Digital business on-boarding best practices: Automating KYC / AML

Digital onboarding gains traction

Regulated institutions are only just beginning to solve the challenge of digitally on-boarding new business customers. This is even true even in countries that are leading the way in digital banking, such as the Nordics.

Institutions that have relied on face-to-face customer identification and paper processes to acquire consumer information to comply with anti-money laundering (AML) regulations have to optimize their processes to be able to reach new customers and new markets.

In an age of instant gratification, traditional institutions are falling behind when it comes to digitising the on-boarding process. This challenge becomes even more relevant now that many people around the world facing confinement or strict social distancing measures.

As the driving force behind AML regulation, the FATF, puts it: “The FATF (..) highlights the benefits of trustworthy digital identity for improving the security, privacy and convenience of identifying people remotely for both onboarding and conducting transactions while also mitigating ML/TF risks. The FATF calls on countries to explore using digital identity, as appropriate, to aid financial transactions while managing ML/TF risks during this crisis”.

Manual processes fall short

In many European countries, the identity verification processes involved are still manual. This means staff need to check identification documents by hand and potential customers need to either visit a branch or risk sending valuable documents through the post.

Consumers expect better, and will often abandon applications rather than go out of their way to perform the extra steps required. Our own research shows that 38% of consumers give up part way through an application thanks to a poor user experience.

The expectation is no different for business on-boarding, where a business rather than an individual is registering for a service or product. Businesses are run by humans, which expect the same convenience which they experience as when opening consumer accounts.

Digital transformation has touched every sector and every size of business, and customers often demand high quality digital services. If they don’t, they will vote with their feet.

Despite these expectations, business on-boarding is far more complicated than consumer on-boarding, with all the same challenges and more besides. It is critical that institutions understand the specific and nuanced challenges facing business on-boarding, and where there are opportunities to create a better on-boarding experience.

Business On-boarding: Challenges and Opportunities

Even though these 4 steps apply to both individuals and businesses, they are very different for individuals and businesses with regards to the amount of data and complexity of each step.

Businesses have larger set of datapoints, related to the relevant stakeholders which need to be identified and assessed: shareholders, controllers, signatories and beneficial owners are all relevant stakeholders which need to be included in the CDD process.

Let us outline some of the major challenges.

Who - or what - owns a business?

The ownership structure of a business can be complicated with multiple layers of holding structures, circular ownership and foreign ownership relations. Complex ownership structures can make it difficult for institutions to ensure necessary compliance checks are directed at the right persons and entities. Despite this, AML rules demand that regulated institutions gather all relevant information in structured customer profiles.

Another well-known challenge is the identification of “ultimate beneficial owners” (UBOs) – natural person(s) who ultimately owns or controls a business. Even though regulation requires countries to have updated national registers with UBO information, many countries have failed to implemented these on time, or are struggling with providing reliable and accurate data. Here, other sources like commercial data providers can be of help.

Sigicat’s identity validation service aims to provide all ownership data from the above sources, via a single API.

This API ‘normalizes’ the data from different sources, so that institutions don’t have to manage multiple integrations with different data sources, all with their own data formats.

This allows customers to digitize the validation step of a business onboarding process. When ownership structures are transparent, risks can be assessed automatically and the business can welcomed as a customer without any manual interference.

Who can sign on behalf of a business, and how can this person be identified?

As businesses grow, more people have the power to make decisions. In many markets signing rights within a business are clearly defined, but not always. Unless someone with the right authority signs, an agreement isn’t legally binding nor compliant with AML laws. This isn’t always simple for a business—when a business is being on-boarded it’s often because it is a new entity or has been through some big changes that may muddy the waters.

Institutions need to navigate potentially complex data structures to identify exactly who is able to execute agreements. Once the signatory is identified, his/her identity needs to be verified according to local regulation (are they who they say they are?).

Signicat digital identification solutions can identity any person electronically, and with the required level of assurance. Our eID hub cover 30+ electronic identification methods, and our eIDV service allows identification document verification with liveness verification. This allows remote identification on any device, remotely, within 2 minutes.

Screening is not straightforward

When on-boarding a consumer, the account holder needs to pass know-your-customer (KYC) requirements before being on-boarded. With businesses (where KYC is sometimes referred to as KYB), this becomes increasingly complex due to multiple decision makers and ownership structures. If for instance one of the owners is legal entity such as a holding company, screening must extend to shareholders of that holding as well. This makes KYB for a much more complicated and lengthy process.

Screening typically covers cross-checks with sanction lists, checks for adverse media and determining if one of the controllers/UBOs/signatories is a “Politically Exposed Person” (PEP) - people who hold high office in the public sector or have jobs that make them possible targets for financial crime or corruption.

Screening contains many challenges: one data source if often not adequate or exhaustive, and it is hard to take all close associates and family members into account when checking for PEPs. When on-boarding today, it’s not unusual for institutions to just rely on honesty from their customer in the form of self-declaration of PEP status.

Signicat helps with providing easy digital access to the relevant lists, and provides APIs that help to reduce false positives while screening persons. Getting this information directly from a reliable source rather than on a self declaration basis means that an organization can more easily satisfy regulations while automation will help make time for more complete checks.

Paper proofs of identity and trustworthy credentials

One of the biggest barriers to a good on-boarding process for consumers is the use of document credentials such as passports and identity cards. Not only does the cumbersome use of physical documents create user frustration when on-boarding, it’s expensive and also creates additional risk—the origin and authenticity of documents can be difficult to check, even for experts. At a time when businesses want to focus their resources on improving the customer experience, they are instead drowning in paperwork.

In the third instalment of the Battle to On-Board, the report found that a third of respondents were reluctant to switch accounts due to the prospect of having to produce a large amount of paperwork. These same consumers won’t change their mind just because they are applying for a business account—in fact, the number is likely to be higher thanks to the prospect of more complications. It is down to institutions to put these fears at rest and guarantee a simple and fast business on-boarding journey.

With the need to not only identify the controllers, UBOs and signatories, but to also prove their relation to the business via trustworthy credentials, the amount of paper involved in business on-boarding increases even more.

By using Signicat digital identity and signing services institutions can create a compelling user experience for businesses that reduces abandonment. The required credentials can be retrieved digitally from trustworthy sources, allowing a fully digitized onboarding journey.

Strategic considerations

Do you know your business customer?
Knowing your business customer is a longer and more complex process than establishing the identity of a single consumer. Whereas on-boarding consumers is a binary process—yes or no— identifying business customers is about determining ownership structure, in addition to performing a check on each individual involved. How much confidence do you have in your customers’ identity with your current systems? Where could digital processes help fix this?

Do you want to work with this customer?
Politically exposed persons, and their close associates and relatives, may mean extra risk when providing services to a business. Is it worth the risk? Do they have a criminal conviction or past bankruptcy that also adds risk? Even if you know who they are, do you have full knowledge of all of the individuals involved with a company? Do any of them present extra risk?

What is the ongoing experience of your business customer?
Big Tech, fintech and industry-wide digital transformaton has increased the expectations of business customers—who are, after all, consumers in another guise. Can businesses access services easily? Are they at risk of abandoning the onboarding process? Does the on-boarding experience set the tone that your brand is looking to convey.

Signicat’s Business On-boarding Service

Signicat accelerates safe on-boarding of business customers in digital channels by helping to verify company identity, ownership structure and signing policy. In addition, our solution includes electronic signing of documents, such as self-declaration, account agreement and terms and conditions. Our digital identity solution on-boards business clients efficiently and securely, by identifying and validating both the relevant individual and company identities. We help you to digitize and simplify the customer onboarding process, while satisfying AML regulations.