There is a Russian proverb, “Doveryai, no proveryai”, which translates as “trust, but verify”. The need for verification is crucial in any know your business (KYB) process, for compliance and to build trust with third-parties in your network.
Changing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations continue to increase the compliance requirements placed on organizations around the world. Organizations have a responsibility to verify the legitimacy of counterparties within their network of customers and suppliers. They must assess the risk of doing business with a third-party and make decisions based on the information they gather.
While specific AML and CTF regulations vary from country to country, this is generally the course of action to achieve compliance:
While regulations vary, data checks are at the core of a KYB due diligence process. While a compliance team may be confident its AML or CTF processes are audit-proof, they may not always be as confident in the quality of the data a process is reliant upon.
For many global regulators, having “audit-proof” data means having access to data from a primary source that is time-stamped to show its integrity. Instead of trusting data is accurate, compliance teams can verify it – directly from the source.
The fourth Money Laundering Directive (MLD4), implemented in 2017, was somewhat vague, saying that due diligence must be based on information from a “reliable and independent source.” Organizations could not take for granted however that the data had not been altered in some way, as some third-party databases are unable to guarantee information is the same as in the original primary source register.
MLD5 was more rigid, saying know your customer (KYC) processes must use data that is “regulated, recognized, approved or accepted by the relevant national authorities” – and within this tighter framework, national lawmakers defined more robust requirements.
According to the UK’s Joint Money Laundering Steering Group (JMLSG):
‘Firms should recognize that some electronic sources may be more easily tampered with, in the sense of their data being able to be amended informally and unofficially, than others. If suspicions are raised in relation to the integrity of any electronic information obtained, firms should take whatever practical and proportionate steps are available to establish whether these suspicions are substantiated, and if so, whether the relevant source should be used.’
(Guidance for the UK Financial Sector for the prevention of money laundering, Part 1, Section 5.3.45).
It is estimated that global fines for AML failings totalled around 9.5 billion euros in 2021. Fines are one thing, but reputational damage and negative press can be equally as punishing for organizations. So, while trust is good, verification is better.
Moody’s Analytics KYC is transforming risk and compliance, creating a world where risk is understood so decisions can be made with confidence.
Through our Kompany solution, Moody’s Analytics operates a live, global network to official commercial registers, which provide access to 110 million companies in more than 200 jurisdictions in near real time. Rather than maintaining databases, we supply access to business verification information in a timely way, direct from the primary source.
We are helping customers automate onboarding journeys in 197 countries, across 211 jurisdictions: completing 800M+ new customer and third-party checks each day on average in 2022, including screening against our database of +17 million risk profiles, +446 million entities, and +34,000 sanctioned entities.
Please get in touch anytime to discuss your approach to KYB, we would love to hear from you.