Guide to KYC and AML: Know Your Customer & Anti-Money Laundering Checks

In this article:

1. What is money laundering?
2. Core components of money laundering regulations
3. How does money laundering work?
4. Evolution of money laundering regulations
5. The impact of money laundering
6. The future of money laundering regulations
7. How FullCircl can help

What is money laundering?

Money laundering is the process of disguising the proceeds of criminal activity as legitimate funds. This is typically done by moving money through a series of transactions to obscure its origin and make it appear as though it was obtained through legal means.

To prevent money laundering, law requires regulated entities to implement measures to detect and prevent money laundering. A variety of regulatory bodies such as the Financial Conduct Authority (FCA) enforce these measures to form money laundering regulation, requiring businesses to actively monitor money laundering, terrorist financing, and transfer of funds.

The United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5% of global GDP is laundered each year, equalling between EUR 715 billion and 1.87 trillion each year. Therefore, the regulation of businesses to prevent money laundering is of paramount importance.

However, more stringent regulation correlates with increased friction so regulated entities must balance complying with regulation whilst ensuring that the customer journey doesn’t suffer.

Core components of money laundering regulations

There are many aspects to money laundering regulations which includes a significant amount more than the initial regulatory guidance. The entire process of money laundering regulation includes input from the regulatory bodies, through to regulated entities, auditors, and beyond.

The typical Money Laundering Regulations (MLRs) process is as follows:

1. Legal frameworks

Across the globe, countries have implemented laws and regulations to assist with Anti-Money Laundering compliance. Major legislation includes the USA PATRIOT Act in the United States and the EU 6th Anti-Money Laundering Directive in the European Union, setting stringent standards for regulated entities.

The Financial Conduct Authority (FCA) enforce the money laundering regulations and are primarily comprised of ‘The Money Laundering and Terrorist Financing (Amendment) Regulations 2023’ which builds upon the initial regulation set out in 2017. The amendment placed a focus on the requirement of Enhanced Due Diligence (EDD) on domestic Politically Exposed Persons (PEPs) to be less than in relation to foreign PEPs, which is a requirement by the Financial Services and Markets Act 2023.

The complexity for regulated businesses is that the FCA money laundering regulations are only applicable in certain jurisdictions. Whilst the FCA and other governing bodies are seeking to achieve the same goal, there are various nuances which complicates the compliance process.

The initial Money Laundering and Terrorist Financing Regulations 2017 required regulated entities to do the following:

• Conduct a money laundering and terrorist risk assessment.
• Implement systems, policies, controls, and procedures to address money laundering and terrorist financing risks and meet the requirements under the MLR 2017.
• Apply policies, procedures, and controls across a business’ group structure.
• Adopt appropriate internal controls.
• Provide training to staff.
• Apply for approval if someone is the Ultimate Beneficial Owner (UBO), officer, or manager of a firm.
• Comply with new customer due diligence, enhanced due diligence, and simplified due diligence requirements.
• Comply with requirements relating to Politically Exposed Persons (PEPs).
• Make sure record keeping and data protection systems, policies and procedures meet the requirement of the regulations.
• Comply with new obligations relating to record keeping and the provision of information about beneficial ownership if a business acts as a trustee of a relevant trust.
• Source - “Quick guide to the Money Laundering Regulations 2017”

2. Customer Due Diligence (CDD)

Identifying and verifying customer identities at onboarding is the first crucial obligation for regulated entities to prevent money laundering. The requirement for Know Your Customer (KYC) procedures includes identity verification and checking against Politically Exposed Persons (PEPs), sanctions, adverse media and watchlists. Some of these checks such as adverse media are optional but help build a better picture of a customer risk profile, whereas sanctions and money laundering go hand in hand as sanctioned individuals, entities, and vessels are solid indicators of potential financial crime. Enhanced Due Diligence (EDD) is also required for high-risk customers.

3. Transaction monitoring & reporting

As part of money laundering regulations, businesses are also required to monitor customers past the point of account opening. This includes re-screening customers against PEP, sanctions, adverse media, and watchlists to identify any changes to customers. Transaction monitoring is also required which is the process of monitoring transactions such as transfers, withdrawals, and deposits to identify suspicious behaviour.

4. Recordkeeping

Regulation requirements mandate the maintenance of transaction records and evidence of all AML checks performed for auditing purposes. This holds regulated entities accountable for all Customer Due Diligence (CDD) performed.

5. Compliance programs and internal controls

Regulated entities must establish robust AML compliance programs which is a set of responsibilities for both financial and designated non-financial businesses, and implement internal controls to actively prevent money laundering activities.

6. Training and awareness

The emergence of IDV RegTech businesses such as FullCircl has helped significantly to automate the majority of the AML identity verification process. However, AML training is also imperative for employees as Money Laundering Reporting Officers (MLROs) and compliance teams may need to perform manual intervention. Strategies to enhance awareness and foster a culture of compliance are emphasised.

7. Penalties and enforcement

Non-compliance with Anti-Money Laundering regulations can result in severe penalties enforced by regulators. In banking alone, there were $835 million+ in fines incurred in 2023, ranging from inadequate AML systems to acceptance of onboarded customers without the correct investigation. Enforcement agencies play a pivotal role in ensuring adherence to AML laws to safeguard financial integrity.

One of the biggest enforcement actions from 2023 was a fine given to Binance of $4.3million for failings related to money laundering. Upon investigation, Binance had let the flow of illicit funds from countries including Russia, Cuba, and Iran and multiple sanctions failings. This fine alone demonstrates the importance of a secure AML system.

How does money laundering work?

In the last decade, financial transactions have become increasingly digitised, offering new avenues for laundering money through online platforms. Here’s how it typically works:

1. Placement

Financial systems accept illicit funds, often through small and discreet transactions to avoid detection. Cybercriminals may use techniques such as structuring, where large sums are broken into smaller ones, or smurfing, which involves using numerous individuals to make deposits.

2. Layering

The layering stage involves moving funds through various accounts or financial instruments to further hide their origins. Online banking services, cryptocurrency exchanges, and offshore accounts are commonly used for layering due to their anonymity and ease of access.

3. Integration

The final stage involves the laundered funds being reintroduced into the legitimate economy, appearing to be from legal sources. Online investment platforms, real estate transactions, and shell companies are used to integrate the laundered money back into the financial system.

As financial transactions have become more digitised, emerging threats have followed. Virtual currencies like Bitcoin offer pseudonymity, making them attractive for money laundering activities, online banking services provide avenues for rapid and global movement of funds, making tracking and detection more challenging, and the use of anonymising tools such as virtual private networks (VPNs) and encrypted communication further complicates efforts to trace illicit transactions.

The digital landscape has provided criminals with sophisticated tools to launder money through financial transactions online, requiring constant vigilance and collaboration between regulators, law enforcement, and financial institutions to combat illicit activities.

Evolution of money laundering regulations

Historically, money laundering emerged as a global concern in the 20th century with the rise of organised crime and the proliferation of illicit activities such as drug trafficking and smuggling. As criminal enterprises became more complex and sought to conceal the origins of their funds, the need for effective methods to launder money became apparent.

Milestones in the development of Anti-Money Laundering (AML) regulations include the establishment of the Financial Action Task Force (FATF) in 1989, which set global standards and guidelines for combating money laundering. The USA Patriot Act of 2001 in the United States initially introduced comprehensive AML measures, including enhanced due diligence requirements and the creation of financial intelligence units. More recently, The UK Government imposed The Money Laundering and Terrorist Financing (Amendment) Regulations 2023 to implement stricter requirements for regulated entities to track high-risk factors, e-money thresholds for due diligence, a closer focus on identifying Ultimate Beneficial Ownership, and reporting discrepancies to Companies House.

Due to the ever-evolving nature of complexity of money laundering, regulation is constantly developing, and the goalposts are moving for regulated entities to ensure they are fully compliant.

Key global organisations and initiatives to combat money laundering include the Financial Action Task Force (FATF), which coordinates efforts among member countries to prevent money laundering and terrorist financing through policy development, evaluation, and cooperation. Additionally, the United Nations Office on Drugs and Crime (UNODC) works to enhance global cooperation. These organisations underscore the importance of global collaboration in addressing the complex challenges posed by money laundering.

The impact of money laundering

Money laundering comes in many forms, ranging from drug trafficking and human smuggling to cybercrime and corruption. Drug trafficking remains one of the most lucrative criminal enterprises with organised crime syndicates funnelling massive sums of money through illicit channels.

Cybercrime, including hacking, identity theft, and online fraud has become increasingly prevalent in the digital age, providing criminals with more opportunities to launder money. Corruption, whether in the form of bribery, embezzlement, or illicit government contracts, also generate funds that require laundering to conceal their origins.

The consequences of money laundering for society and the economy are profound. Money laundering facilitates the growth and sustainability of criminal enterprises, perpetuating violence, exploitation, and global instability.

The flow of illicit funds distorts economic systems, undermining fair competition and fostering a climate of corruption. Money laundering enables criminals to evade taxes, depriving governments of vital revenue for public services and infrastructure. Therefore, the Defence Against Money Laundering (DAML) through stringent regulation aims to safeguard society and preserve the integrity of the global financial system whilst reducing and preventing financial crime.

The future of money laundering regulations

As digitisation of financial institutions continues globally, regulation is only going to become stricter and more complex. Criminals are becoming more intelligent, cross-border transactions are the norm, and the emergence of AI poses a serious threat. The importance of a strict compliance program has never been more important.

The future outlook of Anti-Money Laundering regulations and enforcement emphasises the necessity for a more collaborative approach. If regulators and regulated entities want to truly prevent money laundering over and above it being a tick box exercise, there cannot be a disconnect between the two. Global harmonisation of regulation, advanced technology to fight financial crime, and cooperation between regulatory bodies and entities can provide the balance needed to counter money laundering whilst ensuring regulated entities can maximise revenue by providing an efficient customer journey.

How FullCircl can help

FullCircl provides a full suite of AML screening and monitoring including global PEPs, sanctions, and adverse media to actively identify the risk of money laundering at onboarding and through ongoing monitoring. On top of that, we understand that service providers need to offer much more than AML checks alone. We offer a consultative and collaborative approach to understand your unique requirements, the regulation you must comply with, and have a core understanding of how best to balance regulatory requirements with great customer experience.

FullCircl removes the regulatory and verification roadblocks to drive revenue growth by providing a full IDV orchestration platform including KYC in 160+ countries, document verification with facial comparison, Know Your Business (KYB) checks, anti-fraud, and more. FullCircl is data agnostic and uses 20+ data suppliers delivered via leading technology to provide clients with the most secure AML compliance product on the market.

Clients trust FullCircl to keep ahead of evolving regulation whilst giving their customers the best possible onboarding experience to drive customer advocacy and revenue growth.

Interested in hearing more? Contact us today for a free consultation and demonstration of the FullCircl platform.

Anti-Money Laundering (AML) is part of the Customer Due Diligence (CDD) process in which regulated businesses are required to prove that individual and corporate clients are who they say they are.

What is an AML check?

AML checks specifically are in place to prevent money laundering and transfer of illicit funds through a business. As of 2022, an estimated £88 billion is laundered in the UK every year so countering and reducing this figure is at the forefront of priority. Businesses in industries such as financial services, online gambling, cryptocurrency, and regulated commerce are required by law to conduct AML checks outlined in various global regulation set out by regulators including the Financial Conduct Authority (FCA), BaFin, the Securities Exchange Commission (SEC), and more.

By implementing a robust Anti-Money Laundering program, businesses can identify Politically Exposed Persons (PEPs) who may pose a higher risk of laundering money, sanctioned individuals, and adverse media checks on individuals and businesses. AML checks not only prevent money being laundered through a business but also prevent fines, suspensions, and reputational damage by ensuring that businesses aren’t working with bad actors.

Types of AML checks

There are several checks included to comply with AML requirements, ensuring that businesses are doing everything they can for effective Anti-Money Laundering, Counter Terrorist Funding (CTF), and financial crime prevention.

PEP checks

A Politically Exposed Person (PEP) is someone who holds a position of power and is therefore more susceptible to money laundering or bribery. Examples include heads of state, government officials, judges, and military officers.

PEP checks pull data from a variety of global sources to enable regulated businesses to conduct due diligence, ensuring they are not involved in any illegal activities. If a customer attempting to onboard is a PEP, this doesn’t necessarily mean that the business should automatically reject them, but instead they should take a calculated approach to find out more information from said customer.

It’s also important to verify the identity of those associated with PEPs including family members and close associates who could be equally exposed to the potential risk of money laundering as PEPs themselves.

Robust PEP checks will be able to discover information on PEPs, associates, and family members globally and in real-time.‍

Sanctions checks

Sanctions are measures imposed by governments or international organisations to restrict financial transactions with certain individuals, organisations, countries, entities, and vessels. Sanctions can be imposed for a variety of reasons including terrorism, human rights abuses, weapons proliferation and more.

Sanctions checks are designed to identity anyone or anything which has been sanctioned globally. Employing sanctions checks can be argued as more important than PEP checks as it is prohibited in a variety of regulation to do business with those who are sanctioned.

There are a variety of sanctions lists available including the European Union, United Nations, HMT (His Majesty’s Treasury Department), and the US Treasury Department.

Interested in learning more? Check out our complete guide to PEPs and sanctions here.

Adverse media checks

Adverse media checks scrape open-source information from around the web to report on activities from businesses and / or individuals which may pose a risk to a working relationship. Whilst adverse media can pull information which isn’t necessarily relevant to due diligence, it can also be used effectively to supplement PEP and sanctions checks to form a more robust AML process.

Transaction monitoring

Transaction monitoring occurs post onboarding and is a systematic process that involves scrutinising financial transactions to identify suspicious activities related to money laundering or terrorist financing. Providers of transaction monitoring, including FullCircl partner Comply Advantage, use advanced algorithms and pattern recognition to track transactional behaviour such as frequency, amount, and unusual patterns to identify the risk of money laundering from current customers.

AML as part of a wider KYC program

As AML regulations globally continue to become more stringent coupled with rising expectations from customers to complete onboarding more efficiently, combining Know Your Customer (KYC) and AML is becoming increasingly critical to business growth.

It's no longer fit for purpose for regulated businesses to have a fragmented approach to compliance leading to the popularity of providers who can offer a full compliance stack has risen exponentially in the past decade. For example, AML in banking has traditionally been a manual approach but even those reliant on legacy systems are turning to technology and AI to increase the efficiency of compliance teams.

For many regulated industries, just performing anti money laundering checks isn’t enough to comply with regulatory requirements. Instead, it’s required to not only verify that customers aren’t politically exposed or on sanctions lists, but to also verify the identity of customers with KYC checks, document verification, and anti-fraud measures.

Although, as the list of AML KYC checks required to complete onboarding gets longer year on year, the risk of customer drop-offs due to clunky onboarding continues to rise.

Regulated industries are now putting more emphasis on the compliance program at the forefront of priority, ensuring they partner with technology providers who can offer them all of the checks they need whilst delivering the checks seamlessly to achieve real-time onboarding.

What data is required for AML checks?

Depending on the context around performing AML checks, a variety of personal information is required to best find a match. When performing AML checks on individuals at the point of account opening, the following information is required at a minimum:

• Name
• Address
• Date of birth

If the business is using an AML provider who is pulling multiple sources of AML data and can confidently access name, address, and date of birth from their customers then this information will suffice in finding an accurate match.

However, it’s not always as easy to receive this information from customers so businesses can supplement this with asking for an official identity document such as a passport, driving license, proof of residence, or source of funds to assist in the process.

Advanced AML providers will also offer the option to implement customisable matching thresholds which will allow compliance teams to investigate multiple results. For example, a business might want to receive an alert if the name and date of birth match, but address is misspelled. This ensures that businesses lower the risk that falsely inputted data leads to missed matches.

In the context of performing AML checks on businesses or directors associated with businesses then there is more information to be collected before an accurate check can be made.

Again, stressing the importance of using a system designed to offer a full suite of compliance tools, verification of corporate customers should include a Know Your Business (KYB) check in the first instance. This will ensure that the AML checks are performed on the correct entity, similar to how a KYC checks ensures the right individual is being checked but will also provide initial indication into risk by analysing financial information and share structure.

Once the KYB report is performed, an accurate AML checks can then be used on both the business itself, related shareholders / directors, and most importantly, the Ultimate Beneficial Owner (UBO).

What systems support AML checks?

It’s not only critical to identify the correct information needed to effectively perform AML checks, but also that the system powering the checks can support accurate identification and efficiency.

Client screening tools such as FullCircl allow regulated businesses to perform AML checks seamlessly at the point of onboarding and through ongoing monitoring. This means that clients of FullCircl use AML checks on all of their customers at the point of onboarding without requiring manual collection of data.

A single API integration can perform AML checks automatically when a customer attempts to onboard and ongoing monitoring can be performed on customers which includes the ability to categorise clients by risk group.

The regulation from the Financial Conduct Authority (FCA) and other associated entities requires AML not only at the point of onboarding but also proactive use of AML where there is a risk of terrorist financing, money laundering, suspicious behaviour, and transactions exceeding the threshold of 15,000 (USD, EUR, GBP). Therefore, AML at the point of onboarding is only one part of the puzzle, active monitoring of clients is just as important to identify risk and avoid the potential of money laundering.

How long do money laundering checks take?

This entirely depends on the systems used to consume AML data. Manual verification can take anywhere from a few hours to a few weeks depending on the risk level of the subject. Automated AML solutions can perform checks in seconds by aggregating multiple sources of data into a single access point.

There are many different sources of data in a comprehensive AML check meaning that any businesses who are required to implement an AML program should conduct in-depth analysis of both the data required to comply with regulations and the technology providers who can deliver the checks to an industry leading standard.

How FullCircl can help

FullCircl provides a full suite of AML screening and monitoring including global PEPs, sanctions, and adverse media to actively identify the risk of money laundering at onboarding and through ongoing monitoring.

FullCircl is designed to remove the regulatory and verification roadblocks to drive revenue growth by providing a full IDV orchestration platform including KYC in 160+ countries, document verification with facial comparison, Know Your Business checks, anti-fraud, and more. FullCircl pulls data from 20+ global sources to ensure that the best quality of data is provided to clients whilst ensuring that onboarding is aligned to rising customer expectations.

Clients use FullCircl to keep ahead of evolving regulation whilst giving their customers the best possible onboarding experience to drive customer advocacy and revenue growth.

Interested in hearing more? Contact us today for a free demonstration and learn how to access FullCircl's AML integration.

On 14^th March 2023, FullCircl joined some of the UK’s leading financial crime thought leaders to share our expertise and key insights into the best practice Anti-Money Laundering (AML), compliance, and anti-fraud strategies helping financial institutions gain competitive advantage.

The highlight was the main stage panel discussion, hosted by our very own EVP Identity Solutions, Warren Russell.

Warren was joined by Stephen Frame, CCO & MLRO at Caxton, Helen McHugh, BDM at Transact Payments, and Phil Seymour, Senior Risk and Compliance Officer at Payabl. Together they discussed how financial institutions (FIs) can look to technology to ensure compliance at a time when the UK and European regulatory landscape is becoming ever-more complex.  Topics included how to balance the need for KYC compliance whilst managing customer expectations, the potentially prominent role AI might play in KYC processes, the future of compliance, and how FI’s can stay ahead of regulation.  

Here's our key takeaways from the event…

The 2024 regulatory environment

Stephen Frame identified 2024 as the busiest year he has ever known for regulatory change.  

It is certainly set to be big year for FIs. We can expect evolving requirements around AML and KYC, PEPs, sanctions, and Ultimate Beneficial Ownership.  The implementations of the Economic Crime and Corporate Transparency Act, The Financial Services and Markets Act, and updates to the 6^th Anti-Money Laundering Directive and The Payments Services Regulations, as well as increased scrutiny of cryptocurrency, authorised push payments, ESG, and of course the role of artificial intelligence (AI).

In its recent plan for the year ahead, the Financial Conduct Authority (FCA) highlighted its bold strategy of far-reaching reforms aimed at reducing and preventing financial crime, improving the integrity of the financial system, and ensuring the UK remains an attractive place to invest.  As the panel pointed out, the FCA is becoming more proactive in developing regulations and informing FIs on how best to comply.

So, what does this ocean of pressure really look like for compliance professionals?

The role of compliance is changing

The panel agreed we’re moving away from compliance being a tick-box exercise, to being at the forefront of FI activities. Accordingly, there must be a shift in the FI mindset towards becoming more compliance focussed.

Traditional compliance check lists are simply not effective in such a pressurised regulatory environment. A more dynamic and proactive approach to AML and KYC compliance is required, not only to remain responsive in this fast-moving regulatory environment, but also to stay ahead of ever more sophisticated financial crimes.

The panel also pointed out that there’s no excuse for manual KYC processes in 2024. High profile failures in AML and compliance stand as testament to the risks of failing to embrace technology. Data analytics, digital identity verification, enhanced due diligence, and perpetual eKYC/eKYB now form a fundamental part of compliance best practice and effective management of financial crime risk.

Not only that, but technology is also redefining compliance by streamlining onboarding processes and enhancing customer experiences.

How should FIs need balance compliance and experience?

In addition to further integration of technology in AML and KYC processes, and more proactive approaches to risk management, a big focus for FIs in 2024 will be increased efforts to balance regulatory compliance with exceptional customer service. To this end, the panel believed that a bigger technology budget is needed if FIs are to better support developing regulations and balance this with rising customer expectations.

In addition to charting a more dynamic compliance course, FIs need to ride a wave of heightened customer expectations. AML and KYC processes must not add friction to client onboarding journeys and other key customer lifecycle touchpoints. However, for many FIs, it remains a truism that as regulatory pressures make KYC processes more onerous, the customer experiences is detrimentally affected.  

The panel agreed that KYC transformation cannot be an afterthought if FIs want to reduce friction.

FIs must make efforts to design compliance strategies around the user experience. Utilising advances in data and automation, such as digital identity verification, real-time PEPs and sanctions watchlist screening, adverse media data, eKYC, and KYB, lessen the need for manual intervention, leaving compliance professionals free to focus on more complex tasks. Thus, successfully balancing the need to comply with current and future regulations whilst delivering superior customer experiences.

Choosing the right technology partner is therefore vital.

Why FI-Regtech collaboration is key to success

As each new regulatory change appears on the horizon, so too does a new wave of requirements and obligations FIs must contend with, in addition to staying on top of all the updates, amendments and additions to the myriad of existing regulations.

The panel therefore believed that 2024 will also be a year of strategic collaboration. FIs must seek technology partners that not only offer a great product suite, but also have the industry experience and expertise to support, guide and advise in building more proactive approaches. Simultaneously enhancing compliance, improving the customer experience, driving operational efficiency, responding to regulation, and fostering the secure financial ecosystem the FCA demands.

RegTech is no longer the new kid on the block. Instead, providers are established as invaluable collaboration partners when FIs have new regulatory goals to reach or new risk management challenges to overcome. RegTech’s are leveraging AI and Machine learning (ML) for KYC and AML purposes, with a range of tools used to verify customers’ identities, eliminate manual error, streamline and automate processes, and most importantly mitigate fraud and other financial crimes.

But, the panel agreed that not all RegTech's are created equal. The key is finding a partner with both the technology capabilities and industry expertise needed to build an environment of compliance best practice.

Why W2 by FullCircl is a compliance game-changer in 2024

With W2 by FullCircl FI’s can onboard more customers and meet regulatory requirements with automated KYC, AML, anti-fraud, and identity verification solutions through an intuitive orchestration platform.

As part of the FullCircl group, we enable organisations to address to many of the most critical commercial and regulatory challenges, and provide the wrap-around support, training and guidance FIs need to ride the wave successfully.

Get in touch with our team to find out more.

KYB, short for Know Your Business, is a due diligence process that focuses on verifying the identity and legitimacy of business entities. Just as Know Your Customer (KYC) procedures are employed to verify the identity of individuals, KYB checks help organisations assess the authenticity and trustworthiness of other businesses.

KYB involves collecting and verifying relevant information about a business, such as its legal name, address, registration number, and ownership details. This data is then compared against reliable sources, ensuring compliance with regulatory requirements, and minimising the risk of engaging in fraudulent or illicit activities.

In today’s fast-paced and interconnected business environment, it’s essential for organisations to have a comprehensive understanding of their clients and partners. This understanding goes beyond just knowing their names and addresses. It involves delving deeper into the legitimacy and background of these businesses. This is where Know Your Business (KYB) comes into play.

The meaning of KYB checks

KYB checks involve conducting thorough investigations into the background of a business entity. These checks typically include:

• Verifying the legal status of the business by reviewing registration documents and certificates. This ensures that the business is properly registered and authorised to operate.
• Confirming the physical location of the business and cross-checking it against official records. This helps validate the legitimacy of the business’ operations.
• Validating the ownership structure of the business to identify the Ultimate Beneficial Owners (UBOs). Understanding who controls and benefits from the business is crucial for assessing its transparency and potential risks.
• Assessing the business’s financial stability and reputation in the industry. This involves analysing financial statements, credit reports, and industry evaluations to gain insights into the business’s financial health and standing.
• Screening the business against watchlists, sanctions lists, and politically exposed person (PEP) databases. This step helps identify any connections to individuals or entities involved in illegal activities or sanctions.
• By conducting these checks, organisations can gain valuable insights into the businesses they interact with, mitigating potential risks and enhancing their overall security posture.

The importance of KYB checks

Now that we understand the meaning of KYB, let’s explore why KYB checks are essential for businesses to not only ensure compliance with AML directives, but also to protect reputation.

1. Risk mitigation

KYB checks help organisations identify and assess potential risks associated with engaging with certain businesses. By verifying the legitimacy and background of their counterparts, businesses can make informed decisions and reduce the likelihood of falling victim to fraudulent activities or financial losses. This proactive approach to risk management is crucial in today’s complex business landscape.

2. Compliance with regulation

Compliance with Anti-Money Laundering (AML) and counter-terrorism financing (CTF) regulations is a critical aspect of operating any business. Most recently, the 5th Anti-Money Laundering Directive put a substantial focus on the importance of ‘Know Your Business’ processes and the 6^th directive increases the financial and personal punishments for non-compliance. Businesses now have a requirement to perform KYB checks ensure that organisations meet their regulatory obligations by thoroughly vetting the businesses they deal with and preventing illicit transactions. Failure to comply with these regulations can lead to severe financial penalties and damage to the organisation’s reputation.

3. Safeguarding reputation

By conducting KYB checks, businesses protect their own reputation and brand image. Engaging with untrustworthy or fraudulent businesses can lead to negative publicity, customer distrust, and long-term damage to the organisation’s reputation. KYB checks help businesses make informed decisions and maintain a strong reputation in the market.

4. Strengthening business relationships

KYB checks promote transparency and trust in business relationships. By demonstrating a commitment to verifying the identity and legitimacy of their partners, organisations foster stronger connections and collaborations. This, in turn, opens doors to new opportunities and enhances the overall success of the business.

Both KYC and KYB checks have always had the same objective – to fully understand the risk that new and ongoing business relationships pose. To understand the risk of a business entity, money laundering reporting officers (MLRO’s) need to know the people responsible for the business, as well as the people who ultimately benefit from that businesses activity, ultimate beneficial owners (UBO’s). They need to know if the business, or the people in the business have been sanctioned, and if so by whom. They need to understand the political network and potential exposure to corruption that individuals running corporations have, and they need any adverse media that surrounds the business.

How FullCircl can help

FullCircl offers a global KYB solution as part of an orchestration platform, which covers data on 365 million entities in 160+ countries. The solution can be integrated via a single API or SaaS based approach to enable businesses to gain real-time access to the information they need on clients and prospects.

The solution includes a full business report which includes information on the following:

• Recommended credit and contract limit to assist contract discussions.
• Ownership and UBO's.
• Full company financials presented in an easily digestible format.
• Payment performance history information to investigate previous partnerships.
• Current and previous directors including share percentages and PEPs & Sanctions.

To learn more about FullCircl’s Know Your Business solutions and how we can help your business stay compliant with Anti-Money Laundering regulations and protect reputation, please contact us today. Simply submit the contact form here, and one of the team will be in touch.

As the world becomes increasingly globalised, businesses must navigate an array of AML PEPs and sanctions regulatory requirements. One such requirement is Anti-Money Laundering (AML) compliance, in particular the 6^th Anti-Money Laundering directive, which involves identifying and verifying customers to prevent money laundering, terrorist financing, and other financial crimes. A key aspect of AML compliance is conducting checks on politically exposed persons (PEPs) and sanctions lists. In this blog, we will provide a guide to AML PEPs and sanctions checks.

What are PEPs?

Politically exposed persons (PEPs) are individuals who hold or have held a prominent public position or function, either domestically or abroad. Examples include heads of state, government officials, judges, and military officers. PEPs are at a higher risk of being involved in money laundering or other financial crimes because of their access to public resources and the potential for corruption. Therefore, it's essential to conduct due diligence on PEPs to ensure that they are not involved in any illegal activities.

It's also important to verify the identity of those associated with PEPs including family members and close associates. Not only are PEPs themselves at a higher risk of being subject or involved in money laundering and other financial crimes but those close to them could also be involved.

What are sanctions?

Sanctions are measures imposed by Governments, international organisations, or other bodies to restrict trade or financial transactions with certain individuals, organisations, or countries. Sanctions may be imposed for several reasons, including terrorism, human rights abuses, or weapons proliferation. Compliance with sanctions is crucial to prevent unwittingly supporting prohibited activities.

Since the conflict began between Russia and Ukraine in 2022, sanctions checking has become even more important for entities to conduct on their customers at the point of onboarding and through re-screening. Not only does sanctions checking form part of compliance requirements for regulated businesses, but it also protects the reputation of an organisation and provides a clearer view on their customer base.

What is a sanctions list?

Sanctions lists are often created to target entities that are believed to be involved in activities such as terrorism, human rights violations, or the development of weapons of mass destruction. The purpose of sanctions lists is to exert pressure on the targeted entities to change their behaviour or to punish them for their actions.

Within FullCircl's AML software, the following global lists apply:

• O.F.A.C (Office of Foreign Assets Control)
• US Treasury Department
• French Asset Freeze List
• HMT (His Majesty’s Treasury Department – UK)
• European Union
• Government of Netherlands National Sanction List Terrorism
• United Nations
• Office of the Superintendent of Financial Institutions
• Ability to include all other global sanctions lists.

Why are PEP and sanctions checks necessary?

PEP and sanctions checks are necessary for AML compliance. Companies must ensure that they do not conduct business with individuals or entities that are on a sanctions list or are considered high-risk PEPs. Failure to conduct these checks can result in hefty fines, reputational damage, and legal consequences.

How to conduct PEP and sanctions checks

There are several ways to conduct PEP and sanctions checks:

1. Manual checks: Companies can conduct manual checks by searching publicly available databases, such as government and international organisation websites. While this method is relatively inexpensive, it can be time-consuming, may not be comprehensive, and there is always the risk of human error in this method.
2. Automated checks: Companies can use automated solutions to conduct PEP and sanctions checks. Automated solutions use artificial intelligence and machine learning to screen databases and flag any matches. This method is more efficient than manual checks and can be integrated into the company’s existing systems.
3. Third-party providers: Companies can also engage third-party providers to conduct PEP and sanctions checks. Third-party providers offer a range of solutions, from manual checks to fully automated systems. Using a third-party provider can be more expensive than conducting checks in-house, but it provides more comprehensive coverage and can also be integrated into existing systems.

How much PEP and sanctions information do I need to obtain?

How much information a business gathers on customers really depends on their risk appetite. FullCircl's Anti-Money Laundering (AML) solution splits these into three levels depending on how in depth the client wants to go within the check. All of these checks can be consumed through a single API integration.

Level 1: Senior Political Figures (SPF) List

• Heads of state and high-ranking government figures around the world.

Level 2: PEP Select List

All the above plus:

• Regional, current, and former PEPs.
• Family members with PEPs.
• Close associates with PEPs.
• FATF (Financial Action Task Force) defined PEP categories.

Level 3: Watchlist (PEP, Sanction & Adverse Media)

All the above plus:

• A much broader spectrum of civil servants, political party officials, senior members of the police force, city mayors, national NGO officials, political pressure and labour group officials.
• Global law enforcement wanted lists.
• Regulatory enforcement actions.
• Global adverse media.
• Global sanctions lists.

What to do if a match is found?

If a match is found during a PEP or sanctions check, companies must conduct further customer due diligence to determine if the individual or entity is indeed on a sanctions list or is a high-risk PEP. If the match is confirmed, companies must take appropriate action, such as freezing assets or terminating the business relationship.

By using orchestration platforms such as FullCircl's offering, businesses can conduct even more in depth checks on their customers which ranges from KYC software, address lookup, fraud prevention, and document verification to confirm a match or in the instance where a more comprehensive view of the customer is required.

PEP and sanctions checks are critical components of AML compliance and the importance of them will only continue to grow. Companies must ensure that they conduct these checks to prevent being involved in financial crimes inadvertently. Conducting checks manually, using automated solutions, or engaging third-party providers are some ways to conduct these checks. If a match is found, companies must conduct further due diligence and take appropriate action. By following these guidelines, companies can ensure that they remain compliant with AML regulations and protect themselves from financial and reputational damage.

If you require more information on how to effectively conduct PEPs and Sanctions, you can contact us here to book a demo.

Voting has now opened for the British Bank Awards 2024. Run by Smart Money People, the British Bank Awards have been celebrating excellence in the banking industry since 2015.

FullCircl is proud to have been voted RegTech Partner of the Year in 2019, 2020 and 2023. So, why do we deserve your vote in 2024?

‍Continuing to drive the RegTech agenda

For us, it’s not a case of ‘won and done’.  We continue to set the pace for innovation in the RegTech market, shaping the future of compliance, risk management and financial crime prevention.  Since last year we’ve:

• Acquired W2 Global Data Solutions to further enhance our expansive datasets and deep subject matter expertise in identity verification, through W2’s global KYC, AML, and anti-fraud services – opening up new consumer verification capabilities alongside our existing corporate entity screening.
• Partnered with nCino to optimise time to funding for SME customers by reducing risk, removing friction and improving enhanced due diligence throughout the customer lifecycle.
• Integrated with ComplyAdvantage to boost our PEPs, sanctions, adverse media and risk screening capabilities, delivering a highly-differentiated and dynamic approach to AML and risk management.

We have a highly-differentiated proposition

Not only are we unique in our ability to deliver both corporate and consumer compliance checks, but we also sit at a unique intersection of the market as a RegTech provider that also delivers a suite of revenue-boosting tools – tackling some of the most critical commercial and regulatory challenges through a single platform.

We help banks and financial service providers profitably identify and acquire, verify and onboard, and retain and grow customers.  Thanks to a range of Smart applications designed to solve specific commercial challenges, we’ve built a vision for the future of banking whereby every stage of the customer lifecycle – from the first engagement, through CDD and onboarding, to in-life customer care and perpertual eKYC – is augmented with the highest quality insight-driven intelligence.

• Identify & acquire: advanced prospecting and sales intelligence
• Verify & onboard: KYC and KYB compliance, Identity Verification, Fraud, AML and credit risk screening
• Retain and grow: perpetual KYC/KYB, ongoing monitoring, customer retention and expansion intelligence

We’ve gone global

We can now identify millions of actionable insights on entities from 160 counties, providing a near real-time record of companies, their officers and shareholders, and importantly the relationships between them – vital in today’s complex and highly-nuanced regulatory environment.

We serve 700+ customers, process over 300 million onboarding and monitoring transactions per month and facilitate the onboarding of 200,000+ customers each year on their behalf.

Can we have your vote?

The British Bank Awards are voted for entirely by you.  It’s a chance to have your say and help us, as we continue to ease the burden on banks and provide cutting-edge solutions to help them grow by connecting the insights they need, when it matters most.

Vote for us here as RegTech Partner of the Year