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KYC and AML for Lenders: Why Do You Need Them?


The Global Lending Market Report 2022 states that the size of the lending market has already exceeded $7,000.00 billion and is expected to grow to $11,285.05 billion in 2026. However, profitability is often associated with risk, and lending is no exception. Corporate lending is inherent in two major types of risks - credit and operational. 

Credit risk is understood as the possibility of the bank incurring losses due to the inability or unwillingness of the client to fulfill the obligations specified in the agreement. 

Operational risks include the risks of direct or indirect losses as a result of shortcomings or errors in internal business processes, or personnel actions, due to failures in the operation of banking systems, or external events.

In addition, the significant risk of money laundering and terrorist financing should be emphasized, which can drag a bank into serious financial misconduct.

Due to the large number of risks lending activity is exposed to, a bank must apply due diligence measures to its clients and responsibly select the software and hardware used. One of the ways to keep a bank away from risky ventures is KYC and AML programs.


Key Difference Between KYC and AML

There are financial institutions that believe that KYC and AML loan programs serve the same purpose and fail to fully implement one or both of these aspects.

KYC refers to the process of ID verification and risk analysis, while AML is a range of anti-money laundering actions and techniques applied to protect against, detect and report the financial crime.

KYC is one of the principles that must be followed in order to comply with the AML rules. Moreover, the refusal of KYC will become a reason for a criminal prosecution, even if an organization operates fairly and legally.

KYC and AML Compliance

Although risk evaluation algorithms and methods may differ, as well as the software used by FinTech companies, KYC and AML compliance is mandatory and statutory in many countries. 

In the United States, where by the way the concept of KYC first appeared, federal law obliges all financial companies to observe AML conditions, under the supervision of the FinCEN. At the moment, the US finance companies are responsible for developing their own processes for complying with KYC regulations, however, a course has been taken towards stricter control of AML by law enforcement agencies, as well as the adoption of uniform protocols for compliance with KYC.

The UK adheres to the most robust KYC and AML rules and has been named a "global leader in promoting corporate transparency" by the FATF. UK banks are required to verify the identity of a client, verify beneficial owners, if any, and request information about the purposes and planned business relationships.

On the contrary, many banks in the United Arab Emirates, especially in the FTZ, lack reliable AML control systems, although a number of laws and requirements have been adopted requiring the establishment of KYC programs similar to those in developed countries. 

Singapore is a business-friendly and anti-financial crime country. The Monetary Authority of Singapore (MAS) is developing innovative solutions for the secure storage and exchange of corporate data, while the Singpass digital ID allows for electronic KYC procedures, the rules of which are also being revised and updated in accordance with new realities.

In the Philippines, due to high levels of money laundering, corruption, and the huge cash flow generated from offshore gambling operations, laws have been passed requiring financial businesses to apply proper KYC and CDD procedures to spot shady transactions.

South Korea is also working hard to combat financial misconduct and last year approved new AML measures that not only affect physical FinTech organizations but also virtual ones dealing with digital currency.

How KYC and AML Works

KYC and AML is a multi-stage procedure that not only includes the use of specialized software, but also staff training. If the procedure is not defined by law, it may vary from institution to institution, since the perception of risk and the level of risk for each firm and each client are different. 

However, in general, the approach and procedure for implementing AML controls will be similar and will consist of 2 main stages: governance and the implementation of processes.

Governance involves potential risk detection based on the services and clients they are provided to. Also, the tasks of this stage include staff recruitment and training, and the issue of secure storage and management of enterprise data.

The second stage deals with the assessment and profiling of risks, both credit and operational. To do this, information about each client is collected and sent to various independent third-party reviewers to compare it with official databases. The reviewers also compare information about a person with global criminal databases.

The multi-level client identity verification process includes:

  • Customer Identification (KYC);

  • Customer Due Diligence (CDD);

  • Enhanced Due Diligence (EDD).

If an investigation reveals illegal activity, the bank fills out a Suspicious Activity Report (SAR). 

The AML policy is not only a one-time risk assessment and research of new clients and their financial sources but also continuous monitoring of the client's activities, scheduled staff training, as well as internal control and audit.

Multi-stage work on the collection, verification, and analysis of data, as well as monitoring the activities of clients, is carried out using specialized software. It helps identify high-risk clients while decreasing the likelihood of human error and false alarms. 

Let us take a look at the latest AML and KYC no-code products that the market offers today to protect financial businesses.

No-Code Automation AML and KYC Solutions for Lenders

Undoubtedly, financial organizations take the requirement of KYC and AML compliance seriously. However, the whole process of collecting, verifying, and analyzing data is time and resource-consuming, and clients generally want to get a loan as quickly as possible. 

According to a Thomson Reuters report, passing KYC and AML checks increases borrower registration time by 22% on average. Thus, banks often have to balance between business security and speed of service in order to remain competitive.

Fortunately, today the market offers a lot of modern solutions that, through automation, speed up and simplify the AML and KYC processes.

Modern landing platforms meet the latest trends and current requirements, as well as demonstrate improved KYC/AML compliance methods, which help to better identify the slightest risks or suspicious activity, both for bank clients and employees.

One such innovative solution is offered by Neofin, a SaaS lending software company that has been using its knowledge of the banking and finance industry for many years to create an award-winning FinTech product. 

The Neofin no-code lending platform brings together essential tools for a fast and seamless KYC, including an AI-enabled 3D detector, document recognition, advanced data verification algorithms, and more.

Stay Compliant with Neofin Software

Given all the risks, as well as the requirements of law enforcement agencies, a financial institution needs measures to protect its business. Such regulations may appear to complicate and slow down the provision of services such as lending. 

But with modern no-code products, AML and KYC compliance is not complicated. You can find top-notch lending automation software for your business at Neofin. Start a free trial and launch any new lending product in one hour.

Neofin Official
Neofin Official
Август 15, 2022
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