In the age of AI, a human touch is still needed in KYC


AI & software based automation can help cut cost and effort massively in any KYC & AML programme, but there is still a place for the investigative Compliance Officer for many years to come. In fact, we believe AI & software can increase the value Compliance Officers bring to the table, by freeing them from the drudgery of routine work & policy, allowing them to focus on both more challenging and interesting work, such as investigative due diligence & monitoring, as well as forming strategic policy.

The reason we can’t fully rely on automation yet is simple: not everything worth finding out during Client Due Diligence is digital yet. And not all that is digital is accurate. Let’s illustrate this with a couple of simple examples.

Nominees and opaque structures

Financial secrecy across the world is on the retreat, but it is by no means gone and unlikely to ever disappear. In some cases, there may be legitimate reasons for opaque ownership, such as the personal safety & security of the Ultimate Beneficial Owners residing in countries where extortion & kidnapping of wealthier individuals is still a thing.

In many cases official ownership is held by nominees, which would be the details that turn up on the public- or official records. However, the true ownership is likely only to be documented in letters of trust or nominee declarations. These documents may only exist as paper documents held in safe-keeping. Naturally automated software-based solutions would be unable to know about this, and may unwittingly accept the official documents without further question.

For a regulated firm, it is of the utmost importance to know the true ownership of any legal structure, not just that which is public record. To accurately profile such conditions will almost certainly require a person to ask questions as well as be able to use their experience and judgement to see if the information provided makes sense.

Inaccurate public registers

Many software based solutions provide standardised API’s on top of the many different official public registers of legal entities and owners that exist across the world. These solutions can be invaluable in cutting down manual work and data entry, but they can only be relied on so far - they are only as good as the source material.

Many public registers have very limited oversight and verification. A good example of this is UK Companies House, which historically has had no official verification. In the past, this has meant that many companies registered in the UK have had false or even ficticious directors and owners registered, giving perpetrators of money laundering and other financial crimes a free run without ever having their names on record.

Even with the planned EU Ultimate Beneficial Owner register legislation coming into effect soon via the 4th Money Laundering Directive, these registers will only be as good as the enforcement of the individual member states, and the honesty of companies reporting.

In summary, public registers are useful, as are the services layered on top of them, but they are not to be relied upon to 100% if your firm is to demonstrate that they have done due diligence on clients to the best of their abilities.

The Detective Compliance Officer

Our conclusion is that the Compliance Officers job is still safe for some time. The role will evolve though. Gone are the days of ticking boxes, software is more than capable of this.

What will emerge is what we like to call the Detective Compliance Officer:
Someone who can look at the data available, use their judgement and decide whether the story that the information tells makes sense, or if there are any signs that indicate that the data contains misinformation.

AI will surely encroach on this as well over time. But as long as availability of information in digital form is incomplete, and not all digital information is reliable, the Detective Compliance Officers eyes and judgement will continue to be needed.
Technology will not replace them, rather, technology will give them investigative super powers.

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Posted by Wille Faler

Wille is a technology industry veteran of almost 20 years and has worked on a consultancy basis with organisations such as the Financial Times, BBC, UBS and Barclays Wealth Management.
He combines deep technical know-how with a thorough understanding of the regulatory landscape financial institutions face today.

Languages: fluent English, Swedish, Finnish & intermediate German.

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