Outsourcing for KYC, is it legal and what to look out for?

Every entrepreneur registered in Latvia who carries out economic activity or provides professional services regulated by the AML/CFT Law is already aware of a set of specific and mandatory actions that must be followed before providing a service or during a business relationship.

The scope of the service recipient or client study depends on a number of factors, such as the nationality of the client, the service applied for and the risks inherent to the client. The most common stumbling blocks for entrepreneurs-AML subjects in carrying out customer due diligence are:

• inaccurate definition of the risk assessment and the scope of the research (simplified or in-depth) to be applied to the client, including the adequacy of the information to be obtained for the research;
• resource constraints, including lack of staff capacity, limited access to commercial databases;
• Lack of skills and knowledge in engaging resources in the client research process;
• lack of skills and experience in assessing the information to be verified and identifying potential risks.

In order to be able to fully conduct business, an entrepreneur can outsource the customer due diligence, which is also not prohibited by the AML/CFT Law. However, before doing so, the entrepreneur should make sure that the outsourcing is carried out by qualified AML/CFT specialists competent in this field. In addition, consideration should be given to ensure that the outsourced research is in line with the company’s approved Internal control system (ICS) and that the client research steps do not contravene any internal regulations. This condition is particularly important as, according to data published by the SRS, the absence of a complete ICS or risk assessment procedures are the most frequent grounds for imposing fines on companies.

One such outsourced provider of client research is the Comply platform. It enables the full customer due diligence cycle, including automated screening of individuals against various databases (e.g. PEP, risk persons, sanctions lists) and automated risk leveling for the customer, all in one place. For more information on the benefits of the Compliant platform, please visit www.aml.plus.

As Steve Jobs once said, “The most precious resource we all have is time”. We learn to manage our time without being afraid to delegate work to others, thus focusing our free resources on achieving our business goal.

AML.Plus team