The wealth management industry is an integral component of finance and investment, providing specialized services for individuals, families, and institutions.
Wealth management encompasses a variety of services including asset allocation and risk management, investment planning, estate planning, tax advisory services, retirement planning, insurance coverage and other financial advice. In addition to providing advice on investments and helping clients manage their finances more effectively, wealth managers are also able to recommend ways to minimize taxes and increase profits, while ensuring that the client’s assets are secure and safe.
As financial service providers, wealth managers are usually subject to national and global Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) regulations. These regulations, developed by international organizations such as the Financial Action Task Force (FATF) and implemented by national and regional regulators such as the US’ Financial Crimes Enforcement Network (FinCEN) and the UK’s Financial Conduct Authority (FCA).
In practice, AML/CTF compliance for wealth managers involves carrying out effective, well-documented and consistent Know Your Customer (KYC) on their individual clients — or Know Your Business (KYB) checks on their corporate clients. This can help them ensure they are in compliance with applicable regulations and detect any potential risks.
By properly understanding their clients’ identities and the sources of their wealth, wealth managers can reduce the risk that their services are used to proceed illegally-obtained funds — a serious criminal offense under most global AML regimes.
KYC & KYB for wealth managers
The KYC process requires collecting, verifying, and maintaining accurate customer information such as identity documents, tax numbers, source of funds, occupation, and other background details that could be used for fraud prevention or money laundering.
The KYB process requires verifying the legitimacy of businesses as well as their owners to improve customer protection. This includes identifying a company’s place of business, its ultimate beneficial owners (UBOs), potential risks associated with the product, and checking for any criminal records or sanctions imposed on the owners of the businesses. Wealth managers must also check for potential links between customers and business entities in order to ensure that they are doing their due diligence on all parties involved in transactions.
By implementing these measures, wealth managers can better protect their clients’ investments by mitigating risks associated with money laundering or other illegal activities.
Wealth management KYC/KYB processes
KYC checks involve verifying a client’s identity and collecting relevant information about them. Wealth managers can carry out KYC checks by requesting information or documentation such as:
- A valid form of government-issued identification, such as a passport or driver’s license
- Proof of address, such as a recent utility bill
- Additional documents, such as confirmation of employment or bank statements
KYB checks are used to verify the legitimacy and activities of a corporate or company client. For example, wealth managers can request corporate clients to submit:
- Certificate of incorporation
- Source of funds and their legitimacy
- UBO data
Of course, it is also necessary to verify these documents by cross-checking them with trusted sources, such as government databases. For KYB checks, onboarding companies need to check submitted documents with public records and industry databases to confirm the accuracy of a customer’s business activity and ownership structure.
It is also sometimes advisable — depending on a client’s risk profile — to assess the reputation of the customer by reviewing media reports, conducting background checks on key personnel, and obtaining references from existing clients or partners. This is commonly referred to as Enhanced Due Diligence (EDD).
EDD checks also usually involve identifying and investigating any links between customers and sanctioned entities or individuals in order to comply with global AML regulations.
How KYC-Chain can help
KYC-Chain’s end-to-end workflow solution offers an optimized, customizable compliance toolset that provides wealth managers with a simplified approach to meeting their compliance challenges.
Our onboarding process can be configured to automatically adapt to each individual customer’s location, risk profile, business industry and more.
It also uses the following processes and tools to build comprehensive and verified understandings of clients and their risk profiles:
- Corporate structure visualization – Using KYC-Chain’s Xmass tree tool allows wealth managers to quickly understand the corporate relationships and ownership structures of their clients.
- Automated User Onboarding Restrictions – Many wealth managers want to limit their services to clients from certain countries and jurisdictions – this can be for their own compliance policies and tax planning or avoiding sanctioned or risky jurisdictions. KYC-Chain’s automated onboarding process allows wealth managers to quickly determine a client’s true place of domiciliation and business activity — and automatically configures the KYC/KYB process to reflect this location.
- Risk Scoring – KYC-Chain’s automated onboarding tool uses dynamic risk scoring to determine the types of checks that a current or prospective client is subjected to. Risk scoring allows for optimized AML/KYC/KYB approaches by applying checks only where they are necessary and calibrating onboarding friction according to the degree to which it is actually needed. Using a risk-based approach is advocated for by leading global AML organizations such as the FATF.
- Enhanced Due Diligence (EDD) – As noted previously, there is sometimes a need to carry out more in-depth and comprehensive analysis of a potential or existing customer’s profile and activities, in order to better understand their risk profile. While EDD has traditionally been carried out by human compliance teams, there are also some automated processes that can first be applied to assess whether further investigation is warranted. This can include searching databases of sanctioned entities or global watch lists, as well as running adverse media searches to check whether an individual or business has been mentioned in relation to negative commentary in the public domain. By using automated processes to first run EDD checks, wealth managers can be more confident that they are applying increased scrutiny only where it is needed.
- Using KYC-Chain’s new Manager Fill function, compliance managers can also easily edit or delete customer applications manually, allowing for full compliance with identity protection laws such as the GDPR.
- Ongoing Monitoring – Automated KYC solutions need to also offer ongoing monitoring functions to identify and assess any changes to existing customers’ risk profiles. A client’s risk profile can change after a wealth manager has started offering their services to them – for example if the client relocates to a jurisdiction with a higher risk of money laundering, or if they are elected to public office and become a politically exposed person (PEP). So, it is important to keep track of any such changes and to be constantly aware of the true risk level they pose both from a compliance and financial crime perspective.
KYC-Chain can help
Are you a wealth manager looking for a market-leading Automated KYC solution to meet all of your compliance challenges? Get in touch and we’ll be happy to arrange a demo of the power of KYC-Chain.
