In September we posted Upcoming Changes to KYC Beneficial Ownership Regulatory Requirements – A Primer, which outlined how different regulatory regimes were going to require more and more accurate beneficial ownership information.  This post spurred several conversations with KYC practitioners, many of whom asked how technology might help with the beneficial ownership burden.  Last Thursday I was on a panel at the ACFCS (Association of Certified Financial Crime Specialists) conference in New York, speaking about just this topic – how technology can help financial institutions meet beneficial ownership requirements.   Along with my co-panelists, much of the discussion was around how hard it is to find and collect beneficial ownership information.  Below are some of my talking points.

What Technology Can Do

  • Save time and money.  Software can provide recommendations that can guide analysts to the best possible information sources, saving time.  Software can also help triage accounts:  based on certain criteria, an analyst can immediately understand the risk level of an entity and therefore the CDD/EDD measures that need to be taken.
  • Determine tasks and actions. In other words, what needs to be done from an onboarding perspective can be based on a set of rules.  If an entity is a hedge fund registered in the Cayman Islands, what information needs to be gathered?  If it’s a Ukrainian mining company, what other information needs to be gathered.
  • Store and organize.  Accurate record keeping is frequently mentioned in various CDD regulations.  Technology at various levels can clearly help here.
  • Discovery and guidance.  For example, for a given entity being onboarded, technology can help you quickly find the entity’s officers and directors, who often have a beneficial ownership stake or are able to provide information about those who do.
  • Comprehensive, simultaneous searching.  Technology can be deployed during the KYC process that will search internal, external and web-based databases at the same time, using name variations and fuzzy matching software.  This allows on-boarders to do a more thorough job more efficiently.
  • Relate information from entity to entity.  FinCEN says that one procedure that might help identify beneficial owners is “Sharing information across business lines and separate legal entities within an enterprise…”  Using made-for-purpose software tools to guide the onboarding process can facilitate sharing among business units and understanding how different entities may have similar or “related” beneficial owners.  You can also pull together exposures to a given corporate structure and join dots that previously appeared unrelated.

What Technology Can’t Do

  • Find information that doesn’t exist.  Outside of public companies in some jurisdictions, consistent and accurate beneficial ownership doesn’t exist, outside the client documents that established the entity.  In some jurisdictions, Russia, for example, beneficial ownership information is required upon the establishment of the entity. But ownership can transfer (often immediately) and no record of the changes needs to be kept.
  • Automatically verify what a client has said.  Even if you have complete beneficial ownership information that has been provided to you by a client, technology (other than a lie-detector test) cannot help you verify what they’ve told you.
  • Ensure regulatory requirements are met.  Regulatory guidance says that “reasonable measures” must be taken to verify identity and acquire beneficial ownership information.  You can write software that says, If these three things are attempted, then our firm’s reasonable measures criteria have been met,” but that doesn’t mean a regulator will agree that reasonable measures have been met.  Regulators can be fickle.

While it’s clear that the acquisition, storage and analysis of beneficial ownership information can be enhanced and improved through software-based workflow tools, the benefits go much further.  Consistency of process, client classification, source selection, audit trail and faster turnaround times are additional benefits of applying technology to the client onboarding process, which can reduce regulatory, reputational and financial risk.