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How alternative credit data can help your adhere to KYC and due diligence laws

Sep 29, 2016 Philip Burgess

The Treasury, Financial Crime Enforcement Networks (FinCEN) and other regulatory bodies have implemented laws compelling financial institutions to enhance their know your customer efforts.

Conducting more comprehensive account audits and assessments can prove a challenge without the appropriate resources. As regulations intensify, general counsels and accountants may turn to alternative credit data.

How alternative credit solutions support KYC efforts
While alternative credit reports typically help professionals make credit and lending decisions, they enable compliance personnel to review client financial habits. For example, the PRBC report clarifies when and how often customers pay their rent, utilities and mobile phone accounts as well as provides the following information:

  • Positive and negative retail bank transaction items.
  • Bankruptcy, liens, eviction records and judgments.
  • Personal identification data such as Social Security Numbers, aliases, birth dates and drivers license numbers.
  • Current and previous address history.
  • Banking inquiries.

This information enables personnel to confirm the identities of the individuals seeking their services.

For example, PricewaterhouseCooper​s noted that Section 325 of the U.S. Patriot Act specifies that all banks, credit unions, savings associations and non-federally regulated banks need to implement a Customer Identification Program. In addition, PwC noted that financial institutions must gather CIP data and conduct customer due diligence regardless of transaction frequency or the amount of money involved.

Alternative credit solutions assist with CIP and CDD obligations because they receive automatic updates whenever transactions occur. Accountants and auditors can link this information to their internal databases for later analysis.

Move your customer transaction records to a digital interface.

FinCEN implements new CDD laws
In an effort to bolster covered financial institutions' AML efforts, FinCEN finalized rules that require covered financial enterprises to confirm the identities of beneficial owners. According to the Federal Register, covered financial institutions must adhere to this law by May 11, 2018, prompting many enterprises to review their KYC efforts.

The new regulation mandates that covered financial institutions must integrate the four core components of CDD into their operations:

  1. Discover and verify customer identities.
  2. Confirm the identities of beneficial owners.
  3. Comprehensively review customer relationships to understand the risk associated with them.
  4. Monitor and report suspicious behavior on a continuous basis and update customer information whenever such data is available.

"Identify verification systems are capable of informing due diligence professionals."

Today, covered financial institutions are not obligated to know the identities of beneficial owners. FinCEN maintained this provides an opportunity for criminals to launder illicit money through legitimate businesses, properties and transactions. The new rule will resolve this issue, hampering organized crime's ability to gain a monetary foothold.

What resources should institutions use?
To abide by the new CDD regulations, financial institutions must use bank verification and aggregation solutions, background screening tools and identify verification systems, all of which are capable of informing due diligence professionals. The data provided by these systems confirms whether customers are law-abiding, financially responsible citizens as well as alerts lenders to individuals who may present unwanted risk.

The best course of action is to unify this information through a platform which CDD experts can access. Doing so will expedite compliance efforts without compromising quality assessment.