What is Remediation?

Knowing your customer (KYC) is a key element of your AML/CFT process. It’s critical to the onboarding process, where potential customers are assessed for the level of risk they may bring to your business.

However, to be effective, KYC data must be maintained, monitored and updated for the life of the customer relationship. That ongoing process is known as KYC remediation, and it’s another vital part of preventing financial crime and meeting regulatory requirements.

What is KYC remediation?

KYC remediation is about ensuring that your clients are not involved in any financial crime or suspicious activity, not just at the onboarding stage but for the life of the business relationship. It’s important to not only know your customer but also go a step further and ensure all information is clear, organised and accurate ongoing. Risk levels may need to be adjusted as customer information changes, or suspicious transactions may need to be reported. 

Why is remediation important?

Financial criminals are constantly on the lookout for victims, and with big banks having such tight control of their anti-money laundering and counter-financing of terrorism (AML/CFT) processes, small and medium businesses have become a target. KYC is crucial for:

• Meeting regulatory requirements: compliance with local legislation requires businesses to have a robust KYC process. In New Zealand, this is outlined in the customer due diligence section of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Non-compliance with the Act can lead to fines and, in some cases, imprisonment.
• Protecting your business: businesses exposed to money laundering or financing of terrorism can experience huge financial loss and reputational damage, and ongoing KYC processes can minimise that risk. 
• Transparency and security: the more organised and accurate your data, the easier it is to track. Better tracking lets you identify potential threats early and maintain control of your financial and data security.

The process

Remediation is crucial for the ongoing protection of your business. Here’s where it fits into the KYC process:

1. Collecting and verifying basic customer data: this is the fundamental onboarding stage of KYC.
2. Assessment of risk: at this point, businesses must create an individual profile for each client, including key information, any areas of potential risk, and an overall risk level. 
3. Ongoing monitoring: client activity needs to be tracked on an ongoing basis, and suspicious activity must be flagged and reported to the relevant authorities. 
4. Updating and reassessing customer data to ensure it remains at the relevant risk level according to current regulations. Profiles must be reviewed regularly – the frequency dependent on the level of risk in the original profile. 

A critical, continual task

It’s important to stress that KYC remediation isn’t a one-off affair. With new regulations being introduced, best practice standards changing and new customer information continually flowing into your business, remediation is a continual process. This can be a complicated, time-consuming undertaking – and crucial that it’s done properly.  =

If you’re struggling to keep up with KYC remediation and want to ensure your business is protected, contact First AML and find out how we can help you today.