Anti-money laundering (AML) and know-your-customer (KYC) regulations require financial institutions to carry out due diligence on their customers. Verifying the identity of these customers is a crucial step in this process and screening names against AML watchlists helps ensure that potential customers have not been associated with financial crimes.
Banks and other institutions don’t want to make the onboarding process too onerous, but relying on manual processes leaves them exposed to data entry errors. Client classification and appropriateness rules have also become more stringent – one of the most telling observations made when the FX derivatives mis-selling claims came to light was that brokers were often completely unaware of the distinction between retail and wholesale customers.
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Remonda Kirketerp-Moller, Muinmos |
Complex leveraged instruments such as forwards and options used for hedging have in the past been abused by sales teams chasing higher commission margins without necessarily putting the client first in terms of product suitability or risk appetite, notes Remonda Kirketerp-Moller, founder and CEO of Muinmos, which specializes in automated regulatory compliance.
“Corporate SME clients have been onboarded as professional when they should have been classified as retail, and therefore only appropriate for less-complex product solutions,” she explains.
