2022 was a busy year for those involved in fighting financial crime.
In an ordinary year, regulated firms are tasked with intercepting increasingly sophisticated global operations, as criminals seek to integrate with, or take from, the global financial system. In 2022, this was against the backdrop of the conflict in Ukraine, which is, and has been, redefining criminality and its association through an ever evolving global sanctions regime. This generates an even greater emphasis on Know Your Customer (KYC) processes, which are in place to identify those parties considered criminal. While the war in Ukraine was a major factor in the considerations behind KYC and financial crime compliance last year, it was not the only one.
The evolving regulatory environment is a continuous challenge but, in 2022, not only did the rules and frameworks change, the underlying expectations of their application and enforcement did, too. Regulatory pressure has concentrated on areas such as Ultimate Beneficial Ownership (UBO), in response to the Pandora and Paradise papers, and select regions, with focus on London, as a mecca for money-laundering. We also saw court rulings in the EU related to protecting privacy rights of individuals by restricting public access to member states UBO registers. UBO is tightly coupled with KYC, as it pertains to understanding the true relations between parties and entities, which should be considered as part of any comprehensive KYC process. Hence, the growing importance of effective KYC within regulated firms is itself a trend that was of significance in 2022, and one that continues to appear even in unexpected areas.
To add to the multifaceted set of challenges that firms face in regards to financial crime compliance, KYC itself is evolving. Increased technological adoption and the focus on efficient and adaptive processes is itself a focus point in regulatory compliance, meaning that process automation and thus perpetual KYC (pKYC) are converging with reality. With this, trajectory, clarity and consensus are emerging among compliance professionals on what pKYC is (and is not) and what the roadmap to achieving it might look like as firms move forward.
This paper reflects on these mega-trends of 2022 and how they have created an even more urgent need for KYC automation and transformation in 2023.
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