Financial crime series: 5 things we still get wrong when onboarding clients

Christian Blackwell

Hello and welcome to the first in our new series of videos on Financial Crime.  I am here today with Tunde Fasoyiro from our regulatory and compliance consulting practice to talk about the five biggest mistakes that firms are still making when dealing with KYC onboarding.  Tunde, maybe you could start with telling us about the mistakes in the area of due diligence on clients?

Tunde Fasoyiro

One of the observations that we’ve made in relation to mistakes that firms do make is how they carry out their risk assessment on clients and the fact that they’re not always drilling down to establish their client’s source of wealth, how it interacts with the source of funds, and understanding the nature of their prospective client’s business and who their clients do business with.

Christian Blackwell

What are we seeing in terms of background screening?  

Tunde Fasoyiro

One mistake that firms tend to make relates to the identification of PEPs – their assessment and classification.  We have made observations where firms have wrongly identified PEPs where those PEPs would no longer be seen as a PEP because of the time that has lapsed since they were a PEP in a particular industry or government capacity and they have moved on. From that point of view, they should no longer be classified in that respect. Another mistake that they are making in terms of background screening relates to the various sanction regimes and the difference between the various sanction regimes.  

Christian Blackwell

What about connected parties?  Are we seeing anything particular in that area?  

Tunde Fasoyiro

What we have observed as a mistake is that firms are not always drilling down to identify who the ultimate beneficial owners are.  There is a tendency for firms just to rely on the information provided to them without carrying out a forensic analysis to ensure how the different layers of ownership sit and making sure that the buck stops with the UBOs who would be an individual or a number of individuals. 

Christian Blackwell

Another area I know companies feel they are quite mature in a lot of these processes and they have systems.  Systems are really important to facilitate these processes.  Are we seeing anything on the systems side that could be improved?  

Tunde Fasoyiro

Absolutely. One observation which we see being made, a mistake, is when these systems are are implemented, they are not necessarily taking account of potential changes in legislation, regulatory requirements and when those changes are implemented the systems are not necessarily robust enough.  

Christian Blackwell

As well as the systems, the actual people involved in the KYC onboarding teams, are we seeing anything in that area?

Tunde Fasoyiro

Yes.  Now, our understanding and observation is KYC is a skilled role, we are not always seeing the necessary expertise of KYC staff within firms.  We are of the view and our experience shows that there is a need to have sufficient expertise, in particular, we could use forensic expertise as an example when firms are looking to have an understanding and drill down on UBOs and on structures.  It does help when you have KYC front office staff who have a good understanding or who have a good forensic experience to be able to drill down and analyse structure so that they can identify who the UBOs are.