As technology evolves, fraudsters adapt to it, making it imperative for the banking, financial services, and insurance (BFSI) sector to continuously improve their defence mechanisms. With regulators intensifying their norms, be it anti-money laundering (AML) or counter-terrorist financing (CTF), businesses also need solid know-your-customer (KYC) and customer due diligence (CDD) processes.
Over and above it, they need compliance to be double-edged: real-time vigilance and periodic checks.
THE DUAL FACETS OF COMPLIANCE
The primary objective of KYC and the more holistic CDD is to prevent banks, fintechs, and FIs from being exploited for financial fraud, money laundering schemes, or any other illegal activities. This means not only vetting and screening new customers as they are onboarded but also monitoring existing customers on an ongoing basis for any suspicious activities.
WHAT MOST BFSI PLAYERS FOCUS ON
Most businesses earmark their attention on identity verification during customer onboarding because laws demand it.
In the USA, financial institutions must comply with the USA Patriot Act's CIP, the Bank Secrecy Act’s KYC, and AML requirements, including OFAC screening and identity verification. In Canada, institutions must follow PCMLTFA regulations, involving customer and beneficial owner verification, KYC, and reporting to FINTRAC. Both countries emphasise documentation, ongoing monitoring, and enhanced due diligence for PEPs and HIOs.
In India, besides the Master Directions on KYC by Reserve Bank of India, BFSIs must follow the Prevention of Money Laundering Act (PMLA).
In MENA, compliance is shaped by directives from the UAE Central Bank (CBUAE) AML/CFT guidelines, Saudi Arabia’s SAMA regulations, and FATF-aligned supervisory frameworks across GCC states. Institutions must implement robust KYC/CDD, and screening against local and international sanction lists while ensuring adherence to UAE PDPL and Saudi NCA requirements.
In Southeast Asia, MAS Notices (Singapore), BNM’s AMLA framework (Malaysia), and OJK/PPATK requirements (Indonesia) must be followed for AML/CFT along with real-time KYC, ongoing CDD, and suspicious transaction reporting.
Using advanced technologies like real-time entity search and match, they instantly search and verify customer documents. It streamlines the KYC process and safeguards against potential threats at the speed businesses require today
Compliance Blind Spots Are Expensive
But this focus often narrows to only one side of the compliance road. It’s equivalent to putting guardrails on just one side of the road, leaving the other wide open to threats.
True compliance demands full-lane protection: Forward Scan (real-time screening at onboarding), Reverse Scan (screening your entire existing customer base against new entries in watchlists), and Rescan (continuous, automated monitoring as watchlists evolve).
And you need to run these checks across your entire dataset in a cost-effective way, ensuring nothing slips through the cracks.
WHAT THEY OVERLOOK
If real-time checks during onboarding constitute one facet of compliance, recurring screening cadences constitute the other. Periodically screening and monitoring existing customers adds another layer of vigilance, ensuring sustained integrity and continuous adherence to evolving regulations.
ReKYC is crucial as businesses and customers evolve over time.
You may expand to a new area with new laws becoming applicable, or the very nature of your customer may change due to employment or relocations.
They may also become a politically exposed person (PEP) or be associated with them, requiring sanction screening and enhanced due diligence (EDD), especially considering the current evolving political environment across the world.
So, your compliance regime needs to be up-to-date and continuous.
A SHORT CASE IN POINT
Consider Bank A, which decided to put compliance on the back burner and release new products and services quickly. It allowed them to keep costs low and expand into new customer segments. A year down the line, regulatory bodies slapped them with a fine.
Another year later, regulators clamped down on part of the services because the bank failed to check that multiple customers used the same identity card.
The consequence? Compliance costs and effort went through the roof, customers left, stock deteriorated, and the bank’s reputation was forever marred.
If the bank had invested in a simple batch-mode Customer Linking and Identification Process tool right at the start, they could have conducted daily periodic checks in bulk. It would identify duplicate records and report any occurring changes, fortifying their compliance – continuously.
All of this needs to happen keeping Customer Experience in mind
In addition to being two-pronged, compliance processes must cover the 2 ends of the scale: insufficient checks and customer experience (CX).
In this digital world, where services are graded in the court of public opinion, customer experience is the next competitive battlefield. Neglecting increasingly stringent compliance norms is not an option. Neither is poor customer experience.
Poorly designed processes lead to poor CX.
A lengthy and confusing identity verification process in fintech can push customers to abandon. At a big bank, the same queries for information to meet complex KYC requirements from different departments can cause customer frustration.
Quick, non-intrusive, & thorough CDD
While traditional AML checks and KYC processes form the foundation of customer due diligence, they are no longer sufficient in isolation. To truly safeguard your business, BFSIs need to adopt a multi-layered approach that goes beyond vanilla compliance measures.
A comprehensive CDD strategy should include rigorous, multiple layers of scrutiny, ensuring that every aspect of a customer's profile is thoroughly vetted.
- Multi-Database Checks: screening customers against a wide array of global watchlists, government sanction lists, financial litigation records, and internal blacklists.
- Ultimate Beneficiary Ownership (UBO) Checks: While AML is a cornerstone of CDD, it alone is not sufficient to capture the full spectrum of risks. During the opening of corporate bank accounts, it is crucial to identify the ultimate beneficiaries to uncover hidden interests and ensure transparency in financial transactions.
- Real-Time Transaction Monitoring: Through N-tier, graph-based analyses that map the sphere of influence are essential to detect and respond to suspicious activities promptly.
Rely on Posidex to take on the complex, vast, and repetitive task of regulatory compliance.
Our array of solutions helps you stay continuously compliant and in real-time, managing a vast amount of data, ensuring accuracy, adapting to regulatory changes, and keeping your customers happy!
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