Experts say better understanding of regulatory environment vital for KYC compliance

Four fintech experts drawn from Nigeria and Ghana are unanimous that meeting know your customer (KYC) compliance exigencies requires a better understanding of the regulatory mechanism of the business space in which fintech startups function.

They say biometrics-based digital identity is also valuable in meeting KYC regulatory compliance goals.

In 2020, financial institutions incurred over $10 billion in fines worldwide over KYC regulatory non-compliance.

The experts were speaking recently during a webinar titled ‘Identity and KYC: How African fintechs can achieve regulatory compliance,’ organized by TechCabal Insights, an future-focused digital technology consultancy, in association with digital ID verification firm VerifyMe Nigeria.

Speaking during the virtual event, Ebi Wanapere, head of treasury and platform operations at investment firm Bamboo, said it is important for fintechs to meet KYC and other aspects of regulatory compliance. Therefore, the first thing to do is to research and have good knowledge of the regulation covering the environment in which the business is going to be operating.

He says it is also important for fintechs to properly design their businesses in a way that the regulators they’ll be reporting to are clearly known.

“It’s important to properly think about how you want to comply with the regulation from the point which you are building your business idea. If you are not careful, you will be reporting to many regulators,” says Wanapere.

He also recommends that sometimes engaging directly with regulators is important to let them know about the product and whether or not regulatory requirements exist for them.

Following up on this, another speaker, Daluchi Iweanya, head of compliance at crypto trading platform Quidax, spoke on what fintechs should bear in mind especially when expanding into other jurisdictions with different regulatory compliance realities.

To her, it is equally incumbent on such companies to find out what the regulatory requirements are where they want to expand to.

She insists on the need for proactive engagement with regulators, and the need to create a platform for collaboration with those who already have regulatory experience in the area such that the new firm is not going in totally blank about what may be expected of it.

Since technology is one of the things that drive fintechs, a fintech would not want to go to a place where there is no relevant technology to support its operations, says Daluchi, adding that this may lead to the company employing some manual processes which are time consuming and costly.

Challenges in meeting KYC compliance

Esigie Aguele, co-founder and CEO of VerifyMe Nigeria, shared his views on the challenges in the fintech industry with regard to identity verification.

He emphasized the importance of identity verification, saying compliance with regulations actually begins with digital identity checks at the time a customer is being onboarded.

Aguele said one of the biggest challenges startups face is lack of access to AML-compliant digital identities, which are important for the KYC process. He mentioned a low level of what he called ‘document maturation’ especially in Nigeria; that is, the number of people with a digital identity. He also talked of the difficulty in obtaining location information, partly as a result of a lack of policy standardizing location addressing in the country.

He also mentioned other challenges which include the cost of compliance for both organisations and customers as well as the absence of policy structures on how important data can be exchanged in a secure manner.

These challenges notwithstanding, Aguele says companies can surmount them especially with solutions such as those offered by his company VerifyMe Nigeria which helps organizations verify address locations for their customers.

“Digital identity is very important in the KYC process. KYC is most effective when it uses federated identity and no one company can do all of that alone. You need to know more about your customer at the point of onboarding. That’s why VerifyMe is there because we help link businesses to trusted identities, but also with the functional data linked to those trusted identities,” says Aguele.

Banks, fintechs and the culture of compliance

The other speaker of the webinar Michael Safo, a compliance and KYC expert from Ghana, said big traditional banks which may be getting into the fintech space will also need to learn the culture of compliance.

According to Safo, the line between regulatory compliance for banks and fintechs is gradually blurring out, but banks intending to offer fintech services must pay attention to the compliance details.

Banks need to know what regulations obtain in the fintech space and must try as much as possible to be compliant with them in other to avoid falling on the side of sanctions from regulators, says Safo, who also shared some of the best practices which fintechs can learn from traditional banks on regulatory compliance, and vice versa.

Strong KYC, key to dealing with fraud and AML risks by fintechs

Speaking on how fintechs can fortify their internal systems against fraud, money laundering and other forms of criminality linked to fintechs, Bamboo’s Wanapere said it all begins with a thorough KYC process.

“The first think to do is to take KYC seriously if you are really serious about fighting fraud, money laundering, and other crimes common with fintechs. You need to know your customer and this should go beyond just the ID verification that you do. You need to study the pattern of customer transactions on your platform, for you to act accordingly,” Wanapere advises.

Aside this, a fintech should be able to get AML check services in place, be able to identify the beneficiary of every transaction on its platform, and to ensure enhanced due diligence checks to keep tabs on suspicious customers.

While all of this is done, Wanapere calls on fintechs not to be afraid of losing customers as “one bad customer can cause you to lose your license or at worst even land you in jail.”

Article Topics

Africa  |  AML  |  biometrics  |  digital identity  |  fintech  |  fraud prevention  |  Ghana  |  identity verification  |  KYC  |  Nigeria  |  onboarding  |  VerifyMe Nigeria