Osaigbovo Edegbe, founder of Sascon LLC, is a result-driven finance and technology professional with years of experience in building operational processes to streamline financial payment infrastructures, customer support, KYC, and AML compliance across the financial services sector. She shared a valuable guide on avoiding common mistakes small businesses make with Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. The author of ‘Mastering KYC and AML Compliance: A Comprehensive Guide for Startups and Small Businesses’ encourages small business owners to adhere to basic guidelines. SEYI JOHN SALAU brings the excerpts:
How critical is KYC and AML compliance to small businesses and why do businesses struggle with implementation?
These compliance measures are essential to preventing money laundering and terrorist financing, and failing to comply with them can result in significant legal and financial consequences. Unfortunately, many small businesses make common mistakes that can put them at risk. KYC is a crucial aspect of AML compliance. As a small business owner, you must know your customers and be able to verify their identities to prevent money laundering and terrorist financing. However, many small businesses fail to implement adequate KYC measures, which can lead to severe consequences. To mitigate risks, businesses must develop a robust KYC framework that their team can implement in all their business transactions.
How should business owners respond to KYC and AML compliance issues?
Small businesses often overlook the significance of employee training regarding KYC and AML compliance. However, KYC and AML regulations require that as an employer of labour you and your employees are trained adequately to identify suspicious activities, the procedures for reporting it/them, and the potential consequences of non-compliance. As an employer you have to ensure your employees receive regular KYC and AML compliance training and implement internal compliance measures to avoid penalties and legal issues.
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How should business owners react to red flags?
If something looks suspicious, it probably is. As a small business owner, ignoring red flags such as unusual transaction patterns or suspicious activity in your customers’ behaviours can harm your business. These red flags could indicate money laundering or terrorist financing, and ignoring them can lead to severe consequences. Small business owners must be vigilant, proactive and take appropriate actions as soon as they notice them. Customer due diligence (CDD) is another critical component of KYC and AML compliance. Small businesses need to collect and verify their customers’ information and assess their associated risks. Failing to conduct sufficient CDD can lead to legal issues and reputational damage that could arise from insufficient customer due diligence.
Inadequate record-keeping is a huge challenge with small businesses; what’s your take?
Small businesses must maintain accurate and up-to-date records to demonstrate their compliance with KYC and AML regulations. Failing to keep adequate records can lead to legal and regulatory issues. Business owners must make sure they have an effective record-keeping system to ensure compliance. As you engage with your customers and clients in business, it is also crucial to conduct a risk assessment to identify high-risk customers and transactions. Poor risk assessment could lead to inadequate KYC and AML measures and leave businesses vulnerable to money laundering and terrorist financing. Therefore, business owners must ensure that they conduct a thorough risk assessment and implement appropriate measures to mitigate risks.
Can small businesses rely on third parties in their KYC and AML compliance measures?
Small businesses often rely on third-party vendors, suppliers, or partners to conduct KYC and AML measures. These third parties are also subject to the KYC and AML requirements that regulate their business, and failing to conduct due diligence on these third parties can lead to legal and regulatory issues and financial risks. To protect their business long-term, business owners must ensure that they perform adequate due diligence on any third parties they are working with.
Any consequence attached to inadequate report of suspicious activity?
With the rate of fraudsters lurking for prey, small businesses must report suspicious activity to relevant authorities promptly. Business owners that fail to report suspicions activity could have severe consequences. Therefore, business owners must ensure they have procedures for reporting suspicious activity and that their employees know about such activities, especially with keeping up with regulatory changes. KYC and AML regulations are continually evolving, that is the reason small businesses must keep up with these changes to ensure compliance. Failure to keep up with regulatory changes can lead to non-compliance and legal issues. Small business owners can stay current with regulatory changes and adjust compliance measures by subscribing to platforms and organisations that provide industry insights and information on compliance policies and changes. Therefore, small businesses must implement adequate KYC and AML compliance measures to prevent money laundering and terrorist financing. By avoiding these common mistakes and implementing best practices, businesses can develop effective KYC and AML programmes that protect themselves and their customers.
