If you’re starting a fintech business requiring FCA authorisation, you’ll no doubt be spending a great deal of time preparing your application. Ask anyone who’s been through the process and they’ll advise you not to underestimate the complexity and time required, particularly if this isn’t your or your colleagues’ area of expertise. Be prepared, particularly if internal resources are limited.
Obtaining your license can be a lengthy – yet important and necessary – exercise that can directly impact other deadlines, and it will absorb your focus away from developing other core business activities.
One key element will be to comply with the KYC (know your customer) and anti-money laundering (AML) requirements. As the name suggests, KYC regulation is about being able to verify the identities of your customers as individuals and as companies.
From our many discussions with them, we’ve found that fintech firms recognise they not only need to ensure they have the right processes in place to meet the standards required of them, but also that this cannot be a one-off exercise to be shelved as soon as the authorisation is granted. These complex compliance KYC processes need to be robust and scalable.
Every fintech firm will have ambitions for growth, and their approach to due diligence and compliance must be able to keep pace as they sign up new customers. With more customers comes the need for more checks and throughout the relationship fintechs need to stay abreast of any changes in the individuals and companies with which they do business. They need to be in a strong position to onboard customers rapidly and confidently, assured that their business resources are not unnecessarily consumed by manual checks, which in turn can only increase the risk of missing something along the way. This challenge cannot be underestimated.
Imagine that an existing customer – one of the many hundreds you hope to sign up – one day appoints a new board member? How do you know that? How can you run the checks required of you, on that new board member and the impact that will have on your customer company?
How can you afford not to, because you must do this in order to continue to comply.
As they grow, fintech firms look to recruit suppliers and partners to help them compete and innovate. Just as with customers, supplier and partner engagement also requires rigorous and comprehensive compliance checking, again checks that can absorb time and opportunity cost.
The good news is that time and again the FCA has lent its voice and resources to support the fintech industry and is ultimately supportive of compliance innovation by RegTech startups. On 7 July this year, for example, the FCA published its ‘Guidance on Outsourcing to the cloud and other third-party IT services’. The paper sets out its expectations for firms keen to adopt cloud and third party technology services, and data management controls as well as offering guidance about how to conduct due diligence checks, all things deemed important in helping the industry grow and compete.
KYC and AML checks are essentially identity verification and risk screening of companies, people and their identity documents. Whilst this may sound simple at a superficial level, setting up efficient and scalable systems can be complex. They require multiple checks from many different data sources, and there can be additional complexities, such as the need to access multiple different datasets when dealing with individuals and companies’ customers based overseas. KYC checks were once a manual, time-consuming task, but now technology has enabled multiple KYC checks to be carried out in a single platform, delivered by a single API online, and all in an instant.
The days of manual checking are over and the fear of missing something falling between sporadic checking is a thing of the past. It’s all about automation and coverage. This, ultimately, results in reducing the risk of fraud and making compliance, AML and KYC checks as frictionless as possible, so you can focus on building your business, competing and growing.
By Adrian Black, Founder & Chief Executive Officer, Contego