By Scott Jones, Illustrate Digital CEO
Many companies are concerned that the lengthy process of verifying a customer’s identity and ensuring they are compliant with AML regs is hampering their ability to close deals. In some cases, it can take weeks or even months to complete the necessary checks, which can be a major turn-off for potential customers.
There is no doubt that complying with AML regulations is crucial for any business operating in the financial sector. However, it is important to find the right balance between safeguarding your business and its customers, and ensuring a smooth sales process. Too much bureaucracy can frustrate potential customers and lead them to look elsewhere, while not enough protection could leave your company exposed to growing threats in the form of identity fraud and illegal financial transactions.
It is therefore important to find the right level of compliance that will not only protect your customers, but also make it easy for them to do business with you.
According to the Office of National Statistics, as of December 2021, the finance, insurance, professional services and property industries account for 22.4% of all UK businesses. This makes them a key part of the UK economy and equates to more than 600,000 of the UK’s VAT and PAYE registered businesses.
AML regulations are designed to protect these industries from financial crime and money laundering, and it is therefore crucial that companies in these sectors implement adequate AML controls. By doing so, they can ensure that their customers are safe and their business is operating within the law.
What is the issue that regulated and other professional service businesses are facing?
Compliance is perceived as a necessary evil. It’s cumbersome, interruptive and in the case for most businesses in these sectors it’s turning off their customers. Many businesses feel that they have to do a lot of things that don’t add value for customers and can in fact be counter-productive. It’s hard enough to get new customers, but now businesses are finding it even harder to keep the ones they have attracted because of the need to go through all these compliance checks.
The reason that businesses have to go through strict compliance checks is often as a result of them falling within a high-risk category for financial crime. Financial crime includes activities such as money laundering, terrorist financing and identity theft. These crimes cost the global economy billions of dollars every year, so it is important that businesses take steps to protect themselves from becoming a victim.
In the case of a financial advisor, for example, whose clients can be immediate, the compliance process can take several weeks – even months in some cases. This can be a major problem if the client’s requirement is short notice.
“Due diligence is costly and time-consuming, so some businesses are hesitant to do it. It’s not just a matter of doing enough research; it requires in-depth knowledge of the area,” notes Laura Knight, adviser at Hamilton Rose Chartered Tax Advisers. “While most new client relationships take merely a few weeks to complete due diligence, others might take months to complete as a result of the reluctance to submit their data to us or because they’re outside of the UK. We’re ready and eager to serve them and compliance frequently gets in our way.”
For some clients, the AML process can be so frustrating that it reflects badly on the rest of the relationship with that client. This can be a major problem, as it can lead to customers leaving a business and switching to competitors.
It’s often not the firm’s fault, it’s not the advisor’s fault, but this need for compliance isn’t going to vanish any time soon. Regulators are getting more and more stringent in their requirements, and businesses have to find a way to operate within these new regulations while still providing a positive customer experience. This is not an easy task, but it is possible if businesses take the time to understand what the regulators are looking for and put in place the necessary controls and procedures.
International AML Requirements
In addition, more than ever before, financial institutions and professional service firms are operating on behalf of clients all over the world. This means that they need to be aware of the AML regulations in each of the countries in which they are doing business. They also need to have procedures in place to ensure that their customers are compliant with those regulations.
How does the AML process affect a business based in the United Kingdom that is attempting to act on behalf of its client living in Costa Rica?
This is a difficult question to answer. On the one hand, businesses want to ensure that they are compliant with the AML regulations in all of the countries in which they are doing business. On the other hand, implementing procedures that require the sending of documents all over the world can be costly and time-consuming.
One way that businesses can ensure that they are compliant with AML regulations is by seeking the help of a local lawyer. This can be a practical solution, as the lawyer will be familiar with the AML regulations in that particular country. However, it can also be laborious and disjointed for the client.
Has the pandemic provided us with an opportunity for positive change?
One of the major roadblocks to the adoption of contemporary technologies for compliance is the regulators and governing bodies, which have been slow to embrace digital verification as a method of compliance.
Financial institutions, professional service firms, and other organisations that require digital verification have not historically received the assurance that their digital methods of verification and records kept on file were legitimate. Certainly nobody wanted to be in the position of discovering that a year’s worth of AML efforts were fruitless.
However, the pandemic opened up a golden opportunity for regulators and certification bodies to accept digital verification as a form of acceptable AML compliance.
Holding up your passport to the camera whilst on a video conference call suddenly became enough to achieve compliance for most industries. But is it enough? Arguably this method of validation isn’t a match for a real, in-person checking of documents.
But is the traditional face-to-face process strong enough either? Can the human eye alone be relied upon to correctly identify a real driving licence from a fake one?
What is the solution?
It is important for businesses to find a way to speed up the compliance process without compromising on safety and security. One way to do this is by automating the identity verification process. This can help to reduce the time it takes to verify a customer’s identity and ensure they are compliant with AML regulations.
Another way to reduce the time it takes to complete compliance checks is by using a third-party verification service. These services have expertise in verifying customers’ identities and ensuring they are real and genuine.
Making sure the verification and onboarding process is easy to understand and navigate is crucial too. It shouldn’t require too much paperwork or bureaucracy. Customers should be able to complete the verification process quickly and easily, without having to jump through hoops or fill out long forms.
There has been great innovation to help aid AML compliance in recent years, from data aggregators to digital identity verification. More recently there are even more customer-focussed solutions that are dedicated to improving the speed and customer experience of the onboarding process.
One such solution is Identitech, a user-friendly identity verification solution created by the founder of Illustrate Digital, Scott Jones, that uses biometric technology to confirm a user’s identity. It is fully brand-customisable, so businesses can create a unique user experience for their customers. This makes the verification process quick and easy to complete. Behind this user-friendly interface is a global database of identity information. This means that businesses can be confident that the person they are verifying is who they say they are. The Identitech verification process is quick and easy to use, and it can be customised to meet the specific needs of businesses.
Software like Identitech is intelligently designed so that clients of companies who require AML can verify their identity without needing to download or login to anything. It also allows a firm to utilise the technology without having to write a single line of code, which is the most common stumbling block for financial and professional service businesses wanting to use all of today’s available technologies.
Removing the cumbersome processes, and searching through several disparate systems to find information about your clients, will ultimately lessen the time required to onboard them and make clients less likely to become frustrated or wander away.
Compliance can be a pain, there’s no denying. It’s often seen as a necessary evil, something that’s required but doesn’t really add value to our business.
However, this doesn’t have to be the case! Compliance can be an opportunity for your business to shine. It can be an opportunity to show your customers that you’re serious about safety and security, and that you’re committed to providing a great user experience.
It can also be an opportunity to show off your innovative streak. There are many great technologies out there that can help speed up the compliance process and make it easier for your customers. Technologies like Identitech are making it easier for businesses to verify their customers’ identities and ensure they are compliant with AML regulations.
Making compliance easy to understand and navigate is crucial for financial and professional services. The faster and smoother the experience, and the less intimidating and cumbersome it is, the less it will hurt your sales.