Knowing Your Customer in 2018


Data, technology and automation have transformed the modern compliance program during a time in which financial institutions are confronted with greater complexity than before. Emerging risk categories, including narrative sanctions, beneficial ownership, and crypto currencies, and fintechs present financial institutions with increasingly difficult challenges to confront.

Narrative Sanctions

Historically, government sanction bodies provided the industry with a set list of  individual names and entities to be embargoed from doing business. In the last fifteen years, this has changed, so that sanction bodies now also describe the types of individuals they want screened, putting a huge burden on financial institutions to identity who the individuals and entities covered by these sanctions are, including layers of subsidiaries, and beneficial owners. In this day and age, as companies find it is not sufficient to search by the letter of the sanction, increasingly, they are turning to third party vendors to help them in helping them meet their compliance necessities and protect their businesses from bad actors.

Identifiying what your business is and is not capable of doing should be one of the first steps in establishing a successful compliance program. Staying up to date on industry trends, and the constantly changing political landscape is one strategy  that can be effectively used in order to ensure your firm is aware of any new risks  and potential partnerships and tools to mitigate them.

Businesses face both regulatory and reputational risk in ensuring they avoid finding themselves as a party to money laundering, organized crime, or terrorist activities. Not only do companies find themselves subject to potential fines and punishment from regulatory authorities, but once an industry reputation for involvement with bad actors is established, it can be difficult to change.

Beneficial Ownership

Governments have recently learned how easily bad actors have been able to set up shell companies and hide ownership, which became evident after the release of the Panama Papers. Unfortunately, in this day and age, this information can change both quickly and significantly, with activities occuring in a complex web of companies scattered across multiple jurisdictions. Furthermore, due to new beneficial ownership requirements, the number of individuals and entities that must be screened increases. As most institutions have restrictions on their time and budget, determining an effective risk mitigation strategy is crucial, and partnering with a third party may be the fastest and most efficient one.


Over the last year, cryptocurrencies have presented another challenge to many businesses seeking compliance. Due to the rocketing valuations of many of the established cryptocurrencies, their anonymity, their susceptibility to money laundering, and the large influx of customers, there has been increasing scrutiny of the use of cryptocurrencies by regulatory authorities. While certain cryptocurriences obfuscate ownership and transaction activity, increasing their risk, others provide useful insight that demonstrates the lower risk profiles of other users.  Banks should, again, stay as informed as possible on breaking trends in the cryptocurrency market in order to protect both themselves and their customer from scams and hacks. A defined plan, and potentially working with a consultancy, could be an effective strategy to grow your business into this new space.  Researching the history of the individuals involved with the crypocurrencies, including any previous criminal history or fraud allegations, is also recommened.

Brock Treworgy

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