Scaling up is a natural part of any FinTech’s journey. This typically involves the exciting opportunity of offering your product or services in new jurisdictions overseas. However, this growth comes with significant regulatory and practical know your customer (‘KYC’) complexity that may expose you to regulatory risk.
Here are some factors to consider when adjusting your onboarding policies and procedures to support customers from new jurisdictions:
You may think setting up in a new country just means copying and pasting your current onboarding portal into another language. Unfortunately, it’s not that simple. Some countries may have different legal entity types or have entity types that do not translate directly. There are also different types of identification numbers in some countries that are given to sole traders and businesses, so make sure to request the correct number. Be careful to ensure your initial KYC questions are clear in all languages on your websites and apps to prevent customer confusion.
UK Joint Money Laundering Steering Group (‘JMLSG’) guidance recommends asking for an individual’s name, date of birth and address. But be aware, some countries require more information! In half of the countries we’ve looked at, national identification numbers, like social security numbers, were required. Place of birth and nationality were other common identification asks in other countries. This could require several operational changes, from rewriting some of your procedures, to redoing parts on your onboarding portal.
Verification of Companies
In the UK, many FinTechs will verify the identities of legal entities against Companies House. However, there is no registry for sole traders. In other countries, it is important to check if there is a register for sole traders that should be used for verifying identities as part of KYC, as around two-thirds of countries we’ve looked at had some searchable registry of sole traders. Furthermore, other countries’ corporate registries may not be as easy to navigate as Companies House--requiring you to purchase certain documents or existing as one of multiple company registries. Third party providers should be checked to ensure they are accessing data directly from your jurisdictions’ registries. Understanding verification options for companies and sole traders is important for simplifying your operations.
In the UK, a primary government-issued photo ID includes a passport, identity card, driving license, biometric residence permit or firearms license. However, in several countries, a drivers licence is not actually considered a primary form of photo ID for compliance purposes. For secondary documentation, while a document from a bank or utility provider may be acceptable in the UK, this is not always the case in other jurisdictions.
While the 4th MLD made it a requirement for countries to have a publicly-accessible beneficial ownership registry, this is still slowly being implemented in some countries. Of the EU/EEA countries we’ve checked, a UBO register was only available a little more than half of the time. Many countries outside of the EU have shown very little progress on the issue of a publicly-accessible registry of beneficial owners. Not being able to refer to a public registry of beneficial owners may add unforeseen operational costs and considerations that should be taken into account to ensure a smooth rollout.
JMLSG clearly outlines requirements for identifying a legal entity’s directors and senior management when commencing a business relationship. However, the vast majority of countries we’ve checked do not have explicit policies around the identification of directors. Some may include directors in their definition of beneficial owners, however. This ambiguity could lead you to having to rethink your AML/CTF standard operating procedure on who to identify.
When information is not easily available to verify through eKYC or checks against a registry, you may need to request certified documentation. Be sure to know the professional bodies of accountants and solicitors in each jurisdiction you operate in order to check the status of whomever has certified your customer’s documents. This will help you avoid any operational hiccups down the line.
Expanding your business into new countries or regions is really exciting, but is not a simple or risk-free process. The amount of nuance and complexity involved in each jurisdiction highlights the need for assessing the financial crime and compliance risks posed in each jurisdiction where you plan to operate. Not only is it important to check for regulatory differences that may create operational challenges in different countries, but also to check areas for higher corruption, identity fraud, money laundering and terrorist financing risks in order to determine whether you need to rethink any parts of your KYC policy.
If you ever have any questions on or need any assistance with managing the financial crime regulatory landscape of a new country or jurisdiction, don’t hesitate to get in touch for more information.