying out light-
touch initial screening and then compre-
hensive screening, it makes sense for firms
to carry out the latter in the first instance
where labour-saving tools permit this.
There is also an important distinction to be
made between a relationship being entered
and a client account becoming fully funded
and active – and therefore a revenue gener-
ator. Completing CDD at an early stage sig-
nificantly reduces barriers to progress here.
As Chris Hamblin observed of the UK’s Mon-
ey Laundering Regulations 2007, rule 9(2) re-
quires the identity of the customer (and any
beneficial owners) to be verified before the
establishment of a business relationship.
However, 9(3) contains a carve-out that this
can be done during the establishment of a
business relationship, if this is necessary not
to interrupt the normal conduct of business
and if there is little risk of money laundering
or terrorist financing, provided that verifica-
tion occurs as soon as practicable after con-
tactisfirstestablished.Thebusinessrelation-
ship can commence but actual transactions
are not permitted before verification has
occurred, as per Regulation 9(5)(b).
An important but perhaps easily overlooked
element of the screening workload stems
fromthemajorityofwealthmanagerscarrying
out enhanced due diligence on parties other
than prospective clients: almost 79% carry
out full screens on prospective employees
78%
22%
Yes
No
FIGURE 4:
Do RMs at your institution carry
out initial screening on
prospective clients?
FIGURE 5:
Which parties other than prospective clients does your institution currently
carry out full due diligence checks on?
79%
77%
Prospective
employees
Prospective partner
companies
16. 16 Towards True KYC: Technological Innovations in Client Due Diligence
and 77% check prospective partner com-
panies to head off risks like fraud and
reputational damage.
The experts confirmed that employee DD is
essential in a private client context and that
here proprietary databases do extremely
valuable “double duty”. “For employees we
reserve the right to run them through World-
Check and Experian to find out if there are
any problems with them and if they have any
financial issues, because that’s obviously a
risk to the firm,” said Dominic Crabb.
“We certainly do credit checks on prospec-
tive employees, because at the end of the
day we’re giving them access to HNWIs’
details,” added Toole. “We do that right
down to the cleaners in the office.”
While not all firms are hiring in great vol-
umes, some are and so the ability to screen
recruits and candidates easily is vital. Simi-
larly, many firms are entering multiple third-
parties arrangements as operating and
business models evolve and, as the survey
showed, robust due diligence on these is
also a priority. As Crabb explained, firms
can be comfortable working with a regu-
lated entity like a custodian bank in a repu-
table jurisdiction, however, with other or-
ganisations more attention has to be paid
to questions like what the world is saying
about them and who is on the board.
Screening new recruits and third-parties
may be a relatively small addition to the
DD workload, but they are an appreciable
burden that makes them yet another driver
towards the better use of technology. In
the experience of the panellists, at most
firms these checks are currently carried
out manually. The efficiency-savings and
risk management improvements automa-
tion could bring are clear. As with clients, it
may be only the thousandth document that
uncovers a potential partner firm has dis-
tasteful business connections or activities,
making the value of semantic search tools
that can “read” multitudinous documents
and databases in minutes clear.
Further evidence of regulators’ leanings on
employee DD may be seen again in the UK,
where the FCA and Prudential Regulation
Authority are set to subject all top employ-
ees at institutions - though not yet CF30s - to
a “regulatory reference” (CF30 is the “cus-
tomer” function - giving advice, managing
investments, dealing etc.). This means that
all prospective employers would demand
various references before employing indi-
viduals – and these are to include any con-
clusions that a conduct rule was breached
and details of the outcomes of any disciplin-
ary action, going back five years. CF30s are
not earmarked for this process, but the Se-
nior Managers and Certification regime was
first intended only for banks and will now
apply to all financial firms, Hamblin warned.
Under the SMCR, from March 2016 regu-
lators can fine or sanction senior bankers
for misconduct that occurs in their areas of
responsibility, including CDD procedures.
Research by LexisNexis Risk Solutions4
has
strongly indicated that increasing levels of
personal liability may exacerbate the short-
age of senior AML compliance officers in
the UK: half of such professionals predict the
SMCR will make their jobs more or a lot
more stressful. More strikingly still, 54% say if
they had the opportunity they would choose
another career path in light of the increased
personal liabilities. Importantly, 13% of ex-
ecutives believe a lack of personnel in their
risk function is the biggest single emerging
financial crime risk they face in the next 12
months – a figure which also underscores just
how time-pressed some employees must be.
OUTSOURCING: A PRECIOUS
RESOURCE THAT MUST BE
USED WELL
It was found that almost a third of firms use
some form of outsourcing in CDD currently
and a tenth plan to focus increased spend
on this in the coming year, underscoring the
important role third-party providers play
in the resourcing puzzle. The reasons for
wealth managers’ growing need for their
services are of course inextricably linked
to their expanding number of markets and
the fact that each segment and jurisdiction
presents its own unique challenges.
Here, as with so many other elements of
compliance, a whole ecosystem of out-
sourcing providers has flourished under the
harsher regulatory glare of recent years.
LANGUAGE BARRIERS
The need for linguistic skills is one of the
main reasons for outsourcing in CDD since,
as Tonchia observed: “If you’re searching
for Chinese clients and you cannot read
Simplified or Traditional Chinese, you’re
missing things by definition.” But while
the need for translation services cannot be
eradicated, it can be significantly reduced.
“We catch red flags by scanning the Chi-
nese, Russian or Arabic text in the original
and then provide automatic translation so
you only call in an external translator when
you really need to,” he continued.
Many institutions have an urgent need of
such capabilities, in his view: due to chang-
ing wealth creation trends there are teams
sitting in Hong Kong and Singapore on-
boarding clients mainly from China and
Indonesia, but with little or no internal
compliance capabilities in their languages.
To illustrate another productivity benefit
from native language analysis, Tonchia de-
scribed how - with traditional keyword
searches - an actor could trigger a red flag
because they starred in a film about terror-
ism, but with semantic technology this entry
can be automatically dismissed.
UNKNOWN TERRITORY
As discussed on p18, PEP screening is chief
among the difficulties facing wealth man-
agers, particularly the fact that quite deep
knowledge of the relevant political land-
scape is necessary to make an informed
More strikingly still,
54% say if they had
the opportunity they
would choose another
career path in light of
the increased
personal liabilities.
Unsurprisingly, 13%
of executives believe
a lack of personnel in
their risk function is
the biggest risk they
face in the next 12
months.
68%
32%
No
Yes, in part
Yes, wholly
FIGURE 6:
Does your institution outsource
its KYC function?
17. 17SECTION 1 – QUANTIFYING THE KYC RESOURCING CHALLENGE
decision on whether to onboard. The
need to use external intelligence provid-
ers for support across an expanding global
business is probably equal to language re-
quirements in driving the fact that 32% of
participants use outsourcing in CDD.
For Crabb, the vastness and somewhat
arcane nature of some key markets – like
Russia and China – also makes the “manual
overlay” outsourcing providers offer one
of their key selling points. Such firms can
often bring an immense, very well-con-
nected network to bear (including perhaps
journalists and people in office) to supple-
ment public information that might not be
readily available in certain jurisdictions.
“If a prospect comes from an obscure town
in Eastern Russia or city in China, they can
really dig into it through people with on-
the-ground knowledge,” he said. “It might
be that there’s no risk in terms of bribery
and corruption, but he is involved in po-
litical decision-making, he is on certain
committees or close relatives are linked to
activities we are uncomfortable with.”
As John Whick pointed out, the relative
immaturity of some markets in terms of
professional services providers is particu-
larly a factor for arrivals on investor visa
programmes, as compliance groundwork
may not have been well laid in advance.
“Specialists are useful if we get what you
might call a ‘naked client’, who hasn’t got
an accountant, lawyer or immigration team
attached,” he said. “It is worth it for difficult
cases when you’re looking at two inches of
files to get through.”
A further point to emerge here is that time
is often of the essence when screening
clients entering a country on an investor
visa – lest their plans be jeopardised. The
fact that external intelligence providers
can typically produce an entry-level report
within 48 hours and the most in-depth with-
in a few weeks could be the key to winning
new business.
CARE REQUIRED
Third-party reports can be extremely use-
ful, and may constitute an efficient way to
fulfil sporadic coverage needs, but their
cost means they must be deployed careful-
ly, the panellists said. Wealth managers pay
£2-3,000 ($2,880-4,320) per in-depth report
and may of course never onboard the pro-
spective client. Some institutions ask that
prospective clients bear these costs and
it is arguably a useful exercise for some
individuals to carry out.
As Hamblin highlighted, firms will never-
theless be grateful for the number and va-
riety of authoritative sources of information
they can draw on today: in the past, private
investigators were sometimes the only re-
course for firms that wanted to scrutinise
clients from developing nations.
For wealth managers grappling with a
subtle case, it can be incredibly useful to
receive a report produced by a specialist
that gives clear conclusions in the form of
a tiered traffic light system or numerical
risk scores based a range of key metrics.
Yet, as the panellists pointed out, institu-
tions can never outsource responsibility for
CDD decisions and so a green light from a
third-party can only go so far. In the words
of Jonathan Kirby: “Third-party help is very
useful, but it’s not going to get you out of
trouble with regulators.”
The fact that several outsourcing organisa-
tions have spun out of law firms is testament
to the quality of leading CDD specialists.
Yet, as the panellists said, amid a prolif-
eration of providers internationally and an
explosion of new wealth creation centres,
institutions may have valid concerns. They
may lack confidence over whether external
CDD will be signed off at a senior level, or
carried out in enough depth to really add
value and mitigate risk. “There’s nothing
worse than paying thousands for an ambig-
uous report which just tells you what you
already knew,” said Toole. “There needs
to be a more balanced scoring system that
gives a risk weighting indicating whether
you should be worried or not.”
A degree of circumspection over third-par-
ty reports being carried out in good faith
also seems warranted, particularly when cli-
ents are often asked to pay for these them-
selves. “Many are very reputable, but there
are some that are hungry for business and
so might write something favourable or
minimise negative media,” one executive
observed. Interestingly, this type of risk is
said to be spurring firms with the technical
capabilities to take the step of carrying out
full DD on report providers, as well as all
the other possible subjects.
Due to these factors, Tonchia increasingly
sees banks preferring to prepare special
CDD reports internally today and using
a mixture of technologies to help them
achieve this efficiently. “With new solutions
you can collate the information that goes
on that report much faster and often with
the same reliability you get with a human
operator, just because a technology can
be more thorough in ‘reading’ thousands
or even millions of documents to identify
the key information automatically,” he said.
“The technology doesn’t solve everything,
but by helping you leverage your internal
researchers and compliance officers, and
giving them all the elements to come to
a conclusion quickly, it might make those
external services less relevant, or relevant
only in extreme cases.”
A further incentive here is of course one
of wealth managers’ prime considerations:
data privacy (see p33). “Outsourcing is not
only expensive for banks, it is also in itself
a challenge to secrecy because you’re let-
ting client names go to your provider,” said
Tonchia. “They will sign a Non-Disclosure
Agreement, but clearly the more people
who know about this relationship, the more
it might leak.”
The technology
doesn’t solve
everything, but
by helping you
leverage your internal
researchers and
compliance officers,
and giving them
all the elements to
come to a conclusion
quickly, it might make
those external
services less relevant,
or relevant only in
extreme cases.
18. 18 Towards True KYC: Technological Innovations in Client Due Diligence
SECTION 2
MAJOR KYC PAIN POINTS AND
THE RISKS THEY REPRESENT
As Figure 7 shows, the KYC process holds
many frustrations, with PEP/watch list
screening and proving source of wealth/
funds tied at the top, and data capture and
document collation next behind. The many
challenges coming under the auspices
of each of these top two (arguably inter-
linked) pain points merits their clear lead.
However, given that respondents were
asked to identify the most frustrating part
of the process, other pain points are also
clearly weighing heavily on firms.
1. PROBLEMS WITH PEP/WATCH LIST
SCREENING
False positives and their cost
The fact that PEP and sanction list screen-
ing is causing most frustration was no sur-
prise to the panel due to there being so
many overlapping challenges for firms to
contend with, some being more techno-
logical/procedural in nature and others
philosophical. Both, however, impact ef-
ficiency.
The most obvious problem is that of “false
positives”, since institutions are typically
screening on the basis of a name, country
and perhaps year of birth and this can gen-
erate thousands of similar hits.
Here, cultural naming customs are a fac-
tor. The ubiquitousness of some names
can make screening clients from certain
markets difficult. The Hispanic convention
of conferring two family names can also be
problematic; being known by a paternal,
maternal or hyphenated surnames all be-
ing possible. Complicating matters even
further are the Anglophone names those
from non-Western cultures often adopt
Amid these issues, firms have to keep initial
searches broad to catch hits across all name
permutations, the panel said. Correspond-
ingly, while they may feel tools like World-
Check are over-sensitive, there is also a rec-
ognition that this is necessarily so. As one
executive remarked, no information provid-
er will want to assume liability for deciding
whether a hit relates to a client or not.
While having to dismiss a large number of
false positives from initial results is a tire-
some task, it is an unavoidable one due to
the desirability of “fuzzy matching”.
“Efficiency can be improved by inserting
prospects’ middle names when searching,
for example, but the risk of this is that this
may seriously limit the information which is
pulled back,” said Thomas Morley.
Furthermore, fuzzy matching may also
even have to extend to dates of birth as
these may have been recorded/reported
incorrectly. “You want to see some of those
mistakes, so a perfect match on the client’s
birthday or even age might be counterpro-
ductive,” one executive said.
Fuzzy matching may be wise, but the
costs associated with dealing with false
positives can run into the tens of millions
every year, Chrisol Correia, international
head of AML compliance at LexisNex-
is Risk Solutions, pointed out. His firm
estimates that in the US, individuals
working within a Level 1 alert remedia-
tion function typically earn $50-70,000 and
that 75-85 of every 100 AML operations
analysts are fully dedicated to confirming
and closing false positives. “In dollars,
this translates to over $5m each year per
every 100 AML operations analysts,”
Correia said. “Large financial institutions
typically have teams of over 1,000 AML
operations analysts, thus the expendi-
ture devoted to confirm and close false
positives is well over $50m a year for these
organisations.”
According to Correia, the primary causes of
false positives are gaps in institutions’ own
client records or in the data they exchange
with others through their electronic wire
transfer networks. Plugging these gaps
through more intensive questioning alone
raises client experience concerns that may
mean more investment in technology and
data is key in solving these issues.
Of course, the leading proprietary data
sources are highly configurable (a toler-
ance of around 80% in matches seems to
be best practice). To help firms deal with
false positives even more proactively,
Alessandro Tonchia highlighted two tech-
niques users of tools like smartKYC can
deploy. The first is intelligently scoring
and disambiguating information to screen
out hits with non-matching characteris-
tics; the second is intelligently subjecting
different types of information to semantic
analysis.
FIGURE 7:
Which element of the client screening process causes the most frustration at
your institution?
29%
29%
17%
PEP/watch list screening
11%
9%
6%
Source of wealth/source of funds
Capturing data and collating documents
Negative impact on the client experience/relationship
Adapting to regulatory change and jurisdictional differences
Trusts and Ultimate Beneficial Owner issues
Efficiency can be
improved by insert-
ing prospects’ middle
names when search-
ing, for example, but
the risk of this is that
this may seriously
limit the information
which is pulled back.
19. 19SECTION 2 - MAJOR KYC PAIN POINTS AND THE RISKS THEY REPRESENT
“We’ve found it very effective to interleave
structured data like name, passport num-
ber and date of birth, with unstructured
information from the press and social me-
dia,” he said. “So, if you are screening a
person who 25 years old, you can dismiss
articles about somebody who studied at
Harvard in the ‘60s because you can infer
there is no logical match between the two.”
Evolving standards; an expanding
PEP population
False positives are clearly a big issue, but
again one largely solvable by correctly
configured technology. A far broader, and
arguably thornier, challenge around Polit-
ically-Exposed Persons is defining param-
eters in an area where the interpretation
and interplay of regulatory requirements
is fraught with ambiguity. Even the defini-
tion of what constitutes a PEP is problem-
atic, and while the EU’s Fourth Anti-Money
Laundering Directive (MLD IV) seeks to
remedy this, the general consensus seems
to be that it has only partially succeeded.
MLD IV expands the definition to include
domestic prominent public function hold-
ers and requires institutions to screen their
clients for domestic PEPs. Furthermore, as
EY has warned, application of the Directive
is tending towards firms being forced to
treat all PEPs, either domestic or foreign,
as high-risk. As a result, many firms will
have to significantly increase the amount
of searches they carry out to identify PEPs
and then apply enhanced CDD measures
to a far greater proportion of clients. Along
with having far more PEPs to manage and
monitor, there may also be a need for
significant back-book remediation.
While Simplified Due Diligence can cur-
rently be applied to certain categories of
client, MLD IV drastically reduces the cir-
cumstances in which SDD applies. Instead,
SDD will have to be justified on a case-by-
case basis on the basis of a holistic risk
assessment. EU states will have to take a
view on the money laundering and terrorist
financing risks their jurisdiction represents
as part of this process. The industry now
awaits further technical guidance from the
European Supervisory Authorities on de-
termining whether Simplified or Enhanced
DD applies.
Globalisation
For institutions operating globally, pick-
ing a path through the various applicable
regulatory standards can be trouble-
some, the panel said. Global standardisa-
tion with minimal local deviations is what
most firms will be seeking in operational
efficiency terms, and to deliver a consistent
experience to clients operating interna-
tionally while leveraging information held
elsewhere in the group. Here, some firms
are already taking a “super-equivalence”
approach of applying tough US or UK
standards across the board, but here the
experts urged common sense. (Several sur-
vey respondents specifically identified go-
ing beyond local requirements as a source
of client annoyance.)
Emma Radmore argued that although
firms should try to apply the highest global
standards, they also need to strike a sen-
sible balance. “Due diligence on a Cana-
dian client will be adequate for Canadian
purposes, but may not be completely
so for UK purposes. If this client is not
going to have anything to do with the UK,
can you say that on a global level you’re
still compliant so long as it complies with
local policies?” she said. “As long as you’ve
got a procedure that correctly identifies
which laws you have to comply with and
a procedure that clearly identifies when
you may be able to depart from those - and
it doesn’t become an accepted norm - then
I think it can work. A policy that doesn’t
recognise that is probably doomed to
failure.”
Dialling thresholds up…and down
As discussed, wealth managers are diver-
sifying away from mature markets like the
UK and US where it is easier to gather in-
formation, to target newer markets like
China, the Commonwealth of Independent
States, Middle East, Russia, Latin America
and Africa.
Dramatic geopolitical shifts in growth
markets mean policies, procedures and
systems can rapidly fall behind, over-sensi-
tivity to Iran perhaps being a case in point
going forward. However, the real challenge
represented by clients linked to these
countries is simply that they are places
where documenting source of wealth/
funds is harder and PEP issues are com-
moner.
“One of the particularities of these re-
gions is that wealth is often created with
a nexus with a PEP, or there is an element
of PEP in the file, so we have to be very
well-equipped internally to deal with these
issues” said Xavier Isaac. As such, com-
mentators have observed that firms really
face a binary choice between ramping up
technology investment or limiting the
markets they target business in.
As was pointed out, while someone con-
nected to a PEP from a financial or business
perspective might not necessarily go on a
PEP list, best practice dictates that they still
face similar DD. “Family members have to
be treated as PEPs, as when you’re looking
at the risk of corruption it’s often the case
that people don’t put assets in their own
name,” one executive said. Here again,
media searches come to the fore.
“Official lists are precise on actual PEPs,
but we help where they perhaps aren’t so
effective – in finding PEPs among friends,
family and business partners,” said Ton-
chia. “We can find out dynamically from
business gazettes, company databases,
blogs and social media if someone is a
close associate.” Even more pertinently,
media checks counter the risks inherent in
many databases having a six-monthly up-
date cycle. “You need to be ‘reading’ infor-
mation in real time on the web of today to
get a fresher sense of the client and catch
things before a database may register
they’ve happened,” he continued.
On the flip side, institutions also need
to be able to dial down systems’ sensi-
tivity in line with their own risk policies
(and a common sense overlay). As Jona-
than Kirby highlighted, the Channel Is-
lands’ position is that once someone is a
PEP they always are, even 20 years after
leaving office. Yet clearly at these dis-
tances of time, or where an individual
was only a minor official, there is arguably
limited potential for financial foul play.
“Your father might be listed as a PEP if he
was in politics 30 years ago, but the chanc-
es you are both corrupt are low. Our sys-
tem would read biographical information
semantically, see that he hasn’t been in
office for 30 years, and downgrade the
red flag,” said Tonchia. “Banks have dif-
ferent policies to judge how relevant and
time-critical certain roles are. We can
do post-processing of what is found on
World-Check and determine that actually
someone is a junior PEP or not one at all
according to policy.”
One of the
particularities of these
regions is that wealth
is often created with
a nexus with a PEP,
or there is an element
of PEP in the file, so
we have to be very
well-equipped
internally to deal
with these issues.
20. 20 Towards True KYC: Technological Innovations in Client Due Diligence
As Correia concluded, the risk-based ap-
proach may have its complexities but it re-
mains the best way of focusing on those cli-
ents with the most potential to damage the
institution and not turning down business
unnecessarily. “There are millions of PEPs
in the world and hundreds more elected
each day,” he said. “Normally there is
nothing wrong and in fact they are often
desirable clients.”
In a rapidly-changing world, institutions
must ensure they can stand up to future
scrutiny of their onboarding decisions
and attempt to anticipate what might be
termed “unknown unknowns”. “Four years
from now there may have been a revolution
and you may have the authorities ques-
tioning why you onboarded this PEP with
negative news,” one compliance expert
observed. “You have to be able to answer
well.”
The wealthy have ever been the target of
spite, yet the wise would never dismiss ad-
verse media out of hand, the panel warned.
As Mike Toole remarked: “You need to ap-
ply a common sense overlay to the assess-
ment process, thinking forward, conscious
that context and goalposts change; some
people aren’t on the watch lists and should
be.” (Several executives said they have
indeed seen anomalies, in fact.)
As the panellists argued, better use of
technology is vital in this sense because
institutions cannot be omniscient (and nor,
arguably, are they expected to be). Rea-
sonable justification is the key. “Trying to
stay on top of the changes in governments
and how they affect an institution’s client
base is almost impossible,” Correia said.
“The best way to protect yourself is to have
a good decision-making process, but also
a well-documented process.”
The prevalence of PEP risks among UHNW
and international clients means they
are traditionally those taking longest to
onboard, since the process of clearing them
has to be far more discursive, the panel
observed. “It’s questions like: Is source of
funds/wealth clear? Is there anything that I
can’t explain? Why are they a PEP, and why
might that influence be used to their benefit
in ways that would cause issues,” said Kirby.
“You can’t really have a checklist with PEPs,
you have to find the answers to those ques-
tions and then delve further.”
While institutions no doubt crave certi-
tude, the crux of the matter is that there are
seldom simple answers, the panel point-
ed out. “Dealing with PEPs is nebulous
and not just a case of looking at a list,”
said Chris Hamblin. “The operative word
is reputation: that’s what the FATF and the
regulation says is the guiding principle.”
As will be discussed in Section 3, increased
media searches are a vital piece of the
CDD/marketing puzzle. Some blog posts
may well be specious overall, but they
might still reveal that an individual or com-
pany operates under another name. Simi-
larly, information-heavy Wikipedia is useful
for disambiguating information, but can be
incredibly onerous to pick through. Using
multiple media sources has to inform rath-
er than cloud decisions, the experts said.
Amid such complexity, Roopalee Dave said top-level advice from
EY is to liaise with industry associations, peers and consultancies on
leading practice and industry standards, and to anticipate where
regulation is heading by studying the rationale of enforcement ac-
tions. (A detailed roadmap is set out by EY in its Global Information
Security Survey 2015, Creating trust in the digital world).
“Reviewing internal risk controls in tandem with the current cli-
ent base and future business strategy is then vital in highlighting
the main risk areas and where PEP controls may need tighten-
ing,” she said.
Importantly, enterprise and business unit-level AML risk assess-
ments will need examination in light of national risk assessments
and the ESA Opinion in the case of MLD IV, Dave continued;
then firms will need to carry out ongoing policy reviews in line
with changing external factors like changes to sanctions lists.
EY is also urging firms to carry out root cause analyses of their
management information on internal gaps or areas of non-
compliance to identify where process, monitoring and control
checks or training interventions are needed.
Ultimately, the experts argued that institutions have to empow-
er themselves to cope with the finely balanced decisions they
are having to make as they respond to both internal and exter-
nal shifts. “You have to be able to calibrate your systems to bal-
ance risk and efficiency, and adapt as the landscape changes,”
said Tonchia. The very significant changes discussed overleaf
emphasise this need.
EY’S LEADING PRACTICE ADVICE
Trying to stay on top
of the changes in
governments and
how they affect an
institution’s client
base is almost
impossible. The best
way to protect
yourself is to have a
good decision-making
process, but also a
well-documented
process.
21. 21SECTION 2 - MAJOR KYC PAIN POINTS AND THE RISKS THEY REPRESENT
Sanctions: shifting sands
As Figure 8 illustrates, some wealth manag-
ers are more comfortable with the more chal-
lenging markets than others, yet Iran, Sudan
and Russia are universally seen as high risk.
The two headline recent changes in this
space have been in opposite directions:
moves to ease international sanctions
against Iran (and unfreeze some $100bn
of funds), and the imposition of sanctions
against Russian corporations by the UK
government and others.
Iranian sanctions have been a massive
compliance issue for wealth managers,
with the US issuing a record-breaking sin-
gle-institution fine of $8.9bn for breaches
in 2014. Now, firms are eyeing opportu-
nities, yet the country will still have to be
approached with caution, experts warn.
Iran might be subject to “snap-back” re-
imposition of sanctions in the case of re-
cidivism on its arms programme and new
secondary sanctions have already been
tabled. (2015 guidance from the US Office
of Foreign Assets Control said contracts
with Iranians should be dissoluble if Amer-
ica or Europe reinstates sanctions, and in
fact, most US persons will still be prevent-
ed from transacting in Iran). The easing of
sanctions cannot, therefore, be treated as a
permanent matter and systems need to be
able to flex significantly to cope.
Beware beneficial ownership
“Ever-changing sanctions have increased
both the importance and complexity of
this process,” said Correia. “As regulatory
compliance pressures have increased, KYC
screening has evolved to become more in-
depth and more efficient.” As he observed,
firms need a single process for AML, sanc-
tions, bribery and tax compliance that allows
them to collate the maximum client data un-
obtrusively. Given the nuances of rule chang-
es, he explained that leveraging multiple
data sources to get a comprehensive view
of a prospect’s risk profile and the potential
benefits - or risks - of a relationship is crucial.
One area where firms will need significant ca-
pabilities is in uncovering the ultimate ben-
eficial owners of Iranian entities, commenta-
tors have warned. The agreement to ease
sanctions does not include entities owned
or controlled by the Iranian Revolutionary
Guards Corps, the third wealthiest business
organisation in Iran and which controls up
to a third of its economy. Matters are further
complicated by the fact that many business-
es operate as “bonyads” – tax-advantaged,
quasi-governmental bodies with little trans-
parency over beneficial ownership. Broader
media searches may be invaluable here.
With business and politics intertwined, Iran
ranked 130th in Transparency International’s
2015 Corruption Perceptions Index (with
Russia at 119 and Sudan 165), thus expos-
ing direct investors to risks from the Bribery
Act 2010 in the UK, and the Foreign Cor-
rupt Practices Act 1977 in the US. The grave
reputational risks of being associated with
terrorist financing need hardly be stated.
2. STANDING UP TO SCRUTINY ON
SOURCE OF WEALTH/FUNDS
Given the manifold complexities of PEP
screening previously discussed, it may be
somewhat surprising that proving source of
wealth (how the client obtained the money)
and source of funds (details of where the
money has been) are held to be equally
problematic – yet perhaps not when the
practicalities of dealing with the bureaucratic
and cultural differences of newer markets are
fully considered. Furthermore, issues around
PEP screening and source of wealth are often
inextricably linked.
Amid all the practical challenges CDD pos-
es, it must not be forgotten that the interna-
tional drive to prevent money laundering,
bribery and corruption is at root about eth-
ics. That institutions are not always dealing
in absolutes creates very thorny dilemmas
and a concomitant need for them to be
able to robustly defend their onboarding
decisions with evidence of well-considered
policies and their enactment. As the panel
highlighted, the benighted pasts of some
countries is a key consideration as a cli-
ent’s original source of wealth may evolve
dramatically over time to become the cur-
rent source of funds. Nor, it must be said,
have attitudes towards the prevention of
financial crime remained static.
As was pointed out, some of the methods
used to get control over a business in the
1990s may not have been technically ille-
gal, but would nevertheless be unaccept-
able today. If the owner then decides to sell
the company to a well-known Western cor-
poration, the funds received by the bank
from the sale may be legitimate, but the
reputation risk from the owner’s behaviour
in establishing the company remains. This
leaves firms with serious soul-searching to
do in terms of where they draw the line and
how far they should and go back in deter-
mining the legitimacy of wealth today.
Further complicating matters is the fact that
UHNW PEPs are likely to have attracted
some adverse news whether justified or
not. “If a bank onboards a client that has
UK
FIGURE 8:
Rate the following countries as either low-, medium- or high-risk, according to your firm's policies:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Low-risk Medium-risk High-risk clients
US UAE CHINA SAUDI ARABIABRAZIL MEXICO RUSSIA SUDAN IRAN
22. 22 Towards True KYC: Technological Innovations in Client Due Diligence
some negative news it risks being second-
guessed at some time in the future,” one
senior executive said. To be able to with-
stand this kind of scrutiny, wealth managers
cannot afford to take anything less than a
thoroughgoing approach to adverse media
searches. This need to scour documents
going back decades, possibly in several
languages and permutations of the client’s
name, is one of the main drivers of invest-
ment in technological screening solutions
today. With even the best intentions, man-
ual often means minimalist by necessity, the
panel observed.
Almost a fifth (19%) of survey respondents
believe there is too much information avail-
able online today for firms to ever be able
to fully screen a client. This abundance is
leading to dangerous random sampling
rather than the exhaustive processing of
sources, it seems. Here, Tonchia said that
he sees even very reputable banks having
operatives carry out Google searches only
for them to read the first 10-50 documents
before giving up; by the same token he
believes that business information services
are often underused as they can generate
too many results to handle.
“Reading the first 10 documents is good
but it might be number 100 or even 999
that you need. Technology gives us better
risk coverage because we can ‘read’ all of
those,” he said. “It takes our system 5-10
minutes to process 10,000 documents,
depending on your hardware, and that’s
hard to beat with the human eye. And,
yes, we have ‘automatically’ found cases
in which an apparently ‘clean’ individual
was involved with a company that had very
explicit links to crime in this way.”
As well as sifting huge volumes of data,
modern systems also provide the kind of
comprehensive audit trail firms need to be
forearmed against the second-guessing
just described. “We keep track of each
micro-decision, such as an article being
discarded because it’s from an unreliable
source or because it’s a false positive,” said
Tonchia. “Every click and every decision
behind that click is auditable and some-
thing you can show to the regulator years
later. It offers a full ‘movie’ of all the deci-
sions that ultimately led to the client being
onboarded or rejected.”
Following the money trail
While screening PEPs may call for a par-
ticularly extensive “movie”, the panel
observed that since it is not enough for
firms just to prove that funds were legiti-
mately obtained and currently sit in a le-
gitimate repository, documenting even less
complex clients can also be tricky.
“If the source of wealth is a person selling
their business 15 years ago then it’s simple
enough to obtain a solicitor’s letter saying
they sold it for that amount, but we really
need to see where the money has been,”
said Dominic Crabb. “Just because it got
paid into an account in 2000 doesn’t mean
we know that it’s stayed there until 2016.”
Establishing a money trail can of course
become vastly more challenging with cer-
tain client groups. For John Whick, proving
source of wealth and source of funds are
“without question the cause of most frus-
tration”, with the latter perhaps the more
problematic of the two. “We have to have a
very good understanding of an individual’s
wealth background then tie that directly
into the money coming across,” he said.
“With a client who sold a coal mine in Chi-
na decades ago you may be dealing with
handwritten statements that have to be
put into source of wealth documents; then
we’d have to evidence that that mine was
sold and where the money then went. Fol-
lowing that money pound for pound until it
lands in their account is tricky.”
Since the complexity of financial affairs
rises in line with wealth, clarifying source
of funds can pose a particular problem in
the UHNW segment. “It’s easy to docu-
ment money having been in shares and
cash,” Hamblin said. “But if you have a cli-
ent with half a billion that could be tied up
in two Cayman Islands’ SPVs or Delaware
companies, then you may struggle even to
confirm who owns them.”
3. DATA AND DOCUMENT
COLLECTION AND COLLATION
Amid uncertainties around what the fi-
nal requirements of new regulations will
be – and what further inevitable rule
changes will bring in the future – there is
a strong argument for firms to store the
maximum possible amount of data right
across the client lifecycle as part of at-
tempts to future-proof their compliance
processes: 63% of wealth managers see
the pace and impact of regulatory change
increasing over the next three years5
.
“The data under-pinning onboarding is a
key challenge likely to be further compli-
cated by upcoming regulations like MiFID
II and the Common Reporting Standard
placing further demands on client data and
reporting requirements from wealth man-
agers,” said Morley. “Firms have to ensure
that all the relevant fields are captured and
can be provided to the regulators.”
Yet even given the business gains to be
had from the better use of client data, and
the risks surrounding any inadequacies,
institutions’ capabilities for gathering and
storing it seem to be diverging significantly
in quality at present: 39% of wealth manag-
ers rate their firm’s client data gathering ef-
forts as poor to average and almost a tenth
are gathering only the “bare minimum”
despite the fact that data management en-
hancements are a priority for 83% of firms6
.
As Section 3 will discuss in more depth,
data security remains a paramount concern
and the more institutions are asking clients
and prospects for, the greater the onus on
them to protect it.
The fifth of respondents identifying data and
documentation issues as their biggest CDD
frustration were evenly split between those
who pointed to the technical difficulties of
gathering and storing the requisite data,
and those focused on the lengthy to-and-fro
and repeat requests often required to obtain
the correct documentation and the negative
effect this has on the client experience.
Reading the first 10
documents is good
but it might be
number 100 or even
999 that you need.
Technology gives us
better risk coverage
because we can ‘read’
all of those.
39% of wealth
managers rate their
firm’s client data
gathering efforts
as poor to average
and almost a tenth
are gathering only
the “bare minimum”
despite the fact that
data management
enhancements are
a priority for 83%
of firms.
23. 23SECTION 2 - MAJOR KYC PAIN POINTS AND THE RISKS THEY REPRESENT
Both are interlinked and together contribute
a large part of the potential relationship and
client experience detriment that concerns
firms. Also in both, we might see the old
spectres of disparate legacy systems and
underdeveloped digital channels looming
large – issues that are proving particularly
pernicious in the onboarding phase of wealth
management relationships, not only in oper-
ational efficiency terms, but also in detriment
to the client (and advisor) experience.
According to WealthBriefing research, 70%
of wealth managers are using a paper/digi-
tal hybrid approach for onboarding, with
only 6% having gone entirely digital to use
tools such as online document vaults, digi-
tal signatures and dynamic forms7
. Many
firms are trapped in the delays and dupli-
cation caused by hardcopy, posted docu-
mentation; on the front-line, many RMs are
working through massive forms with clients
where it is easy to miss requirements, rath-
er than being guided to fill in only the es-
sentials on the basis of the information and
regulations at hand.
4. DETRIMENT TO THE
RELATIONSHIP/CLIENT EXPERIENCE
Crabb confirmed that asking for more in-
formation is a big source of frustration
for the front-office because investigations
have to ricochet off in new directions as
additional facts emerge. “At quite a late
stage you might see there’s a trust that also
has a beneficial owner, or that there’s an-
other shareholder who has a greater than
25% shareholding in that company, so you
then need more information about that,”
he said. Eliciting forgotten (or indeed
veiled) information from clients can obviate
administrative steps and prevent wasted
time. It is reportedly not unusual for PEPs
to forget that they are, but fortunately new
technologies can quickly uncover the truth
and prevent missteps here.
It must also be remembered that while cli-
ents might initially be very keen to prog-
ress a relationship, their enthusiasm may
wane as the number of onboarding steps
required rises. Predictably, the timeliness
of receiving responses from clients to doc-
ument requests emerged as a source of
significant frustration in the survey.
While the need to ask for more informa-
tion may not be eradicated, the length and
onerousness of the documentation process
may be significantly reduced through bet-
ter structured and focused conversations
geared towards asking for everything neces-
sary just once. As discussed on p33, having
the means to carry out thorough yet efficient
research on prospective clients at the earli-
est possible stage is key to this. Intelligently
(yet sensitively) leveraging public information
may also help smooth the more awkward el-
ements of the process and relieve some of
the burden on both clients and relationship
managers, the panel said. As was highlight-
ed, firms should also always look to come to
a reliable decision on whether to onboard
the client or not as quickly as possible to save
embarrassment for all.
Record-keeping requirements are a more
prosaic, but no less important element of
the documentation challenge – and one
where the perils of paper-based systems
stand out. MLD IV requires that CDD infor-
mation must be retained for five years and
thereafter deleted (unless otherwise stated
by national law) with a maximum total reten-
tion period of ten years. Identifying when
data is reaching the five-year threshold will
be difficult with paper-based records. Fur-
thermore, firms might find that they have
large amounts of historical data to review
and destroy if necessary. As discussed on
p13, many firms are having to do significant
remediation work in certain CDD areas.
Sensitive subjects
Quite apart from the onerousness of tracing
the journey of a client’s wealth is the need for
RMs to address sensitive subjects in order
to do so. While there may be no way of cir-
cumventing the need to ask for documenta-
tion of a death or divorce, for example, it is
crucial that this is not mishandled, the panel
observed. As such, implementing processes
and tools to ensure this is as much of a “once
and done” task as is possible is essential.
The need to avoid repeat requests for in
formation and documents is also key to
minimising the potential to cause offence
since, a one executive highlighted, “clarify-
ing source of wealth is often difficult when
cultural aspects come into play”.
“Source of wealth requirements have in-
creased dramatically in the last five years
meaning that generally the customer expe-
rience delivered in this area has room for
improvement, as clients do not understand
the rationale for additional documenta-
tion,” said Dave. “Clients can also tend to
be reluctant to share too much information
on their overall wealth with their wealth
manager as they are multi-banked.”
Arguably, it may be overstating the case to
say that sophisticated, internationally-mo-
bile HNWIs from newer markets are naïve
as to the requirements that need to be met
in well-regulated jurisdictions. As Hamblin
said: “People may resent it, but they know
it is necessary.” That said, clients hailing
from far less tightly-regulated jurisdictions
may well be surprised by the extent of evi-
dencing required if firms are adhering to
the highest standards for best practice/ef-
ficiency reasons. As one survey respondent
observed:
“Customer apathy can be a real problem
as we have a global policy over and above
regulation in all jurisdictions”.Standardis-
ing internationally by adopting policies
that are “super-equivalent” with the tough-
est regimes may represent best practice,
but heightens firms’ need to minimise an-
noyance (and therefore differentiate them-
selves from the competition) through hav-
ing a well-structured, streamlined process.
Here again the application of new tools can
prove very useful, in perhaps unexpected
ways, the experts pointed out.
Validation via social media
Most firms are still grappling with the appli-
cability of social media for marketing and
client servicing purposes, yet they should
At quite a late stage
you might see there’s
a trust that also has
a beneficial owner, or
that there’s another
shareholder who has
a greater than 25%
shareholding in that
company, so you then
need more informa-
tion about that.
Obviously we can’t
expect social media
to be the image of
truth, but we can use
it as a source of hints
and confirmations.
While not impossible,
buying that authenti-
cation from the online
community is expen-
sive and you can’t do
it overnight.
24. 24 Towards True KYC: Technological Innovations in Client Due Diligence
Automatic Exchange of Information will see jurisdictions obtain
financial information from local institutions and automatically
exchange it with other countries on an annual basis.
Implementation of the Common Reporting Standard (the Stan-
dard for Automatic Exchange of Financial Account Information),
which contains the reporting and due diligence rules of AEoI,
began on 1 January 2016, requiring institutions to gather rel-
evant KYC information and report to tax authorities across 58
early-adopter countries (the first exchange is set to take place
in September 2017).
A further 97 countries have also signalled their intention to adopt
the OECD-developed legislation, which is closely modelled on
US FATCA and superseded the UK’s CDOT Tax Reporting and Ex-
change of Information legislation (itself known as UK FATCA). To
give an indication of how seriously tax offences are being taken in
the UK, prosecutions have increased 300% since 2010.
The EU’s Fourth Anti-Money Laundering Directive came into force
on 26 June 2015 with a two-year deadline for the legislation be
written into national laws. MLD IV will oblige most EU countries
to force their financial institutions to take a risk-based approach
to the due diligence process for the first time. (The UK has been
taking the risk-based approach since 2007). MiFID II will come into
force in January 2018, the deadline having been pushed back one
year. It will impose new granular reporting requirements on wealth
managers, including concerning client data.
As Roopalee Dave pointed out, increasing regulatory require-
ments are often adding unexpected complexity due to addi-
tional checks and documentation requirements. Even osten-
sibly simpler elements can cause real headaches and costs.
“FATCA requirements dictate that a National Insurance num-
ber, or equivalent, is required at point of onboarding,” she said.
“Yet several prominent countries like Saudi Arabia do not have
those, meaning judgement calls are required.”
REGULATORY HOT-SPOTS
UK banks have reached tipping point in the fight against fi-
nancial crime, with 61% believing there is enough or too much
regulation, but inadequate enforcement, according to a study
of 200 senior AML compliance professionals by LexisNexis Risk
Solutions and the British Bankers’ Association8
.
Some UK institutions are now spending as much as £660m
($950m) a year on AML compliance, yet still lack confidence they
can effectively combat risks in a fast-changing crime landscape.
Nearly a third think that MLD IV will have no effect on or could
even increase levels of money laundering across Europe.
Over 2016, 44% of banking and financial services professionals
believe evolving criminal methodologies will be the biggest sin-
gle emerging financial crime risk to their business. Correspond-
ingly, over 2016/17 preventing cybercrime will be the single big-
gest area of investment for 37% of respondents (followed by
fraud at 23% and AML at 20%).
Fighting financial crime in the context of online/mobile banking
and digital currencies are seen to be the most significant chal-
lenges banks are set to face in the future. The very serious AML
complications arising from the latter are clear.
UK INSTITUTIONS AT AML TIPPING POINT
FATCA requirements dictate that a National Insurance number, or equivalent,
is required at point of onboarding. Yet several prominent countries like
Saudi Arabia do not have those, meaning judgement calls are required.
also see its potential to facilitate CDD and
minimise what might seem to be intrusive
questioning, argued Tonchia.
To illustrate, he described a scenario
whereby a Chinese PEP claims their source
of wealth is a profitable, operational busi-
ness, but since the company is Chinese
the usual information bureaus are unable
to supply all the documents/information
related to its financials and headcount. To
help verify the client’s claim a wealth man-
ager could first check the firm’s website to
confirm a plausible amount of pages; next
they could check the person’s LinkedIn
profile to see they have numerous connec-
tions to employees, before then finding
press coverage of solid financial results and
ascertaining the business exists physically
via Google maps. Although none of these
alone is sufficient proof that the source
of wealth is legitimate, in combination
they may greatly increase the institution’s
confidence and help point the way with-
out RMs having to go back to the client as
much.
“Obviously we can’t expect social media to
be the image of truth, but we can use it as
a source of hints and confirmations. While
not impossible, buying that authentication
from the online community is expensive
and you can’t do it overnight,” said Ton-
chia. “Taking media sources together you
get a footprint that really points to this
company existing, having legitimate busi-
ness and a certain turnover that might jus-
tify the client coming to the bank with that
money, rather than them having misappro-
priated it.”
5. ADAPTING TO REGULATORY CHANGE
AND JURISDICTIONAL DIFFERENCES
Only a tenth of respondents see coping
with regulatory change and the interplay
between international rules as the most
frustrating part of the client due diligence
process. Arguably, however, an unrelent-
ing pace of change has become very much
the norm. While wealth managers are grap-
pling with an alphabet soup of new rules
concerning market conduct, corporate
governance and client protection, many
of these are increasing screening and re-
porting requirements, in addition to those
specifically focused on CDD.
